CALGARY, Alberta — Rocky Mountain Dealerships Inc. (RCKXF) (TSX:RME, and hereinafter "RME"), Canada's largest agriculture equipment dealer, today reported its financial results for the quarter ended March 31, 2018. All financial figures are expressed in Canadian dollars.
“Record first quarter new equipment sales reflect not only strong pre-sale efforts by our team through 2017, but also the health of our market,” said Garrett Ganden, president & chief executive officer. “While our margins and used equipment inventory were negatively impacted by the harsh winter, which set new records for length and severity on the Canadian prairies, this is not indicative of the health of our market. Indications through April and early May are that the trend of strengthening demand has resumed. Given what we are seeing in the market, we think we are on our way to another strong year as the annual agriculture cycle plays out.”
SUMMARY OF THE QUARTER ENDED MARCH 31, 2018
Sales & Margins
- Total sales increased 4.6% or $9.7 million to $219.7 million compared with $209.9 million for the same period in 2017 due to a $26.4 million increase in new equipment sales year-over-year. This was achieved through strong presale efforts and a healthy market. The increase in new equipment sales was offset by decreases in used equipment, parts and service revenues due to the extremely late spring season. Used equipment, parts and service sales activity are driven by in-season demand which can be heavily influenced by weather.
- Gross profit increased by 0.7% or $0.2 million to $27.0 million compared with $26.8 million for the same period in 2017. This was predicated on year-over-year increases in sales and incentives from our original equipment manufacturers. These increases were partially offset by a shift in sales mix away from higher margin parts and service categories as a result of decreased in-season demand as well as weaker average margins on used equipment. In the weeks leading up to seeding and harvest activity, our general practice has been to liquidate aged, seasonal-use equipment, ensuring that we do not have to carry such units on our books for another calendar year. Given the comparatively later start to spring, these units were disproportionately represented in our Q1 2018 used sales profile relative to the same period last year, diluting average used equipment margins as a consequence.
Cost Structure & Earnings
As a percentage of sales, Operating SG&A for the first quarter of 2018 was similar to last year, increasing by 0.2% to 10.2% compared with 10.0% for the same period in 2017. Operating SG&A as a percentage of sales is seasonally higher in the first quarter.
Finance costs for the quarter ended March 31, 2018 decreased 8.3% or $0.2 million to $2.7 million compared with the same period in 2017, due to a reduction in the average level of interest-bearing debt. Of the $53.3 million increase in floor plan payable since Q4 2017, $42.9 million of this increase is non-interest-bearing.
Despite lower finance costs and relatively stable Operating SG&A as a percentage of sales, the prolonged winter conditions reduced sales in higher margin categories which meant:
- Adjusted EBITDA decreased by 30.4% or $1.0 million to $2.3 million for the first quarter of 2018 compared with $3.3 million for the same period in 2017; and,
- Adjusted Diluted Earnings per Share decreased by 75% or $0.03 to $0.01 for the first quarter of 2018, compared with $0.04 for the same period of 2017.
Reported diluted loss per share for the quarter was $0.02, down from earnings per share of $0.05 during the same period a year ago, attributable in large part to a negative variance associated with our derivative financial instruments.
Balance Sheet & Inventory
For the trailing 12 months ended March 31, 2018, inventory turns were 1.76 times, down from 1.81 times for the trailing 12 months ended December 31, 2017, and up compared with 1.72 times for the same period a year ago.
We continue to work toward improved inventory turns through targeted sales, disciplined procurement and presale orders. With winter weather conditions persisting into the second quarter of 2018, demand for used equipment was much lower this year than it was last year at the same time. Combined with the trade-ins associated with new equipment sales in the quarter, RME’s equipment inventory as at March 31, 2018 increased as follows:
- Used equipment inventory was $356.6 million, representing increases of 20.4% or $60.4 million compared with the same period in 2017, and 13.2% or $41.6 million since the fourth quarter of 2017. As snow packs melt and agriculture activity commences, we anticipate seasonal demand for used equipment to materialize; and,
- New equipment inventory was $127.2 million, representing increases of 3.1% or $3.8 million compared with the same period in 2017, and 9.7% or $11.3 million since the fourth quarter of 2017.
Since the end of 2017, equipment inventory levels increased $52.9 million, with the majority of this increase concentrated in the used category. The increase in inventory during Q1 2018 was fully funded by draws on our various floorplan facilities. Much of the equipment taken on trade during the quarter was eligible for interest-free terms. Of the $53.3 million increase in floorplan payable since Q4 2017, $42.9 million of this increase is non-interest-bearing.
Agriculture and Agri-Food Canada (“AAFC”) expects total production of principal field crops to be 93.1 million tons for the 2017-18 crop year. While this represents a decline of 1.2% compared with the 2016-17 crop year, this level of production would still be at the high end of historic norms.
AAFC’s forecast for total production of principal field crops in the upcoming 2018-19 crop year remains robust. Notwithstanding the late spring in many parts of Western and Central Canada, AAFC is forecasting a slight 0.1% increase in production over the prior crop year1.
The combination of solid production and healthy commodity prices for key Western Canadian crops continues reinforce the already strong balance sheets of our customer base.