Rocky Mountain Dealerships (TSX:RME), one of Canada’s largest agriculture equipment dealers, reported that sales during the first quarter of the year dropped 19.1%, or by nearly $42 million, to $177.7 million vs. $219.7 million for the same period in 2018. The dealership group said the fall off was due primarily to a $46.6 million decline “in same store new equipment sales for the quarter as we limit presale activity and focus on distributing existing inventory.”

Gross profit decreased by 5.2% or $1.4 million to $25.6 million from nearly $27 million for the first quarter of last year. Gross profit as a percentage of sales improved to 14.4% compared to 12.3% for the same period in 2018. Product support revenues increased 9.9% or $2.2 million on a same store basis year-over-year. Commenting on the quarter, Garrett Ganden, president and Chief Executive Officer, said, “While we experienced challenges in some areas, our sales and operations teams delivered solid revenue growth in both parts and service this quarter, contributing to a favorable sales mix and stronger gross margins.

Rocky Mountain Dealerships — Selected Quarterly Financial Information
(C$ thousands)
  3 Months Ended March 31, 2019 3 Months Ended March 31, 2018  Change   % 
Sales 177,681 219,654 (41,973)  (19.1) 
Cost of sales 152,124 192,691 (40,567) (21.1)
Gross profit 25,557 26,963 (1,406) (5.2)
Net loss (3,044) (486) (2,558) 526.3
Net loss as a % of sales (1.7) (0.2) (1.5)  

Source: Company reports

“Our equipment sales for the period receded from the record levels reported during the first quarter of last year, a trend consistent with the decline in delivery of new agriculture units in the Canadian marketplace year-over-year. In response to these market pressures we have moderated our presale activity, restocked certain key equipment categories and are focusing our efforts on reducing existing inventory.”

Canadian Outlook

According to the dealership group, Agriculture and Agri-Foods Canada are forecasting yet another strong year for Canadian agriculture. Increased seeded area and improved yields are expected to boost overall production of principal field crops in 2019. Recent disruptions in Chinese imports of Canadian canola, however, introduce a measure of short-term uncertainty heading into the growing season, with elevated levels of carry-in stocks weighing on canola prices. While seeding decisions for 2019 had largely been made prior to the disruption, such shifts in the supply and demand equation can be resolved over time as farmers adjust shift their production into other crops.

RME also commented on it new U.S. operation. During first quarter of 2019, RME's location in Tonganoxie, Kan., commenced operations. With its close proximity to the vibrant agriculture markets of Kansas, Iowa, Nebraska, Missouri and Oklahoma, this location provides an additional distribution channel for late model, used agriculture equipment while also helping to establish RME within the U.S. dealership landscape.

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