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Strong Demand to Aid Lindsay (LNN) Amid Supply-Chain Woes

Lindsay Corporation LNN is well-poised to gain from demand for its irrigation equipment supported by improving farm income in the United States as well as the need to replace an aging fleet. The performance of its Infrastructure segment will be supported by demand for the Road Zipper System. A strong balance sheet and focus on introducing technologically-advanced products will also aid growth.

Demand for Irrigation Equipment Remains Strong

The USDA (U.S. Department of Agriculture) projects net farm income at $136.9 billion for 2023. The projected figure is 15.9%, lower than the figure reported in 2022 mainly due to elevated production expenses and lower direct government payments. Despite this decline, net farm income in 2023 will be up 26.6% from the 20-year average (2002-2021) figure of $108.1 billion in inflation-adjusted dollars. Also, the need to replace aging equipment will sustain demand for the industry.

The farm size has been on the rise in the United States, which requires more laborers. However, due to escalating labor costs every year, farmers are resorting to replacing labor with farming equipment. Also shifting to mechanized irrigation delivers significant advantages to farmers through water and energy savings, improved yield, reduced labor and cost-effectiveness. Lindsay is thus well-poised for growth in the years to come.

In the company’s international markets, demand for its equipment has been high, supported by increased concerns around food security in the aftermath of the COVID pandemic. In the years to come, demand for agricultural equipment will be fueled by the increased global need for food.

Momentum in Road Zipper System to Aid Growth

Lindsay’s Infrastructure segment is benefiting from higher sales of road safety products and Road Zipper System project sales. The Road Zipper System is a highly differentiated product that delivers significant advantages by reducing congestion, lowering carbon emissions, improving commuter travel time and increasing driver safety.

The Road Zipper Systems is gaining global popularity given its faster implementation and lower cost compared to the construction of new lanes. Lindsay launched an advanced Road Zipper Barrier Transfer Machine in January 2023 that ensures improved safety and efficiency with a bold new design and two advanced operator cabins.

The U.S. Infrastructure Investment and Jobs Act earmarking $110 billion to build roads, bridges and transportation projects  will translate into higher revenues for the Infrastructure segment.

Strong Balance Sheet Supports Investment in Growth

Lindsay also has a strong balance sheet, which will help it navigate the current global economic uncertainty. As of Feb 23, 2023, the company had available liquidity of $156.4 million, with $106.4 million in cash, cash equivalents and marketable securities, and $50 million available under the revolving credit facility.

Lindsay’s capital allocation plan is to continue investing in organic growth and making synergistic acquisitions while enhancing returns to shareholders. Capital expenditure for fiscal 2023 is expected between $15 million and $20 million, including equipment replacement, productivity improvements and commercial growth investments.

Supply-Chain Constraints Persist

Lindsay had been witnessing supply-chain constraints, particularly in electronics. It has also been facing higher input costs.  Even though the company is expecting an easing of cost inflation soon, it remains to be seen whether it will materialize. The recent dip in corn and soybean prices, amid improving supply prospects is concerning. Low prices, along with high feed, fertilizer costs and interest rates might impact farmer’s spending on agricultural equipment.

Shares of the Zacks Rank #3 (Hold) company have lost 6.5% in the past year, compared with the industry’s 2.8% fall.

Zacks Investment Research
Zacks Investment Research

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Stocks To Consider

Some top-ranked stocks from the Industrial Products sector are Worthington Industries, Inc. WOR, The Manitowoc Company, Inc. MTW and Pentair plc PNR. WOR and MTW sport a Zacks Rank #1 (Strong Buy) at present, while PNR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Worthington Industries has an average trailing four-quarter earnings surprise of 27.5%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $4.93 per share, up 17.7% in the past 60 days. WOR has gained 23% in the past year.

Manitowoc has an average trailing four-quarter earnings surprise of 38.8%. The consensus estimate for MTW’s 2023 earnings is pegged at 85 cents per share, up 63.5% in the past 60 days. MTW’s shares have gained 15% in the past year.

The Zacks Consensus Estimate for Pentair’s 2023 earnings per share is pegged at $3.66, up 3% in the past 60 days. It has a trailing four-quarter average earnings surprise of 7.2%. PNR has gained 14% in the last year.


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