Dealerships weather down-turn

Selling farm equipment is big business.

The two largest farm equipment dealership networks in Canada had combined revenue of close to $2 billion in 2014 and profits of almost $37.5 million.

Cervus Equipment, which focuses on John Deere and Peterbilt equipment, and Rocky Mountain Equipment, which concentrates on Case IH-New Holland, each presented their annual financial reports last week.

In both cases, the late spring, the down-turn in the agricultural economy and last year’s grain transportation problems hurt agricultural sales, while the down-turn in oil prices could hurt the industrial side of the business.

Rocky Mountain said last year’s sudden shift to a negative mood in farming hurt used equipment sales more than new equipment.

There is a long lead time when ordering new equipment, while used equipment sales can be quick, influenced by immediate financial issues.

Also, new equipment tends to be bought by larger operations, which can better handle fluctuations in the agricultural economy, the company said.

Used sales fell 15.4 percent, while new equipment sales were down only .3 percent.

The company said it worked hard to partly offset the reduced equipment sales by increasing parts and service revenue.

“Demand for product support increases as fleets are maintained rather than replaced,” Garrett Ganden, who took over as president of Rocky Mountain in February, said in a conference call with analysts.

“This relationship between equipment and product support served as a hedge, to a certain extent, against the risk associated with reduced inventory, reduced revenue from equipment sales, and it contributed to higher earnings.”

New equipment sales in Cervus’s agriculture business were down two percent when comparing results only at stores that were open in 2013, while used sales were down five percent.

Both companies believe their inventories of used equipment are too high.

Cervus president Graham Drake said in an investor conference call that the high American dollar, which is increasing the price of U.S.-made equipment, might help reduce the backlog of used inventory.

“One of the things we see as our biggest challenge is the sticker shock on all U.S. based equipment that we are having today versus a year ago,” he said.

“It makes used equipment much more attractive. It might mean less new sales but more used sales, and that might be correction we need.”

The major international farm equipment manufacturers believe 2015 will be a challenging year.

For example, John Deere expects its global sales of agriculture and turf products will be down 23 percent.

However, Cervus and Rocky Mountain say the contraction in their businesses will be much less severe.

They say expectations are for a drier spring in Western Canada, which should allow an increase in seeded acreage.

Also, the cattle sector is booming, which will lead to increased sales of two-wheel drive tractors and haying equipment.

Both companies have expanded rapidly in recent years.

Last year, Cervus bought six farm dealerships in Australia, 13 Peterbilt dealerships in Ontario and six John Deere dealerships in Alberta.

Rocky Mountain recently bought NGF Geomatics, which offers aerial drone imaging and precision agriculture advice and analysis. It also bought Chabot Implements, a Manitoba Case IH dealer.

Both companies want to be prepared if new acquisition opportunities arise.

“I believe in 2015 it will be important to get some good cash generations because … I believe there will be a lot of opportunities that are going to happen late in 2015 and early in 2016 and we want to be ready for it,” Ganden said about Rocky Mountain’s outlook.

Meanwhile, Cervus announced in December it had increased its revolving credit with a syndicate of underwriters to $100 million from $60 million, partly to be prepared for new strategic investments.


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