Ag Growth International reports Q1 net earnings of C$3.4M, down from earnings of C$5.3M in year-ago period, as trade sales fall 20.7% to C$59.9M due to impact of severe US drought in 2012
May 10, 2013
– Ag Growth International Inc. (TSX:AFN) ("Ag Growth", the "Company" or "AGI") today reported its financial results for the three month period ended March 31, 2013, and declared dividends for June, July and August 2013.
Trade sales and adjusted EBITDA decreased compared to the prior year due to the impact of the severe U.S. drought in 2012. A decrease in sales and adjusted EBITDA was expected as drought events most often impact the first half of the fiscal year following the drought, particularly the first quarter, due to higher than typical dealer inventory levels and lower end-user demand that results from negative sentiment and reduced grain handling requirements. The U.S. drought in 2012 was the most severe in over 50 years and accordingly its impact on the Company's business was significant. AGI's outlook for both on-farm and commercial activity has improved substantially in recent months and accordingly management does not anticipate the impact of 2012 U.S. drought to extend beyond the second quarter of 2013 (see "Outlook").
"As expected, our first quarter results reflect the severity of the 2012 U.S. drought," said Gary Anderson, President and Chief Executive Officer. "However, with the arrival of the 2013 planting season and a new crop year, optimism is returning to the marketplace and we can now look beyond the drought towards to what may be a very exciting year."
"We are beginning to see our backlog for portable handling equipment increase in response to improved moisture conditions in the corn-belt and a very positive USDA forecast for over 97 million acres of planted corn. Our commercial backlog has increased significantly in recent months, due to improving sentiment in the U.S. and our rapidly growing international business. These facilities are in the process of increasing their capacity for the foreseeable future. Offshore, we recently entered into our largest ever contract, a $42 million dollar agreement that includes $28 million of commercial handling, aeration and storage equipment, and $14 million in related services, to a single customer in Ukraine. All said, our order backlogs across all business lines today are much higher than the pre-drought order book we had at this time in 2012."
"I believe we are well positioned to capitalize on what we expect will be long-term, positive agricultural fundamentals. We recently undertook a market study to assess our positioning in the portable grain handling space in the U.S. and were very pleased to see that our market share, brand strength and customer satisfaction levels scored every bit as strongly as we expected. The strength of our commercial brands remain evident in both our domestic and offshore customer base and our ability to bundle this high performance equipment with an expanding storage product line has contributed to rapid international growth. Our talented international sales team continues to grow relationships and AGI brand presence in offshore markets. We remain very positive about our future growth in these markets."
"We are very enthusiastic with respect to AGI's prospects in 2013 and beyond. Although we expect results for our second quarter will reflect the lingering effects of the 2012 drought, we anticipate the combination of U.S. planting intentions, improving moisture conditions in the corn-belt and our rapidly growing commercial and offshore order books will contribute to a strong second half."
U.S. farmers may plant 97.3 million acres of corn in 2013, the highest level since 1936, and harvest an all-time record crop of over 14 billion bushels, according to the USDA's March 2013 Prospective Plantings report and its 2013 Agricultural Outlook Forum. If achieved, the projected harvest would represent a 35% increase over 2012 in corn production, the primary demand driver for the Company's portable grain handling equipment. The USDA forecast, combined with greatly improved moisture levels in many key areas of the corn-belt and a late planting season, has resulted in an optimistic outlook for portable grain handling demand in the second half of 2013.
Demand for portable grain handling equipment in the second quarter of 2013, however, is expected to be muted due to the carryover impact of the U.S. drought. Although moisture conditions have improved significantly in recent weeks and the Company's backlog currently exceeds 2012 levels, scheduled deliveries for the second quarter of 2013 are lower than Q2 2012 deliveries and the Company does not expect in-season activity to stimulate significant demand until the third quarter. The anticipated decrease in sales of portable equipment in the second quarter of 2013 is not, however, expected to be as significant as the year-over-year change experienced in the first quarter of 2013.
