WINNIPEG, MANITOBA, CANADA — Ag Growth International Inc.(AGI) reported on Nov. 13 its third-quarter earnings were C$20.8 million, or C56¢ per share, down 21.9% from C$26.7, or C$1.11 per share, in the same period of last year.
Adjusted EBITDA decreased compared to very strong third-quarter 2014 results due primarily to lower North American sales of on-farm and commercial grain handling equipment. In the U.S., the U.S. Department of Agriculture (USDA) corn production forecast of 13.6 billion bushels represents a relatively large crop but a decrease of 5% compared to 2014.
“It has been a rough start at Westeel,” said Gary Anderson, chief executive officer of AGI. “But we are taking our lumps up front and as a result expect a better 2016. The challenges were based on an extremely aggressive approach to pre-season sales in Q4/2014 and into Q1/2015, as well as drought conditions in much of Alberta and Saskatchewan from early spring to mid-summer. We remain confident in the long-term value of these assets and welcome the opportunity for greater participation in our home market in western Canada. In the short while we have worked with the Westeel distribution channels, it is abundantly clear that this brand takes our game to a new level in western Canada.”
AGI’s decrease in on-farm handling equipment sales is partly attributable to this lower crop production but was also impacted by crop variability, farmer and dealer sentiment and by generally dry conditions late in the season that allowed the crop to mature quickly. The expectation of an early and dry harvest lowered in-season orders as it became less likely that a late crop or wet conditions would result in a difficult harvest or a need for farmers to dry their grain prior to storage. Commercial business in the U.S. continued at a reasonable pace, however it remained below the very strong demand experienced in 2014.
In Canada, crop production generally exceeded expectations. However, sales were well below the record levels achieved in 2014. Sales decreased significantly at newly acquired Westeel from C$49.9 million in the third quarter of 2014 to C$29.8 million in the current year. Prior to its May 20 acquisition by AGI, Westeel aggressively shipped product to its dealers in the fourth quarter in 2015 and first quarter in 2015, and as a result, high levels of inventory existed at the dealer level when dry conditions led to reduced demand early in the 2015 growing season.
A fast and efficient harvest in Canada reduced in-season demand for portable grain handling and aeration products and sales in these lines were also well below the records achieved in 2014. However, the decrease was not as significant as the decline experienced in the storage business, AGI said. AGI’s international business continues to grow and offshore sales in the three- and nine-month periods ended Sept. 30, excluding Westeel, increased 9% and 34%, respectively. Sales growth resulted from continued momentum in Latin America and projects with multinational grain handlers in Ukraine. Quoting activity remains robust and management anticipates additional growth offshore in the near term.
AGI expects fourth-quarter sales of on-farm portable equipment to fall below 2014 levels as a quick and efficient harvest in both Canada and the U.S. has contributed to slightly elevated dealer inventories. In addition, negative farmer sentiment and dealer cash flow considerations continue to impact dealer purchases. As a result, AGI said it anticipates dealer participation in preseason programs will be lower than the prior year but the company expects it will be roughly in line with longer-term averages.