My next version of Company Never Heard Of (CNHO) is a pretty girl named Lindsay (LNN). Lindsay Corp. is a niche player in irrigation systems in the United States. Its Zimmatic brand is a solid No. 2 player next to big brother Valley, which is part of Valmont Industries (VMI) and bigger than private player Reinke. Irrigation, both domestically and internationally, comprises about 80% of Lindsay's revenue.
Lindsay also provides road and safety infrastructure products, about 20% of revenue. The company manufactures innovative road barriers that can control traffic flow by reorganizing lanes during rush hours. They are called "road zippers." The company has also been building other road-related safety and markings products, taking market share from leader Trinity Industries' (TRN) Quixote subsidiary.
LNN reported third-fiscal-quarter results this morning. The company has endured what has been a two-year cyclical reversal in the core irrigation segment, driven by reductions in farmer capital spending and volatile crop prices. Usually, these cycles last about three years; we are two-thirds through the usual down cycle. Overall, there is a great core demand for irrigation systems and technology globally, as water resources, particularly in the Midwest, become increasingly scarce under the Ogallala Aquifer.
Lindsay is adept at stabilizing profit margins during these down periods -- a testament to terrific variable cost management and increasing manufacturing efficiencies.
So what now? We are through a lion's share of cyclical reductions in expectations. The company's road infrastructure products are ratably flourishing. The company's balance sheet is effectively neutral with over $90 million in cash and just over $100 million in debt. Stock buybacks have been appropriately opportunistic -- with about $50 million allocated year to date. The company also pays a small but growing dividend, and the stock is yielding 1.6%.
The stock is down more than 30% from cycle highs of $95 in fiscal 2013. Lindsay is a backdoor play for the agriculture bulls -- but also represents a hidden road-infrastructure play as well -- an area that the market very much appreciates at the moment.
We will watch Lindsay as she navigates through the latter portions of the currently difficult agriculture spending cycle. We are also going to see her use the strong balance sheet for accretive water- and road-related infrastructure acquisitions as expansion of the firm's product and technology portfolio is a long-term goal.
One more notable item: There's a Buffett on the board of directors. OK, so it is not Warren -- but we'll take his son Howard in this case -- as Lindsay is a nice $750 million small-cap manufacturing company hidden in Omaha, Neb.
Lindsay joins Nordson (NDSN) and Entegris (ENTG) in our CNHO series.
Note: This story has been updated to correct a previous version that referred to Howard Buffett as Warren Buffett's brother. Howard Buffett is his son.
