In what might be a harbinger of things to come for the grain handling industry, United Grain Growers has announced lower returns for the first quarter.
Blaming a 45 percent reduction in shipments of wheat and barley under the Canadian Wheat Board this fall, UGG posted lower gross sales and net profit.
But given that about 90 percent of annual operating income is normally generated in the fourth quarter, management doesn’t expect a year-end loss.
“We do not see our first quarter results as being indicative of prospects for the year,” said Brian Hayward, UGG chief executive officer in a news release.
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To avoid particularly low prices and weak demand early in the crop year, the CWB pushed back some of its marketing, resulting in slow grain movement this summer through October. Also, farmers produced only 16.8 million tonnes of wheat this year, compared to 19 million tonnes last year.
“There are two things to take some heart in. We did better than what the market did in market share. Also, our margins were better than this time last year,” said Hayward.
The company’s port handlings dropped 16 percent while the industry average was down 35 percent.
Also, for the first time in Hayward’s memory, UGG handled more non-board crops than board crops this quarter. This reflects strong canola exports.
UGG’s total revenue for the quarter was $347.4 million, down 19 percent from $428.7 million in the same period last year.
Earnings before interest, taxes, depreciation and amortization declined to a loss of $593,000 compared to a gain of $4.9 million last year.
The net loss for the quarter was $5.15 million, compared to a loss of $1.8 million last year in the same period.
Cash flow declined to a negative five cents per share from eight cents a share last year.
Despite its problems, the company’s grain handling business made an operating profit of $3.2 million, compared to $6.7 million last year,
Crop production services operations improved sales by about $1 million to $6.8 million. However, that was not enough to offset higher operating expenses related to acquisitions made during the quarter.
That resulted in an operating loss of $5.3 million, compared to a loss of $4.5 million last year in the quarter.
Hayward said it is no secret that money is tight on farms, but the outlook for crop input sales next spring might be brighter than generally expected.
“Canola for example is an area where there tends to be higher input sales … .
“Analysts keep saying the crop’s carry out is going to be fairly tight … . We’ve got good movement and reasonable prices and canola is the kind of crop where the input side is a little heavier.”
With hard times in the hog business, UGG’s livestock operating income dropped a little to $1.5 million from $1.7 million.
Farm Business Communications operating income improved to $299,000 compared to $92,000 last year due to increased advertising revenue.
Corporate and other company operations posted an operating loss of $4.8 million compared to a loss of $3.4 million in the first quarter last year.
This was due mainly to a sharp drop in income from UGG’s 16 percent interest in Prince Rupert Grain terminal in northern British Columbia.
The terminal’s handlings fell by 93 percent during the quarter because of slow wheat and barley exports.
