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Rocky Mountain Dealerships Inc. Reports Third Quarter 2019 Results

October 30, 2019

CALGARY, Alberta--(BUSINESS WIRE)--Oct 30, 2019--

Rocky Mountain Dealerships Inc. (TSX:RME, and hereinafter “RME”), Canada’s largest agriculture equipment dealer, today reported its financial results for the three months ended September 30, 2019. Unless otherwise stated, all amounts are expressed in thousands of Canadian dollars.

“RME demonstrated our resiliency during the third quarter of 2019 in response to unusual and in our view temporary market conditions affecting our industry and created by macroeconomic and geopolitical uncertainty. We reduced inventories by approximately $62 million from second quarter 2019 levels, the second largest inventory decrease in our history. Our focus was on reducing inventories and strengthening the balance sheet, which defensively positions RME against an uncertain macroeconomic outlook. We continued to make positive progress on the higher margin, product support side of the business, with an increase in revenues of $2.3 million (4.8%) year-over-year,” stated Garrett Ganden, President and Chief Executive Officer.

“Our team responded admirably in a highly competitive and uncertain industry environment by getting deals done, moving equipment and generating cash while also maintaining our position in the market.”

“There was little change in the political and macroeconomic uncertainty which has persisted throughout the year and continues to weigh on industry sales 1. Deliveries of new agriculture units in the Canadian marketplace continued to decline in the third quarter, which are now approaching levels not seen since 2004. Despite these challenging industry conditions, RME’s established network of professionals and dealerships stand ready to deliver superior customer service and quality products with a target to deliver long-term value for our shareholders.”

SUMMARY OF THE QUARTER ENDED SEPTEMBER 30, 2019

SELECTED FINANCIAL INFORMATION

 

Three Months Ended September 30,

$ thousands

2019

2018

Change

%

Sales

184,067

233,374

(49,307)

(21.1)

Cost of sales

156,420

197,139

(40,719)

(20.7)

Gross profit

27,647

36,235

(8,588)

(23.7)

Gross profit as a % of sales

15.0

15.5

(0.5)

 

 

 

 

 

 

Selling, general and administrative

22,365

24,255

(1,890)

(7.8)

Loss on derivative financial instruments

426

511

(85)

(16.6)

Earnings before finance costs and income taxes

4,856

11,469

(6,613)

(57.7)

Finance costs

4,953

3,885

1,068

27.5

(Loss) earnings before income taxes

(97)

7,584

(7,681)

(101.3)

Income taxes

19

2,070

(2,051)

(99.1)

Net (loss) earnings

(116)

5,514

(5,630)

(102.1)

Net (loss) earnings as a % of sales

(0.1)

2.4

(2.5)

 

 

 

 

 

 

(Loss) earnings per share

 

 

 

 

Basic

(0.01)

0.28

(0.29)

(103.6)

Diluted

(0.01)

0.28

(0.29)

(103.6)

Dividends per share

0.1225

0.1225

Book value / share – September 30

9.80

10.24

(0.44)

(4.3)

 

 

 

 

 

Non-IFRS Measures (1)

 

 

 

 

Adjusted Diluted Earnings per Share

0.00

0.29

(0.29)

(100.0)

Adjusted EBITDA

4,475

12,211

(7,736)

(63.4)

Operating SG&A

18,860

20,757

(1,897)

(9.1)

Operating SG&A as a % of sales

10.2

8.9

1.3

 

Operating Cash Flow before Changes in Floor Plan

68,341

48,376

19,965

41.3

(1) See further discussion in “Non-IFRS Measures” and “Reconciliation of Non-IFRS Measures to IFRS” sections below.

SUMMARY OF RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2019

Unresolved trade disputes surrounding Canadian agriculture commodities continued to weigh on crop prices and farmer sentiment during the third quarter of 2019. Meanwhile, snowfall in several regions and heavy rain in others stalled 2019 harvest activity, with all three Canadian Prairie Provinces reporting significant delays in harvest progress as of the end of the third quarter of 2019. These conditions continue to temper customer demand for equipment. Nonetheless, RME achieved an encouraging 10.1% or $61,654 reduction in overall inventory levels during the third quarter of 2019, while growing both parts and service revenues.

