Contributions from recent acquisitions and higher sales of commercial handling equipment in North America more than offset the anticipated low level of demand for farm equipment and lower first-quarter international sales.
Trade sales were increased to C$113.67 million from C$86.62 million in the first quarter of 2015. Adjusted EBITDA increased to C$19.8 million from C$17.3 million as higher trade sales were complemented by strong gross margins at recently acquired Westeel and VIS and higher margins at legacy AGI divisions that were achieved despite a less favorable product sales mix.
An increase in acquisition related non-cash depreciation and amortization and higher debt service costs were more than offset by higher adjusted EBITDA and a small gain on foreign exchange, resulting in an increase in net profit and net profit per share.
“We achieved record sales and adjusted EBITDA in the quarter delivered by mixed results from our farm and commercial businesses along with rebounding results from Westeel,” said Tim Close, president and chief executive officer of AGI. “The expected weakness in our farm business was offset by domestic results in our commercial business demonstrating the benefits of diversification across these markets. Margins were strong at our Westeel business as we start to see the impact of the synergies we achieved post acquisition and we are very proud of the team and their progress. For the remainder of the year we see the commercial business weighted toward the second half given timing of projects in our pipeline, some continued weakness into Q2 on the farm, but also expect to see positive contribution from our recent acquisitions including VIS, NuVision and Frame.”
Robust demand for commercial equipment in Canada continues as the competitive landscape in the commercial space evolves subsequent to the dissolution of the Canadian Wheat Board. Total trade sales in Canada increased significantly due to the recent acquisitions of Westeel and VIS. As anticipated, sales of Westeel storage equipment were constrained by higher than typical dealer inventory levels entering 2016. Sales of VIS fertilizer equipment were very strong and reflect the build-out under way in the commercial fertilizer infrastructure.
In the U.S., lower farm sales were more than offset by increased sales of commercial equipment as continued momentum in the commercial space resulted in strong opening backlogs and higher first-quarter U.S. sales at most AGI Commercial divisions.
AGI’s international sales, excluding acquisitions, decreased against a very strong first quarter in
2015 largely because offshore sales in the current quarter did not include large projects similar to those included in the first quarter of 2015. The timing of international sales is very much dependent on the timing of customer commitments which in 2016, not unlike certain other years, have been slower to materialize. AGI’s international quote log remains very strong. However, sales in 2016 are expected to be weighted toward the second half of the fiscal year. International sales related to acquisitions largely reflect commercial sales of storage and handling equipment at Italian subsidiaries PTM and Frame. AGI acquired a 51% interest in Frame along with its acquisition of Westeel in May 2015 and on April 22, AGI purchased the remaining 49% interest from the minority shareholders.
AGI’s average rate of exchange for the three months ended March 31, 2016 was up compared to last year. A lower Canadian dollar results in an increase in reported trade sales as U.S. dollar denominated sales are translated into Canadian dollars at a higher rate. Similarly, a lower Canadian dollar results in an increase in U.S. dollar denominated inputs and SG&A expenses. As U.S. dollar sales exceed U.S. dollar costs, adjusted EBITDA benefits from a weaker Canadian dollar.
Management said it anticipates second quarter results to reflect a significant contribution from recent acquisitions and strong Commercial business in the United States. However, results are expected to be negatively impacted by low demand for farm products in the U.S. and the timing of commitments from international customers. On balance, management said it anticipates adjusted EBITDA in the second quarter of 2016 will approximate 2015 results. Management said it remains positively biased with respect to fiscal 2016 and anticipates results for the balance of the year will reflect the impact of recent acquisitions, a return to more typical buying patterns for farm equipment, steady demand for domestic commercial products and increased activity in offshore markets.
AGI said its commercial business is comprised primarily of high capacity grain handling and conditioning equipment and storage in offshore markets. In North America, demand for commercial equipment is less sensitive to a specific harvest but rather is driven primarily by macro factors including the longer-term trend towards higher crop volumes, the drive toward improved efficiencies in a mature market and, more recently, the dissolution of the Canadian Wheat Board, and current activity in North America is reflective of these trends.
Offshore, the commercial infrastructure in many grain producing and importing countries remains vastly underinvested resulting in significant global opportunities for AGI’s Commercial business. AGI’s international business expanded significantly in 2015 due to increasing brand presence, continued momentum in Eastern Europe and Latin America and the acquisition of Westeel’s international businesses.