Lindsay unveils deal warchest, despite ag slowdown

Lindsay Corporation revealed an acquisition warchest even as it underlined concerns over a slowdown in the US agricultural machinery market, as lower crop prices depress farm incomes.

The maker of irrigation machinery and road barriers said that it was setting aside firepower of $100m-150m, including debt, to fund "synergistic" takeovers over the next three years.

"Our acquisition focus is directed on water-related acquisitions that enhance our competitive position and offer attractive returns to shareholders," Rick Parod, the Lindsay chief executive, told investors.

While declining to detail potential acquisition candidates, he said: "Right now our pipeline in terms of acquisition candidates are more active and more full than it's been for a while."

'More willing sellers'

Potential takeovers need not be directly in irrigators themselves, with the group highlighting its takeover last year of Claude Laval, a maker of filtration systems.

"We really do like the Claude Laval acquisition because it gives us the synergy in irrigation but yet provides us some exposure to some industrial markets," said Mark Roth, the Lindsay treasurer and vice president of corporate development.

Mr Parod said: "Our acquisition process in terms of identifying candidates around the water related core that we're talking about is better than it has been in the past in terms of identification… whether they're pump station type acquisitions or filtration.

"We've also seen in some cases more willing sellers than what we've seen in the past few years which does help the situation."

'Uncertain' outlook

The desire for deals came despite an acknowledgement of a slowdown in the group's core US irrigation market, where revenues tumbled 18% to $129.2m in the September-to-November quarter.

"US irrigation market sales declined as anticipated given the significant decline in agricultural commodity prices," Mr Parod said, adding that the trend had been particularly evident in the eastern Corn Belt "where we saw the increase" in business in 2012 as the US suffered its worst drought in a generation.

For the rest of the group financial year, to the end of August, "irrigation sales remain uncertain as the decline in grain prices is likely to continue to result in significantly lower US revenues," Mr Parod said.

 "However, we do not expect to have visibility into the selling season until mid-to-late in the second fiscal quarter."

'Very optimistic'

The decline in US sales contrasted with a 32% jump to $49.9m in foreign sales, "led by growth in South America and Australia".

"The increase in South America primarily reflects a continuation of the very strong market we experienced in Brazil throughout fiscal 2013, due to attractive interest rates, high commodity prices and state government support for irrigation," Mr Parod said.

"Regardless of where we are in the ag cycle we are very optimistic about the future of mechanised irrigation globally."

Share buybacks

Group earnings for the quarter fell 31% to $10.2m, equivalent to $0.79 a share, below Wall Street expectations for a $0.91-a-share result.

However, Lindsay shares rose 1.2% to $83.50 in afternoon deals in New York, with the group saying that it was also to raise dividends to shareholders, and "opportunistically" buy back $100m-150m of shares over the next two years.

The spending will be backed by a cut in the group's cash balance from $152m, as of the end of November, to a target of $60m-75m.

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