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.
SELECTED FINANCIAL INFORMATION
Three months ended September 30,
$ thousands, except per share and percentage amounts
Cost of sales
Gross profit as a % of sales
Selling, general and administrative
(Gain) loss on derivative financial instruments
Earnings before borrowing costs and income taxes
Earnings (loss) before income taxes
Income tax expense
Net earnings (loss)
Net earnings (loss) as a % of sales
Earnings (loss) per share
Dividends per share
Book value / share – September 30
Adjusted Diluted Earnings per Share
Operating SG&A as a % of sales
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.
SALES AND MARGINS
Sales increased 9.2% or $16,927 to $200,994 compared with $184,067 for the same period in 2019 due to higher sales in all categories.
Gross profit increased 13.2% or $3,577 from $27,194 to $30,771. Gross profit as a % 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.
Operating SG&A decreased by $1,453, or 7.4%, to $18,131 from $19,584 in 2019 reflecting the benefit of cost reduction efforts implemented during the second half of last year and continued diligence throughout 2020. As a percentage of sales, Operating SG&A decreased to 9.0% from 10.6% for the same period in 2019, as the decline in Operating SG&A was combined with an increase in sales.
Borrowing costs for the quarter ended September 30, 2020 decreased 25.2% or $950 to $2,826 compared with $3,776 during the same period in 2019 due to lower average levels of interest-bearing floor plan payable.
Adjusted EBITDA for the quarter ended September 30, 2020 increased $5,987 to $10,462 compared with $4,475 for the same period in 2019.
Diluted Earnings per Share increased by $0.25 to $0.24 for the third quarter of 2020, compared with a Diluted Loss per Share of $0.01 for the same period of 2019.
Adjusted Diluted Earnings per Share increased by $0.25 to $0.25 for the third quarter of 2020, compared with $0.00 for the same period of 2019.
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.
This news release references Adjusted Diluted Earnings per Share, Adjusted EBITDA, Operating SG&A and Operating SG&A as a percent of sales, all of which are non-IFRS measures. As these non-IFRS financial measures do not have standardized meanings prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers. Readers should not consider these measures in isolation or as a substitute for analysis of RME’s results as reported under IFRS. The definition and calculation for each non-IFRS measure is contained within RME’s MD&A for the quarter ended September 30, 2020 under the headings "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS", respectively. RME’s MD&A for the quarter ended September 30, 2020 is available online at www.rockymtn.com and www.sedar.com
RME will host a conference call and webcast to discuss the quarter at 9:00 a.m. MT (11:00 a.m. ET) today. Please note that the format of the webcast incorporates a visual presentation for investors and analysts. To listen to the live webcast and watch the presentation please use the following link:
Within 24 hours of the event, the webcast will be available for replay at the link above until October 30, 2021.
Those interested in participating in the conference call may do so by calling 1-888-869-1189 and provide the Conference ID which is 2075066 to the live agent.
An archived recording of the conference call will be available until November 20, 2020 by dialing 1-800-585-8367 (toll free) or 1-416-621-4642, Conference ID: 2075066. This archived recording will also be available at www.rockymtn.com.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This news release contains FLS within the meaning of applicable securities legislation. All statements, other than statements of historical fact, included herein may be FLS. FLS typically contain words or phrases such as "may", "outlook", "objective", "intend", "estimate", "anticipate", "should", "could", "would", "will", "expect", "believe", "plan", "predict" and other similar terminology suggesting future outcomes or events. FLS involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RME or industry results, to be materially different from any future results, events, expectations, performance or achievements expressed or implied by such FLS. FLS also involves numerous assumptions and should not be read as guarantees of future performance or results. Such statements will not necessarily be accurate indications of whether or not such future performance or results will be achieved. Readers of this news release should not unduly rely on FLS as a number of factors, many of which are beyond the control of RME, could cause actual performance or results to differ materially from the performance or results discussed in the FLS. RME’s actual results could differ materially from those anticipated in the FLS in this news release as a result of the risk factors set forth herein under the heading "Risks and Uncertainties" and elsewhere as well as the risk factors set forth in RME’s AIF. Although the FLS contained in this news release are based upon what management of RME believes are reasonable assumptions, RME cannot assure investors that actual performance or results will be consistent with these FLS. These statements reflect current expectations regarding future events and operating performance and are based on information currently available to RME’s management. There can be no assurance that the plans, intentions or expectations upon which these FLS are based will occur. All FLS in this news release are qualified in their entirety by the cautionary statements herein and those set forth in RME’s AIF available on SEDAR at www.sedar.com. These FLS and the outlook contained in this news release are made as of the date of this document and, except as required by applicable law, RME assumes no obligation to update or revise them to reflect new events or circumstances.
ABOUT ROCKY MOUNTAIN DEALERSHIPS INC. (TSX: RME)
RME is Canada’s largest agriculture equipment dealer with branches located throughout Alberta, Saskatchewan, and Manitoba. Through its dealer network, RME sells, rents, and leases new and used agriculture equipment and offers product support and financing to its customers.
1 See further discussion in "Non-IFRS Measures" section.
2 AFSC & Alberta Agriculture and Forestry – Alberta Crop Report – October 20, 2020
3 Saskatchewan Minister of Agriculture – Crop Report #25 – October 22, 2020
4 Manitoba Agriculture – Crop Report – October 20, 2020
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FOR INVESTOR AND MEDIA INQUIRIES, PLEASE CONTACT:
Rocky Mountain Dealerships Inc.
Clayton Paradis, 403-999-7658