Cervus delivered $15 million in adjusted income before tax, a record for the second quarter and a significant increase of $7 million or 84%, compared to $8 million generated in the same period last year. This accelerated performance reflects the convergence of recovering activity levels in our end markets and enhanced sales practices, with Cervus’ strategic focus on growing product support revenues and gross margins.
"Our record second quarter results reflect increased demand across all segments, particularly in Transportation as economies reopened and activity rebounded from subdued pandemic levels,” said Angela Lekatsas, president and chief executive officer of Cervus. “Cervus navigated the logistical challenges of extended manufacturer lead times and delayed deliveries resulting from increased demand and supply shortages exceptionally well, allowing us to establish a new high-water mark for second quarter profitability. I want to take this opportunity to thank and congratulate our 1,588 valuable employees for this remarkable achievement.
“We have also announced today that the Company has entered into an arrangement agreement providing for a plan of arrangement pursuant to which all the issued and outstanding shares of the Company would be acquired by Brandt Tractor Ltd. for cash consideration of $19.50 per share. The transaction is subject to various regulatory and other approvals including approval by the shareholders of the Company. Additional details with respect to the transaction are contained within the arrangement agreement and the Company’s press release with respect to the proposed transaction, both of which will be filed under the Company’s profile on SEDAR at www.sedar.com.”
Second Quarter 2021 Highlights
- The Company reported income of $13 million or $0.82 per basic share in the second quarter of 2021, compared to a $9 million or $0.59 per basic share in the second quarter of 2020.
- Adjusted income per basic share was $0.76 compared to $0.44 in the second quarter of 2020.
- Total revenue increased 18% in the quarter, with growth in both equipment and product support sales reported by all segments. This revenue growth, in concert with a 0.8% expansion in overall gross profit margin, drove a 25% increase in gross profit.
- A reduction in interest-bearing debt resulted in a 29% decrease in net finance costs compared to the second quarter of 2020.
- Agriculture used equipment inventory turnover for the trailing twelve-month period ended June 30, 2021, accelerated to 3.44 times, compared to 2.31 times at June 30, 2020.
- A quarterly dividend of $0.11 per share was declared to shareholders of record at June 30, 2021.
Second Quarter 2021 Results
- Total revenue increased 18% in the quarter, comprised of a 21% increase in equipment revenue and an 8% increase in product support revenue, driven by growth across all our segments.
- Agriculture equipment revenue increased 10% in the quarter and 4% year to date, primarily driven by increased customer demand for new equipment, supported by strong market fundamentals in all our geographies. Product support revenue increased 1% in the quarter and 6% year to date, as our execution on strategic parts initiatives, including online and on the road parts sales, and the addition of two new locations after the first quarter of 2020, was partly offset by the impact of parts supply shortages and a relatively easy seeding season in the second quarter of 2021.
- In our Transportation and Industrial segments, combined equipment revenue increased 54% in the quarter and 30% year to date, as our sales teams capitalized on an increase in economic activity and capital spending. Combined product support revenue for the segments increased 17% in the quarter and 9% year to date, reflecting the easing of pandemic related restrictions and continued initiatives to increase over the counter parts sales, including through our on the road sales team in the Transportation segment.
- Gross profit increased 25% in the quarter and 16% year to date, driven by increases in equipment and product support revenue across all our operating segments. Gross profit margin as a percent of revenue increased, reflecting the strong pricing and demand for equipment and product support offerings.
G&A Expenses and Net Finance Costs
- G&A expenses, which exclude equipment commissions, increased 15% in the quarter and 8% year to date, driven by the strategic initiatives and new locations in our Agriculture segment discussed above, and the easing of pandemic related cost reductions relative to the prior year, in alignment with the recovery in business activity. Overall, SG&A, as a percent of gross profit, decreased from 79.8% to 75.0% in the quarter, and similarly year to date, reflecting continued focus on expense management.
- Net finance costs decreased 29% in the quarter and 36% year to date, as we benefited from reductions in the average level of interest-bearing floor plan payable and long-term debt, as well as lower interest rates.
- Income before tax increased $4.8 million in the quarter and $13 million year to date on elevated gross profit and more efficient scaling of operating costs. Adjusted income before tax increased $7 million in the quarter and $9 million year to date.
- Total inventory increased $8 million from June 30, 2020. The majority of this variance arose within our Agriculture segment which experienced a $38 million increase in new equipment and parts inventories, partly offset by a $32 million reduction in used equipment inventory. Agriculture used equipment turnover for the trailing twelve-month period ended June 30, 2021 accelerated to 3.44 times from 2.31 times at June 30, 2020, surpassing our long-term used equipment inventory turnover objective of 2.50 times.
- Within the Transportation segment, new equipment inventory increased $2.4 million, quarter over quarter, to $72 million, with substantially all of these units committed to customers. By contrast, approximately half of the $69 million of new equipment inventory on hand at June 30, 2020 was committed to customers.