The Company`s commercial grain handling backlog has increased substantially in recent months and is significantly higher than the backlog at the same time in 2012. AGI`s recovery from the 2012 U.S. drought in the commercial space has occurred more quickly than anticipated and management expects domestic and international demand will result in second quarter commercial equipment sales levels approximating the strong sales achieved in the second quarter of 2012. Based on improving sentiment and a growing order book management expects robust demand for commercial equipment to continue in the second half of 2013.
AGI enjoyed great success offshore in 2012 and that momentum has continued into 2013. Quoting activity remains at record highs and the Company's international back order is significantly higher than at the same time in 2012. The Company recently entered into a $42 million agreement to supply $28 million of grain handling, aeration and storage equipment and $14 million in lower margin contracted products and services to a single customer in Ukraine, our largest ever single contract. In addition, our investment in two sales offices in South America in 2011 is expected to result in significant sales growth in Latin America in 2013.
On balance, although the U.S. drought of 2012 is anticipated to negatively impact the second quarter of 2013, the lingering effects of the drought are expected to dissipate later in the quarter with the arrival of the new crop season. Accordingly, based on current conditions, management expects adjusted EBITDA in the second quarter to fall below the strong levels achieved in 2012. However, the anticipated decrease is not expected to be as significant as the year-over-year decrease experienced in the first quarter of 2013.
Management's outlook for the second half of 2013 remains optimistic. Moisture levels in the United States corn-belt have improved significantly and if realized the current forecast for a 35% increase in corn production over 2012 should greatly benefit demand for grain handling equipment. The Company's international business continues to grow and we remain confident that the talent of our sales teams, our growing relationships offshore and the strength of our product offering will enable this growth to be sustained.
Consistent with prior years, demand in 2013, particularly in the second half, will be influenced by weather patterns, crop conditions, the timing of harvest and conditions during harvest. Yield per acre and the number of acres ultimately harvested may be impacted by dry conditions that persist in some regions of the U.S., particularly in the Great Plains, and the likelihood of regional flooding in western Canada. Changes in global macro-economic factors, including the availability of credit in new markets, also may influence demand, primarily for commercial grain handling and storage products. Results may be also be impacted by changes in steel and other material input costs and the rate of exchange between the Canadian and U.S. dollars.
AGI today announced the declaration of cash dividends of $0.20 per common share for the months of June, July and August 2013. The dividends are eligible dividends for Canadian income tax purposes. AGI's current annualized cash dividend rate is $2.40 per share.
MD&A and Financial Statements
AGI's financial statements and management's discussion and analysis for the three month period ended March 31, 2013 can be obtained at http://media3.marketwire.com/docs/Q1aggrowth623.pdf and will also be available electronically from SEDAR (www.sedar.com) or from Ag Growth's website (www.aggrowth.com).
AGI will hold a conference call on Friday, May 10, 2013, at 2:00 p.m. EST to discuss its results for the three month period ended March 31, 2013. To participate in the conference call, please dial 1-866-226-1792 or for local access dial 416-340-2216. An audio replay of the call will be available for seven days. To access the audio replay, please dial 1-800-408-3053 or for local access dial 905-694-9451. Please quote pass code 4173771.
Annual General Meeting
AGI's annual shareholders meeting will be held on Friday, May 10, 2013 at 10:00 a.m. EST at the King Edward Hotel, 37 King Street East, Toronto, Ontario. Following the AGM a representative from AGI's international sales team will deliver a presentation on the Company's opportunities in global markets. The presentation will be webcast at approximately 10:15 a.m. EST and can be viewed at http://www.gowebcasting.com/4287. A replay of the webcast will be available for seven days following the AGM.
Ag Growth International Inc. is a leading manufacturer of portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. AGI has eleven manufacturing facilities in Canada, the United States, the United Kingdom and Finland, and its sales, marketing, and distribution system distributes product in 48 states, nine provinces, and internationally.
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