MISSISSAUGA, ONTARIO -- (Marketwire) -- 10/31/12 -- Strongco Corporation (TSX: SQP) today reported financial results for the three and nine months ended September 30, 2012.
Highlights(i)
-- Total revenues increased by 10% to $119.2 million -- Operating earnings increased by 9% to $5.8 million -- EBITDA increased by 15% to $15.3 million -- Earnings before income taxes of $3.6 million compared to $3.8 million -- Net income of $2.5 million compared to $3.6 million -- Earnings per share of $0.19 compared to $0.27
(i) Comparisons are between third quarter 2012 and third quarter 2011
"In the third quarter, Strongco achieved strong results, with continued improvement in all major revenue streams and increased operating earnings," said Robert Dryburgh, President and Chief Executive Officer of Strongco. "Overall, we are satisfied with the operating performance although our inventories are higher than we would like. With ongoing demand in the market and our current level of RPOs combined with other actions we are taking, inventories will be reduced."
Financial Highlights(i) Three-Month Periods Ended September 30 (unless otherwise noted) ($ millions except per share amounts) 2012 2011 Revenues $ 119.2 $ 108.4 Operating income $ 5.8 $ 5.3 EBITDA $ 15.3 $ 13.3 Earnings before income taxes $ 3.6 $ 3.8 Provision for income taxes $ 1.1 $ 0.2 Net income $ 2.5 $ 3.6 Basic and diluted net income per share $ 0.19 $ 0.27 Equipment in inventory $ 263.1 $ 188.2 Equipment notes payable $ 233.8 $ 160.4
(i) All financial information conforms to International Financial Reporting Standards.
Third Quarter 2012 Review
Total revenues in the three months ended September 30, 2012 were up 10% from the third quarter of 2011. Equipment sales increased by 11.4% from last year to $76.0 million; product support revenues gained 5.5% to $32.7 million; and rental revenues were $10.5 million, up 14.1% from the year-earlier period.
Gross margin increased by 4.7% to $22.5 million during the third quarter. As a percentage of revenue, the overall gross margin declined to 18.9% from 19.9% due primarily to the increased level of equipment sales in the same period of 2011.
Administrative, distribution and selling expenses during the third quarter totalled $16.9 million, compared to $16.3 million in 2011. As a percentage of revenue administrative, distribution and selling expenses were 14.2% compared to 15% in the third quarter of 2011.
EBITDA for the third quarter increased to $15.3 million from $13.3 million a year earlier and operating income for the third quarter increased to $5.8 million from $5.3 million in the same period of 2011.
Higher interest costs reduced earnings before income taxes to $3.6 million from $3.8 million in the third quarter of 2011.
Strongco is now taxable whereas the company was able to utilize loss carry forwards to offset tax expenses in 2011. Consequently, Strongco's net income in the third quarter of 2012 was $2.5 million ($0.19 per share), down from $3.6 million ($0.27 per share) in the third quarter of 2011. The third quarter of 2012 included $1.0 million of provision for income taxes.
Equipment inventories increased in the third quarter and at September 30, 2012 were $263.1 million, up from $188.2 million a year ago. Equipment notes payable financing this inventory were $233.8 million compared to $160.4 million at the end of the third quarter of 2011. Primarily as a result of the higher equipment notes, the ratio of debt to tangible net worth at September 30, 2012 was slightly above the maximum allowed under the financial covenants of certain of the Company's credit facilities. The Company's lenders have amended the covenants to allow for the current level of debt and anticipated borrowing to finance its planned new branch in Fort McMurray.
Outlook
"Strongco's sales backlogs grew significantly during the first quarter of 2012 and remained robust through the second and third quarters, which is a positive indication of the continued strong demand for heavy equipment," said Mr. Dryburgh. "At the same time, the level of RPO activity has increased throughout the year and by the end of the third quarter, there was $67.3 million of equipment inventory on RPO contracts. Looking ahead, the strong backlog and growing level of RPOs should contribute to strong sales growth in 2013," he added.
Strongco's equipment inventory is higher than the Company would normally carry at this point in the year. Management is not satisfied with inventory levels and considers that actions to overcome the issues created by the less than adequate delivery performance of its OEMs, has, to some degree, over compensated. However, management is confident that, with a combination of continued demand in the market and the level of RPO activity, the higher level of inventory will be sold through the fourth quarter of 2012 and first half of 2013. In addition, management is curtailing the level of incoming inventory orders from its OEM's and adjusting orders for the fourth quarter and first quarter of 2013 accordingly.
Many economists are forecasting continued modest economic growth in Canada throughout 2013 and with that, construction markets across the country are expected to remain active, which should result in continued strong demand for heavy equipment. The outlook for Alberta is positive with activity in the oil sands expected to remain robust, which should lead to continued demand for articulated trucks and cranes in the region. While the recent corruption scandal in Quebec has put some construction projects on hold, continued hydro-electric projects and proposed Plan Nord development in Northern Quebec, and ongoing infrastructure activity to rebuild roads and bridges across the province, are expected to generate continued demand for heavy equipment. With recent evidence of recovery in residential housing markets in the United States, economists are also projecting modest economic growth in 2013, which should lead to increased demand for equipment.
While business plans for 2013 are not yet finalized, management remains cautiously optimistic given the expected ongoing demand for heavy equipment, that revenues in the coming year will be stronger.
Conference Call Details
Strongco will hold a conference call on Thursday, November 1, 2012 at 10 am ET to discuss third quarter results. Analysts and investors can participate by dialing 416-644-3414 or toll free 1-800-814-4859. An archived audio recording will be available until midnight on November 15, 2012. To access it, dial 416-640-1917 and enter passcode 4567731#.
About Strongco Corporation
Strongco Corporation is one of Canada's largest multiline mobile equipment dealers and operates in the northeastern United States through Chadwick-BaRoss, Inc. Strongco sells, rents and services equipment used in sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste management and forestry. Strongco has approximately 640 employees serving customers from 26 branches in Canada and five in the United States. Strongco represents leading equipment manufacturers with globally recognized brands, including Volvo Construction Equipment, Case Construction, Manitowoc Crane, National, Grove, Terex Cedarapids, Terex Finlay, Ponsse, Fassi, Allied Construction, Taylor, ESCO, Dressta, Sennebogen, Jekko, Takeuchi, Doppstadt, Link-Belt and Kawasaki. Strongco is listed on the Toronto Stock Exchange under the symbol SQP.
Forward-Looking Statements
This news release contains "forward-looking" statements within the meaning of applicable securities legislation which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Strongco or industry results, to be materially different from any future results, events, expectations, performance or achievements expressed or implied by such forward-looking statements. All such forward-looking statements are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. Forward-looking statements typically contain words or phrases such as "may", "outlook", "objective", "intend", "estimate", "anticipate", "should", "could", "would", "will", "expect", "believe", "plan" and other similar terminology suggesting future outcomes or events. This news release contains forward-looking statements relating to the expected trading of common shares of Strongco on the TSX, and such statements are based upon the expectations of management.
Information Contact
J. David Wood
Vice-President and Chief Financial Officer
Telephone: 905.565.3808
Email: jdwood@strongco.com
www.strongco.com
Contacts:
Strongco Corporation
J. David Wood
Vice-President and Chief Financial Officer
905.565.3808
jdwood@strongco.com
www.strongco.com