SALES AND MARGINS

COST STRUCTURE

EARNINGS

BALANCE SHEET AND INVENTORY

MARKET FUNDAMENTALS AND OUTLOOK

RME is primarily engaged in the business of selling agriculture equipment to grain, oilseed and pulse crop farmers in Alberta, Saskatchewan and Manitoba.

In addition to equipment price, demand for agriculture equipment is supported by farming incomes which, in turn, are a function of commodity prices, quantity and quality of the crop, as well as input costs. Many of these factors are influenced by weather conditions on both a local and, to an extent, global basis. Changes in these demand drivers can cause our customers’ buying patterns to shift. The agriculture sector exhibits cyclical surges in demand and profitability driven by these macroeconomic factors, as well as other factors that can impact our industry.

Equipment utilization rates, by contrast, are less volatile as agricultural equipment tends to incur hours in the field regardless of weather or economic conditions. The business of farming requires producers to work their fields each year. Circumstances may exist, however, that cause farmers to opt for used equipment in lieu of new equipment, or they may elect to maintain rather than replace their fleets. Our broad range of product and service offerings enables us to respond to these shifts in buying patterns and provides a measure of stability within our financial results.

TRADE DISPUTES

Trade barriers between Canada and several of its agriculture commodity trading partners continue to impede farmers’ ability to deliver their crops to key end markets. China, with its ban on Canadian canola, joins India, Saudi Arabia and others in implementing trade barriers affecting Canadian agriculture products including canola, wheat and lentils. The severity of these disputes continues to weigh on agriculture commodity prices and overall farmer sentiment which, in turn, tempers demand for RME’s product and service offerings. In its September 2019 Ag Tractor and Combine Report for Canada, the Association of Equipment Manufacturers reported year-to-date sales declines in major product categories including 4WD tractors (down 33%) and self-propelled combines (down 28%), a manifestation of this downturn in sentiment.

CROP OUTLOOK

Late-September brought snowfall in several regions and heavy rain in others, stalling the 2019 harvest. All three Canadian Prairie Provinces reported significant delays in harvest completion with Alberta 34% complete (5-year average of 54%) 2, Saskatchewan 47% complete (5-year average of 75%) 3 and Manitoba 67% complete (3-year average of 76%) 4.

While these weather conditions are expected to negatively impact both grade and yield, the precipitation has helped replenish topsoil moisture levels.

In its Outlook for Principal Field Crops dated October 18, 2019, Agriculture and Agri-Foods Canada estimates seeded area to be relatively comparable to last year with higher yields boosting overall production of principal field crops in 2019 over 2018 levels. However, with a considerable amount of the crop still in the fields, the impact of recent weather conditions on area harvested and grade is uncertain.

FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

The MD&A as well as the unaudited financial statements and notes to the financial statements for the quarters ended September 30, 2019 and 2018, are available online at www.rockymtn.com and www.sedar.com.

NON-IFRS MEASURES

We use terms which do not have standardized meanings under IFRS. As these non-IFRS financial measures do not have standardized meanings prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers. Our definition for each term is as follows:

RECONCILIATION OF NON-IFRS MEASURES TO IFRS

ADJUSTED DILUTED EARNINGS PER SHARE

 

Three Months Ended September 30,

$ thousands

2019

2018

 

 

 

(Loss) earnings used in the calculation of diluted (loss)
earnings per share

(116)

5,514

Loss on derivative financial instruments

426

511

Gain on DSUs

(139)

(63)

SAR recovery

(343)

Acquisition and integration costs

236

Tax effect of adjustments 26.5% (2018 - 27%)

(76)

(92)

Earnings used in the calculation of Adjusted
Diluted Earnings per Share

95

5,763

Weighted average diluted shares used in the
calculation of diluted (loss) earnings per share (in thousands)

19,257

19,888

Adjusted Diluted Earnings per Share

0.00

0.29

ADJUSTED EBITDA

 

Three Months Ended September 30,

$ thousands

2019

2018

 

 

 

Net (loss) earnings

(116)

5,514

Finance costs associated with long-term debt

641

618

Depreciation and amortization expense

3,644

3,668

Income taxes

19

2,070

EBITDA

4,188

11,870

Loss on derivative financial instruments

426

511

Gain on DSUs

(139)

