Lindsay Corp. (LNN), a supplier of irrigation and infrastructure equipment to farmers, is trading lower today after reporting a sizeable earnings miss for Q3 (May). Lindsay is known for being pretty volatile around earnings because the company does not provide specific revenue/EPS guidance, so analysts are a bit in the dark with their models.
For example, the company has now missed EPS and revenue consensus estimates for four quarters in a row, so you can see the impact of not providing guidance. In addition, the last two EPS misses have been quite large, which is a concern.
So, what happened? According to CEO Tim Hassinger, "Low commodity prices and uncertainty regarding the outcome of trade negotiations continued to weigh on farmer sentiment and demand for irrigation equipment.... Severe wet weather and widespread flooding in the U.S. have caused delayed corn plantings and curtailed planted acreage."
This commentary was pretty similar to what we heard yesterday from BASF AG (BASFY), which guided below expectations. BASF operates in a lot of markets, but one of the areas it singled out for clear weakness was the North American agricultural sector. LNN's earnings report seems to corroborate what BASF said yesterday.
Overall, it was a difficult earnings report. However, there were some glimmers of hope, with growth expected in Brazil and developing markets. On the infrastructure side, LNN received a large international order for its Road Zipper System (LNN's moveable barrier system). Sales for this product have been weak recently, so this was an incremental positive. In addition, LNN says it's having some early success in partnering with states on road construction projects.
Bottom line, we think this is going to be a difficult earnings season for ag/fertilizer stocks due to widespread flooding, delayed plantings, and the trade issues with China. This EPS miss was not entirely a surprise as these issues have been well known. However, the size of LNN's miss makes us more cautious than we had been as perhaps the full impact is not yet fully reflected in analyst models. Here are some agriculture stocks to watch:
- Farm equipment: DE, CNHI, AGCO, TITN, ARTW, LNN, TWI
- Fertilizer stocks: NTR, MOS, CF, IPI, UAN, TNH, BG
- Seed names: SYT, DD, DOW, BAYRY
- Livestock: SAFM, PPC, TSN, HRL
- Ag processors/agribusiness/other: ANDE, ADM, BG, AGRO, CRESY, FPI, LAND, AFCO, ALCO, FDP
- Crop protection: FMC, DWDP, MON, SYT
- Grain ETFs: CORN (corn ETF), WEAT (wheat), SOYB (soybeans)