June 18, 2008 / 1:38 PM / 11 years ago

UPDATE 2-Lindsay Q3 profit trails Wall Street, shares slide

(Adds details, background, analyst’s comments, updates share price)

By Bhaswati Mukhopadhyay

BANGALORE, June 18 (Reuters) - Lindsay Corp (LNN.N), a maker of irrigation equipment, infrastructure and road safety products, posted a lower-than-expected third-quarter profit as infrastructure and irrigation product margins were crippled by higher costs, sending shares down 27 percent.

Third-quarter gross margin at the company, which is grappling with record high steel prices, was 25.8 percent compared with 26.2 percent a year earlier.

“It is a high multiple stock where expectations for margin expansion in earnings are obviously set very high and the company did not deliver on those expectations,” said Joe Giamichael of Rodman & Renshaw Inc.

Shares of Lindsay, which makes irrigation systems, corrosion resistant pipelines, chemical injectors and soil moisture sensors, trade at more than 31 times forward earnings.

Stocks of rivals such as Astec Industries Inc (ASTE.O), Cascade Corp (CAE.N) and Toro Co (TTC.N) are far behind at a multiple of about 12.

Lindsay’s shares have has almost quadrupled in value over the past year as the company has posted robust results, helped mainly by sales in irrigation equipment. The S&P Smallcap Construction & Farm Machinery Sub Industries Index .6GSPMCHD has fallen about 3 percent in the same period.

But during the latest third quarter, sluggish earnings on the infrastructure side and lower incremental margins on the irrigation side hurt Lindsay, Rodman & Renshaw’s Giamichael, who has a “market perform” rating on the stock, said.

Lindsay, which makes infrastructure products like movable barriers for lane management to reduce traffic congestion and improve safety, said the single biggest issue with the infrastructure margins in the quarter was significantly less quick-move barrier sales than in the prior quarters.

Shares of the Omaha, Nebraska-based company fell to a low of $90.74, before paring some losses to trade down $18.28 at $106.15 Wednesday afternoon on the New York Stock Exchange.

For the third quarter, the company’s net income rose to $14.1 million, or $1.15 a share, from $7.5 million, or 62 cents a share, in the year-ago period.

Two analysts on average expected earnings of $1.22 a share, before special items, according to Reuters Estimates.

A third-quarter correction of previously recognized tax expense resulted in a reduction in income tax expense of about $1.1 million and an increase in earnings of 9 cents a share.

Revenue rose 54 percent to $143.6 million, while analysts on average expected $137.3 million. (Editing by Pratish Narayanan)

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