Rocky Mountain Dealerships Inc. today reported its financial results for the three months ended March 31, 2014.
Summary of Financial Results for The Quarter Ended March 31, 2014
- Inventory decreased over March 31, 2013 by $46.9 million to $516.4 million.
- Total revenues declined by 4% to $198.2 million.
- Product support revenues increased by 15.3% to $22.5 million.
- Gross profit declined by 10% to $29.2 million (14.8% of sales).
- Diluted earnings per share of $0.03
- EBITDA(1) of $3.2 million.
- Successfully executed on previously announced strategy to dispose of rock trucks.
The first quarter of 2014 saw a number of successes as well as some continued challenges. “Product support sales showed encouraging growth during the first quarter realizing a 15.3% increase over 2013. Our construction segment has realized a net income improvement of $0.9 million over the prior year as a result of market penetration and operational efficiencies,” Matt Campbell, CEO of Rocky noted. He further added, “Agriculture equipment revenues were down as demand was affected by a backlog in grain haulage by rail affecting customer cash flow and record low temperatures affecting foot traffic in our dealership yards.
Further commenting on the quarter, Mr. Campbell stated, “In December of 2013, Rocky took an impairment charge against our articulated and rigid rock truck inventory in response to an OEM’s announcement of its pending exit from that line of business. During the first quarter of 2014, we were successful in our plan to divest ourselves of substantially all of these vehicles for proceeds, which approximated our assessed valuation.
“The 2014 thaw is behind 2013 in many areas. A shortage of rail cars to haul grain combined with 2013’s bumper crop and softening in commodity prices resulted in an elevated retention of crop inventory as we entered 2014. The impact of this has been felt within the agriculture segment, particularly with respect to used equipment sales, which were down $20.1 million over the first quarter of last year.
“In the quarter, our winter service programs experienced solid uptake as more of our customers were approached with, and accepted, a preventative maintenance service offering. As we spread our customers’ service requirements more evenly throughout the year, we enable our service departments to be more flexible during peak times of the seasons. Parts sales were further bolstered by improved penetration of certain product lines. Overall, product support sales for the quarter grew by 15%.
“Through a combination of rationalizing new equipment purchases and sales initiatives aimed at moving equipment, we have reduced our overall inventory level by $46.9 million since this time last year.
“Despite the softness experienced in used agriculture equipment sales this past quarter, Canadian farmers continue to enjoy exceptionally strong balance sheets and early forecasts for the 2014 growing season are optimistic.
“As part of our prudent, conservative approach to running our business, we successfully executed our de-risking strategy within the construction segment related to the divestiture of the rock trucks. Excluding the revenue associated with the rock truck sale, our construction segment grew its equipment revenues by 25%. We are cautiously optimistic about the direction of this business segment under its new leadership.
Mr. Campbell concluded his remarks by stating, “Historically, the first quarter of the year has been our weakest. Notwithstanding our reported resulted for the quarter, we remain well positioned to deliver improved earnings over last year on an annual basis.”
Quarterly Cash Dividend
On May 6, 2014, the Board of Directors (the “Board”) of Rocky approved an increase in Rocky’s annual dividend to $0.46 per common share. In conjunction with that increase, Rocky’s Board also declared a dividend today of $0.115 per common share on its outstanding common shares. The common share dividend is payable on June 30, 2014, to shareholders of record at the close of business on May 30, 2014. Commenting on the dividend increase, Mr. Campbell noted, “Since going public in 2007, Rocky has paid a quarterly dividend without interruption. We continue on our stated path of driving excellence in operations and delivering value to our shareholders. The current dividend reflects a yield of 4.1% at today’s closing market price.”
The dividend is designated by Rocky to be an “eligible dividend” for the purposes of the Income Tax Act (Canada) and any similar provincial or territorial legislation. An enhanced dividend tax credit applies to “eligible dividends” paid to Canadian residents. Please consult with your own tax advisor for advice with respect to the income tax consequences to you from Rocky designating its dividends as “eligible dividends.”