CALGARY — Rocky Mountain Dealerships Inc. has reported its financial results for the quarter and year ended Dec. 31, 2016.
Summary of the Year Ended Dec. 31, 2016
- Adjusted Diluted Earnings per Share increased by $0.12 or 16.9% to $0.83.
- Adjusted EBITDA increased by $3 million or 10.5% to $31.6 million.
- Operating SG&A declined by $11.4 million to $89.2 million (9.6% of sales, down from 10.3% in 2015)
- Equipment inventory declined by $57.1 million to $403.0 million, surpassing the targeted reduction for the year.
- Sales declined by 4.6% to $930.4 million.
- Gross profit declined by 6% to $133.4 million (14.3% of sales, down from 14.6% in 2015).
- Generated Operating Cash Flow before Changes in Floor Plan of $87.6 million, down from $92.2 million in 2015.
- Amalgamated industrial distribution facilities in Calgary and Red Deer, Alta., into existing agriculture facilities, incurring one-time charges of $3.6 million.
- Completed the construction of our new, $10.3 million state-of-the-art facility in Yorkton, Sask.
Summary of the Quarter Ended Dec. 31, 2016
- Adjusted Diluted Earnings per Share declined by $0.02 or 8.0% to $0.23.
- Adjusted EBITDA declined by $0.8 million or 8.8% to $8.2 million.
- Operating SG&A declined by $2.2 million to $23.0 million (8.1% of sales, down from 8.8% in 2015)
- Inventory declined by $2.9 million to $442.7 million.
- Generated Operating Cash Flow before Changes in Floor Plan of $14.5 million, up from $6.8 million in 2015.
- Sales of $285.7 million were in line with the fourth quarter of 2015.
- Gross profit declined by 9.1% to $34.1 million (11.9% of sales, down from 13.1% in 2015).
Sales efforts throughout 2016 included targeting used equipment inventory as well as reducing new equipment procured for, and sold out of stock. These efforts contributed positively to Rocky’s used equipment sales during 2016, neutralizing the impact of reduced overall market demand. The successful execution of these strategies allowed Rocky to surpass its reduction target, drawing equipment inventory down by $57.1 million or 12.4% during 2016. While Rocky’s focus on reducing used inventory impacted margins during the year, unlocking this capital and cleaning up inventory positions the dealership well for the future.The consolidation of the industrial distribution network and realignment of the cost structure to current market demand allowed Rocky to reduce Operating SG&A by 11.3% in 2016. This ongoing effort helped lead to improved net earnings for the year.
Rocky also continued to delever its balance sheet throughout the year through positive operational cashflow. In addition to consolidating its Calgary and Red Deer industrial stores into existing agriculture facilities, Rocky also completed the construction of a new facility in Yorkton, Sask., to meet the future needs of that active and important agriculture market.
“We have achieved our 2016 objective of rebalancing our business to align it with prevailing market conditions,” said Garrett Ganden, president and chief executive officer. “We have successfully reduced our overall inventory levels, associated debt and enhanced the efficiency of our operating cost structure through a combination of facility consolidation and other cost containment measures.
“Our team delivered a second consecutive year of inventory reduction in excess of $50 million, all while reducing our Operating SG&A by 11.3% without affecting branch-level customer support, and also delivering strong cash generation and improved net profitability. While we continue to work through the low end of the equipment demand cycle, we are beginning to see some positive signs that market demand may have stabilized. Having accomplished these objectives in 2016, our business is well-positioned to compete in the current economic environment and prepared to leverage our improved cost efficiencies when the market turns.
“Farmers generally enjoyed excellent growing conditions in 2016, resulting in the Canadian Prairies being seeded corner-to-corner. Production of principal field crops remain high, despite some harvesting difficulties created by rain and early snowfall in certain regions. These harvest challenges created some downward pressure on demand for our products and services during the fourth quarter. Our results for the fourth quarter were also impacted by longer-than-expected lead times for pre-sold equipment units, resulting in some customer units not being delivered until 2017.
“The consolidation of our industrial stores into existing agriculture stores was also a major undertaking that we believe will benefit Rocky in the long-term. We continue to experience demand for our suite of first-class industrial equipment products, but we need to ensure that our cost structure is in line with that demand. Not only do we believe we have achieved that with the consolidation undertaken this year, but we also believe we will be able to reach out to new potential customers by selling this equipment through our agriculture distribution channels.
“We are also cognizant of the need to invest in facilities going forward, and did just that with the opening of our new, state-of-the art store in Yorkton, Sask., during 2016. We view Yorkton as a major agriculture hub, and see this new facility as meeting not only current customer needs but the needs of our growing installed base in the region for many years to come.
“At its core, Rocky is a sales and marketing organization. Despite changes to our business structure to respond to demand, this fact has remained first and foremost in our decisions. We operate in an excellent industry with very strong underlying fundamentals, as evidenced by the strong balance sheets enjoyed by Canadian farmers. It is, therefore, incumbent upon us at Rocky to ensure that we continue to provide the compelling value proposition to our customers, to create and maintain the annuity of business that is paramount to this industry.”
Annual Meeting of Shareholders
Rocky also announced today that its Annual General Meeting of Shareholders (AGM) will take place at 11:00 a.m. on Tuesday, May 9, 2017, in the showroom of Rocky Mountain Equipment, 260180 Writing Creek Crescent, Rocky View County, Alberta. Materials related to the upcoming AGM will be sent in mid-April 2017 to shareholders of record at the close of business on April 4, 2017.
Quarterly Cash Dividend
On Jan. 25, 2017, Rocky’s Board of Directors approved a quarterly dividend of $0.115 per common share on Rocky’s outstanding common shares. The common share dividend is payable on March 31, 2017 to shareholders of record at the close of business on Feb. 28, 2017.
This 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.”