(63)

SAR recovery

(343)

Acquisition and integration costs

236

Adjusted EBITDA

4,475

12,211

OPERATING SG&A

 

Three Months Ended September 30,

$ thousands

2019

2018

 

 

 

SG&A

22,365

24,255

Depreciation and amortization expense

(3,644)

(3,668)

Gain on DSUs

139

63

SAR recovery

343

Acquisition and integration costs

(236)

Operating SG&A

18,860

20,757

Operating SG&A as a % of sales

10.2

8.9

OPERATING CASH FLOW BEFORE CHANGES IN FLOOR PLAN

 

Three Months Ended September 30,

$ thousands

2019

2018

 

 

 

Cash flow from operating activities

10,387

16,903

Net increase in floor plan payable

57,816

9,706

Change in floor plan arising from changes in foreign exchange rates

138

Floor plan assumed pursuant to business combinations

21,767

Operating Cash Flow before Changes in Floor Plan

68,341

48,376

CONFERENCE CALL

RME will host a conference call and webcast to discuss the quarter at 9:00 a.m. MT (11:00 a.m. ET) today. Please note that the format of the webcast incorporates a visual presentation for investors and analysts. To listen to the live webcast and watch the presentation please use the following link:

https://event.webcasts.com/starthere.jsp?ei=1264445&tp_key=0029483e23

Within 24 hours of the event, the webcast will be available for replay at the link above until February 27, 2020.

Those interested in participating in the conference call may do so by calling 1-866-521-4909 (toll free) or (647) 427-2311.

An archived recording of the conference call will be available until November 18, 2019 by dialing:

This archived recording will also be available on the RME investor website at https://investors.rockymtn.com.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this news release, including, without limitation, statements that imply any future earnings, profitability, economic benefit or other financial results; statements discussing or implying any economic or financial results for 2019; statements contained under the heading “Market Fundamentals and Outlook”; statements concerning customer demand for equipment and statements regarding our scheduled quarterly conference call, are forward-looking information within the meaning of applicable Canadian securities laws. By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond RME’s control. While this forward-looking information is based on information and assumptions that RME’s management believes to be reasonable, there is significant risk that the forward-looking statements will prove not to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by risks and other factors discussed by RME in its MD&A for the quarter ended September 30, 2019, and as discussed in RME’s Annual Information Form dated March 13, 2019 under the heading “Risk Factors.” Except as required by law, RME disclaims any intention or obligation to update or revise forward-looking statements, and further reserves the right to change, at any time, at its sole discretion, its current practice of updating its guidance and outlooks.

ABOUT ROCKY MOUNTAIN DEALERSHIPS INC. (TSX:RME)

RME is Canada’s largest agriculture equipment dealer with branches located throughout Alberta, Saskatchewan, and Manitoba. Through its dealer network, RME sells, rents, and leases new and used agriculture equipment and offers product support and financing to its customers.

Additional information on RME is available at www.rockymtn.com and on SEDAR at www.sedar.com.

________________________________
1 Association of Equipment Manufacturers, September 2019 Ag Tractor and Combine Report for Canada
2 AFSC & Alberta Agriculture and Forestry - Alberta Crop Report - October 1, 2019
3 Saskatchewan Minister of Agriculture - Crop Report #23 - October 3, 2019
4 Manitoba Agriculture - Crop Report #23 - October 1, 2019

View source version on businesswire.com:https://www.businesswire.com/news/home/20191030005330/en/

CONTACT: FOR INVESTOR AND MEDIA INQUIRIES:

Rocky Mountain Dealerships Inc.

Clayton Paradis, 403-999-7658

cparadis@rockymtn.com

KEYWORD: NORTH AMERICA CANADA

INDUSTRY KEYWORD: ENGINEERING AUTOMOTIVE MANUFACTURING MANUFACTURING AGRICULTURE NATURAL RESOURCES OTHER MANUFACTURING

SOURCE: Rocky Mountain Dealerships Inc.

Copyright Business Wire 2019.

PUB: 10/30/2019 06:00 AM/DISC: 10/30/2019 06:01 AM

http://www.businesswire.com/news/home/20191030005330/en