OCTOBER, 30, 2020
CALGARY, Alberta–(BUSINESS WIRE)– 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, 2020. Unless otherwise stated, all amounts are expressed in Canadian dollars.
“The agriculture industry is an annual cycle of plant, grow and harvest. We now have that full cycle under our belt since we implemented aggressive cost and inventory reduction initiatives in the last half of 2019,” stated Mr. Garrett Ganden, President and Chief Executive Officer. “RME’s solid third quarter performance is the result of the consistent execution of our strategy to reduce equipment inventory and realign our cost structure through a period of unprecedented and challenging industry conditions. Third quarter Adjusted Diluted Earnings per Share of $0.25 are up relative to $0.00 in Q3 2019, and quarterly Adjusted EBITDA, at $10.5 million, is up almost $6.0 million from the Q3 number last year. Our equipment inventory is down $154.5 million from year-end 2019 and Operating SG&A has decreased $1.5 million for the quarter and $7.7 million for the nine-months. While demand has not rebounded from 2019 levels the way we originally anticipated, we believe that the RME’s cost structure and inventory levels are more appropriate for the current market.”
Mr. Ganden added, “Due to the ongoing economic uncertainty caused by the COVID-19 pandemic and unresolved international trade relations, we believe it gives RME a strategic advantage to continue to focus on and fortify our balance sheet position. Canadian industry data indicates the delivery of new units of large horsepower equipment and self-propelled combines remain at historic lows. However, crop reports are encouraging, showing the harvest is essentially complete and ahead of historical averages across our territory while crop prices are now 5%-19% higher than in January 2019.”
SUMMARY OF THE QUARTER ENDED SEPTEMBER 30, 2020
- $134.8 million decrease in equipment inventory year-over-year as a result of continued focus in this area. In 2020 year-to-date, equipment inventory has been reduced by $154.5 million.
- $16.9 million (9.2%) increase in sales in the quarter to $201.0 million compared with the third quarter of 2019, due to higher sales in all categories.
- Gross profit as a percent of sales increased to 15.3% from 14.8% in the same period in 2019 due primarily to stronger used equipment and parts and service margins.
- $1.5 million (7.4%) decrease in Operating SG&A in the quarter to $18.1 million compared with the third quarter of 2019, reflecting the benefit of cost reduction efforts implemented during the second half of 2019 and continued diligence throughout 2020.
- $1.0 million (25.2%) decrease in borrowing costs for the quarter compared with the third quarter of 2019, due to lower average levels of interest-bearing floor plan payable.
RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2020
Over the past five quarters, RME has focused its efforts on a methodical and orderly reduction of equipment inventory. This is highlighted in the year-over-year equipment inventory reduction of $134,827 and a decrease in short-term borrowing costs of $957.
- On a year-over-year basis, our equipment inventory reduction efforts have resulted in a $134,827 decline in total equipment inventories, with new and used equipment inventories decreasing by $78,667 and $56,160, respectively.
- From December 31, 2019 to September 30, 2020, equipment inventory levels declined by $154,478.
TRADE DISPUTES, COVID-19 AND CONTINUED MARKET UNCERTAINTY
Unresolved trade disputes between Canada and several of its agriculture commodity trading partners continue to add uncertainty to farmer sentiment and consequently, demand for agriculture equipment. As a result, while Q3 2020 equipment sales have increased year-over-year, they remain depressed relative to historical norms.
The COVID-19 pandemic has been pervasive in its effect on global markets. While our business is not immune to the impacts of this pandemic, agriculture equipment distribution remains an essential service where we operate. As a result, all of our branches have remained open for business throughout the pandemic. RME continues to implement recommended safety precautions to support and protect our customers, stakeholders and communities. The volatility and unknown duration of this pandemic has created a great deal of uncertainty and the future is very difficult to predict but RME will continue to work safely and diligently to be the dependable partner our customers and shareholders deserve.
The cumulative impact of these headwinds is reflected in the September 2020 Ag Tractor and Combine Report for Canada, from the Association of Equipment Manufacturers, which reported year-to-date sales declines in major product categories including 4WD tractors (down 11%) and self-propelled combines (down 9%). While the third quarter did see improvements in these equipment sales categories, the future remains uncertain.
Favorable September weather across the Prairie Provinces enabled an early harvest leading to improved crop yields. In its Outlook for Principal Field Crops dated October 22, 2020, Agriculture and Agri-Foods Canada is forecasting a 3% increase in overall production in 2020 relative to 2019 with yield improving 3%.
Provinces reported significant harvest completion in late October, well past recent averages with Alberta 99% complete (5-year average of 77%)2 ,Saskatchewan 100% complete (5-year average of 88%)3 and Manitoba 98% complete (4-year average of 90%)4.
FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)
The MD&A as well as the unaudited condensed consolidated interim financial statements and notes thereto for the quarter ended September 30, 2020 and 2019, are available online at www.rockymtn.com and www.sedar.com.