Valmont Industries, Inc. (VMI), Lindsay Corporation (LNN): Irrigation Stocks — A Pre-Planting Season Check-up

During the midst of the US heat wave and widespread drought last July, I wrote, “Are Irrigation Stocks Raining Profits?” That article covered the two publicly-traded agricultural irrigation stocks: Valmont Industries, Inc. (NYSE:VMI) and Lindsay Corporation (NYSE:LNN).

Last year’s record warm temperatures and drought conditions combined with favorable agricultural economics (record or near-record plantings and commodity prices) increased demand for irrigation systems, as well as fertilizers and water. Thus, the stocks of many companies involved in those industries performed well in 2012.

Spring is just around the corner – and so is planting season for corn and other crops. (Prime corn planting season in the Midwest typically begins about April 15, with early planting beginning April 1.)

So, it’s a good time to check how the irrigation stocks have performed since my July piece, and the lay of the land (pun intended) as we head into the 2013 agricultural season. But first, a snapshot of the industry and each company:

Center Pivots: Pivotal to Global Agricultural Irrigation

Center pivot systems are the gold standard in agricultural irrigation. They are highly engineered, and can be quite high-tech. Some are equipped with GPS capabilities, for instance.

They provide considerable advantages over older methods as they conserve water, energy, and labor while increasing or stabilizing crop production.

There are only five companies manufacturing center pivots, and the four largest — Valmont, Lindsay, T-L Irrigation, and Reinke — are all based in Nebraska.

Valmont Industries, Inc. (NYSE:VMI) owned the original center pivot patent, though naturally competitors flooded in when it expired. Most competitors quickly dropped out — a good sign for potential investors, as it indicates a decent moat.

Valmont Industries — The World Leader

Valmont Industries, Inc. (NYSE:VMI) is the world leader in mechanized irrigation equipment for agriculture.

It’s quite diversified, as the chart shows. The Utility segment’s concrete and fabricated metal products are heavily used in electrical transmission applications. Infrastructure’s products are used in lighting, highway safety, wireless, and other applications. Coatings provides hot-dip galvanizing and other coatings services.

Its cash cows are Utility Support and Irrigation. Valmont’s overall operating margin for F/C Q4 2012 was 13.7%. Utility Support’s and Irrigation’s margins were 18.7% and 19.9%, respectively.

Data obtained from Q4/Year 2012 earnings release. Fiscal yr ends Dec.

Lindsay Corp. — The (Close to) Pure Play

Lindsay Corporation (NYSE:LNN) also sells its irrigation systems internationally. The Infrastructure segment sells products to public transportation entities, road contractors, etc.

Data obtained from Q4/Year 2012 earnings release. Fiscal yr ends Aug.

Valmont & Lindsay: Raining Profits

Since Summer Drought: Left Ag Industry & Market High & Dry

The chart shows how the irrigation stocks performed in the nearly eight months since my July 20 article. For context, also included are powerhouse agricultural equipment maker, John Deere & Co.; PowerShares Global Agriculture Portfolio, an ETF based on the NASDAQ OMX Global Agriculture Index; and the market in general.

VMI data by YCharts

Lindsay Corporation (NYSE:LNN) and Valmont Industries, Inc. (NYSE:VMI) trounced the market by 96% and 49%, respectively. Deere matched Valmont’s performance.

What rained on the Ag ETF’s stock parade?