Equipment dealer blames farm trade wars as plans for aggressive growth stall
Rocky Mountain Dealerships Inc. cites Canada's inability to solve trade disputes
Canada's largest agriculture equipment dealer says it is scrapping its aggressive growth strategy and has trimmed five per cent of its staff due it part to farmer pessimism it blames on unsolved international trade disputes.
The federal government's inability to solve trade battles with China, India, Saudi Arabia and other countries was cited by Rocky Mountain Dealerships Inc. as it reported second-quarter financial results that fell well short of analyst expectations.
"We need to get some clarity around those macro (economic) conditions ... the farmers want to have some understanding of where their end markets are going to be," said CEO Garrett Ganden on a conference call on Wednesday.
"We're looking for some leadership, to be honest, from the government."
Farm sentiment as reflected in sales of new and used equipment and demand for parts and service at its centres across Alberta, Saskatchewan and Manitoba turned "sharply negative" after seeding was completed in early May and improved only slightly when spring rains came in late June, Ganden said.
Earnings plunge in Q2
The Calgary-based company reported net earnings of $750,000, or four cents per share, on revenue of $195 million in the three months ended June 30, versus earnings of $6.06 million or 30 cents on revenue of $303 million in the same period of 2018.
Analysts had expected net earnings of $2.6 million, or 18 cents per share, on revenue of $269 million, according to financial markets data firm Refinitiv.
Shares in the company fell 4.4 per cent or 33 cents to $7.20 by 12:20 p.m. EDT on the Toronto Stock Exchange.
Rocky Mountain said it has decided to abandon a plan announced in May 2018 to increase annual revenues to at least $1.5 billion by 2023.
"Accretive acquisition targets have not yet been identified and escalating trade disputes between North America and many of its key agriculture products trading partners are weighing on commodity prices," said Ganden on the call.
"The resulting current uncertainty has tempered farmer sentiment and demand for RME's products and services, creating an unfavourable agricultural business climate."
Interested in U.S. market
The company is still interested in growing its presence in the United States, he told analysts on the call, but buying back its own shares and cancelling them may turn out to be the best use of funds going forward.
In June, the Western Canadian Wheat Growers released a letter to federal Agriculture Minister Marie-Claude Bibeau asking for help in view of factors such as China's ban on Canadian canola and pork, India's increased tariffs on lentil imports and Saudi Arabia's decision last year to stop buying Canadian wheat and barley.
The letter estimates that trade barriers between Canada and six other countries had resulted in $3.7 billion in lost sales over the previous two years.