Rocky Mountain provides insight into the state of farming in western Canada
By Denise Faguy, Farms.com
Selling new and used farm equipment in Canada has been a tougher business in the last few years. However, the main equipment dealerships also provide repair and parts services to the farming community. Indeed, the complexity of the network needed to support large farming operations and large complex machinery is part of the impetus behind dealership mergers and consolidation that’s been underway in North America.
Rocky Mountain Equipment (TSX:RME) is the largest independent dealer in Canada for Case IH and Case Construction equipment. Indeed, the scale of Rocky Mountain makes it the second largest such CaseIH dealership in the world.
As such, the recently released Quarterly Financial results of Rocky Mountain provide an interesting look into the status of the farming community in western Canada.
With 35 dealerships, the organization is large – however, it is the direction of the numbers that is most interesting. For the Quarter ended September 30, 2016 versus Sept 2015, RME had
- Total revenues down by 13% from $256M to $223 Million,
- Gross profit – UP from 15.6% of sales to 16.6% of sales,
- Inventory – decreased by almost 10%,
- Adjusted EBITA UP $0.5M to $12.2M
The company seems to be dealing well with a less robust western Canadian commodity market. As noted by Mr. G. Ganden, President & CEO of RME – “While commodity prices have fluctuated of late, crop receipts continue to be healthy and farmer balance sheets remain strong. We continue our efforts to position ourselves as a unique and compelling value proposition to customers and shareholders in our industry. We continue to make progress in this regard, as we seek to make Rocky the equipment dealer of choice throughout Western Canada."
From a segment perspective revenue results for 2016 versus 2015 were not consistent:
- New equipment – dropped 14%
- Used equipment – dropped 16%
- Parts – held consistent
- Service – dropped 19%
However, a big positive for the results of the Company seemed to be a large reduction in the Selling, General and administrative costs for the quarter – down from Q3 2015 levels of $30.3M to $23.6M. Likewise, with the reduction in inventory levels combined with the earnings the ratio of total debt to equity has reduced from 2.8:1.0 to a ratio of 2.2:1.0
As an indication of the positive outlook for RME, the company approved its quarterly dividend of $0.115 per common share. At yesterdays share price of $9.03 per share – this dividend represents a healthy 5% dividend yield.
Another player in this space is Cervus Equipment – with over 70 locations in western Canada and other dealership investments -- is due to announce its results this week as well.