WINNIPEG, MANITOBA, CANADA —Ag Growth International Inc. (AGI) posted record trade sales and adjusted earnings in the three- and six-month periods ended June 30, despite a difficult growing season in the United States.
Trade sales for the second quarter reached C$293 million, up from C$262 million in the same quarter a year earlier. For the first half of the year, trade sales were C$509.2 million, up from C$476.7 million. AGI attributed the increase to demand for portable Farm equipment and contributions from recent acquisitions in India and France.
Adjusted EBITDA increased over 2018 as higher trade sales and consistent gross margin percentages were partially offset by higher SG&A expenses. For the quarter, adjusted EBITDA was C$51.3 million, up from C$49.2 million, and for the six months it was C$82 million, up from C$80 million.
Adjusted EBITDA as percentage of sales decreased compared to 2018, largely due to an anticipated low sales volume quarter in Brazil, a seasonally low sales volume quarter in India and the impact of challenging weather conditions on grain storage systems sales in the United States.
“Sales and adjusted EBITDA in Q2 2019 exceeded Q2 2018 results despite challenging conditions in North America and the timing of sales in Brazil and other international markets,” said Tim Close, president and chief executive officer of AGI. “Our North American Farm business continued to perform well as the replacement cycle for portable grain handling equipment remained stable, wet conditions in the U.S. and increased market penetration in Canada resulted in higher sales of drying and aeration equipment. Sales of Commercial equipment in Canada were very strong due to continued investment in grain handling infrastructure, including inland grain terminals and port facilities. In India, Milltec performed well as expected despite the impact of a late and below average monsoon.
“Weather and trade friction combined to impact sales and margin in the first half of 2019, and we expect these conditions to persist into the back half of the year. Overall, management anticipates results in the second half of 2019 will approximate the second half of 2018, despite near-term challenges related to historically poor conditions in the U.S. and the delays stemming from trade related uncertainty in our international business.”
The Canadian Commercial market remains very active due to continued investment in grain handling infrastructure, including port facilities and inland terminals, and AGI’s Commercial grain handling backlog remains at the high levels experienced in 2018. In the United States, Commercial activity is stable and comparable to 2018 levels.
Offshore, as anticipated, the timing of customer commitments has resulted in a deferral of certain projects, and accordingly, the related revenue will be recognized later than originally expected, AGI said. Uncertainty regarding trade tensions has aggravated the customer decision making process, as market participants seek clarity prior to finalizing investment decisions.
Overall, Commercial sales order backlog is growing and is currently higher than at the same time in 2018. Management anticipates international sales in the second half of 2019, net of acquisitions, to approximate 2018 levels, however revenue from certain projects is now expected to be realized in fiscal 2020.
On balance, AGI said its Farm business is faring well and sales in the second half of 2019, though tempered by challenging conditions in North America, are expected to increase over the prior year.