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Cervus Announces Second Quarter 2019 Results

CALGARY , Aug. 8, 2019 /CNW/ - Cervus Equipment Corporation ("Cervus" or the "Company") (CERV.TO) today announced its financial results and operational highlights for the three months ended June 30, 2019 .

"The second quarter results highlight two key messages for our business. First, the strength of our recurring, stable, and profitable product support business is made stronger by diversification of industry segments and geographies," said Angela Lekatsas , President and CEO of Cervus. "Second, our Western Canadian Agriculture operations are facing compounding headwinds that have highlighted opportunities to improve our profitability across market cycles."

Second Quarter 2019 Highlights

  • Income of $2.8 million in the second quarter of 2019, compared to income of $9.5 million for the same period of 2018.

  • Income per basic share of $0.18 in the second quarter of 2019, compared to income of $0.61 per basic share for the same period of 2018.

  • A quarterly dividend of $0.11 per share was declared to shareholders of record as at June 30, 2019 , a 10% increase from June 30, 2018 .

  • The Company repurchased 247 thousand shares under its Normal Course Issuers Bid at a cost of $3.1 million in the second quarter.







Three month 
periods ended June 30


Six month
periods ended June 30

($ thousands, except per share
amounts)

2019


% Change
Compared
to 2018

2018


2019


% Change
Compared
to 2018

2018

Equipment revenue

244,464

(26%)

328,788


405,705

(20%)

507,513

Product support revenue

83,141

4%

79,797


156,698

5%

149,778

Total revenue

327,605

(20%)

408,585


562,403

(14%)

657,291

Gross profit

46,879

(19%)

57,848


89,603

(8%)

97,198

Income for the period

2,817

(70%)

9,516


105

(99%)

7,568

Income per basic share

0.18

(70%)

0.61


0.01

(98%)

0.48

EBITDA(1)

11,981

(38%)

19,385


18,876

(15%)

22,078

Adjusted income (loss) before income
tax expense(1)

2,186

(84%)

13,621


(554)

(105%)

10,835

 

Second Quarter 2019 Summary

Revenue

  • Overall revenue decreased 20% in the quarter, due to reduced equipment sales partially offset by increases in our product support revenue.

  • Equipment revenue decreased 26% across the Company, comprised of a 30% decrease in our Agriculture segment, and a 13% decrease in our Transportation segment. Agriculture producers are facing a number of market headwinds and have responded with caution, while lower Transportation equipment revenue relates to tapering of demand following the substantial sales in 2018.

  • Product support revenue improved across all our operating segments, increasing 4% in the quarter. The consistent performance and continued growth opportunities within our product support departments validate our positive outlook for this foundational component of our dealerships across industry cycles.


Gross Profit

  • Gross profit decreased $11.0 million in the quarter. Improved product support revenue contributed an additional $1.2 million to gross profit in the quarter, however this was more than offset by the reduction in gross profit tied to equipment revenue of $12.2 million .

  • Gross profit as a percent of revenue increased in the quarter, reflecting the shift in sales mix towards higher margin product support revenues.


Selling, General and Administrative ("SG&A") Expenses and Net Finance Costs

  • SG&A dollars decreased by $1.3 million in the quarter, primarily due to reduced sales commissions tied to lower equipment revenue in the quarter.

  • The increase in net finance costs of $1.6 million in the quarter is primarily due to the adoption of IFRS 16.


Income

  • The Company reported income before income tax of $2.8 million in the quarter, a decrease of $10.8 million due to the factors described above.

  • Adjusted income before income tax was $2.2 million in the quarter, a decrease of $11.4 million .


Inventory

  • Total inventory was $389.8 million at June 30, 2019 , an increase of $32.5 million from June 30, 2018 , due to a $54.1 million increase in the Agriculture segment, partly offset by a $21.0 million decrease in the Transportation segment.

  • Agriculture used equipment inventory turnover for the trailing twelve-month period ended June 30, 2019 was 1.62 times, compared to 1.67 times at June 30, 2018 , and 1.78 times at December 31 , 2018. 

  • Based on inventory levels at June 30, 2019 , the Company had the ability to floor plan an additional $37.0 million of inventory.


Select Financial Information







Three month
 periods ended June 30


Six month
periods ended June 30

($ thousands, except per share
amounts)

2019


% Change
Compared
to 2018

2018


2019


% Change
Compared
to 2018

2018

Equipment revenue

244,464

(26%)

328,788


405,705

(20%)

507,513

Product support revenue

83,141

4%

79,797


156,698

5%

149,778

Total revenue

327,605

(20%)

408,585


562,403

(14%)

657,291

Gross profit

46,879

(19%)

57,848


89,603

(8%)

97,198

Total other income

1,390

85%

751


2,495

84%

1,354

Selling, general and administrative
expense

(42,397)

(3%)

(43,655)


(85,518)

0%

(85,342)

Income from operating activities

5,872

(61%)

14,944


6,580

(50%)

13,210

Net finance costs

(3,061)

106%

(1,485)


(5,911)

120%

(2,692)

Share of income of equity accounted
investees, net of tax

-

(100%)

124


-

(100%)

124

Income before income tax expense

2,811

(79%)

13,583


669

(94%)

10,642

Income tax recovery (expense)

6

100%

(4,067)


(564)

(82%)

(3,074)

Income for the period

2,817

(70%)

9,516


105

(99%)

7,568

Income attributable to shareholders

2,817

(70%)

9,516


105

(99%)

7,568

EBITDA(1)

11,981

(38%)

19,385


18,876

(15%)

22,078

Ratios








Gross profit margin as a % of
revenue

14.3%


14.2%


15.9%


14.8%

SG&A as a % of gross profit

90.4%


75.5%


95.4%


87.8%

Income (loss) per share








Basic

0.18

(70%)

0.61


0.01

(98%)

0.48

Diluted

0.17

(71%)

0.58


0.01

(98%)

0.46

Basic - Adjusted(1)

0.15

(75%)

0.61


(0.05)

(110%)

0.49









Reconciliation of adjusted income
(loss) before income tax expense:








Income before income tax expense

2,811

(79%)

13,583


669

(94%)

10,642

Adjustments:








Unrealized foreign currency (gain)
loss included in other income

(625)


38


(1,223)


673

(Gain) on sale of Commercial
operations

-


-


-


(480)

Adjusted income (loss) before income
tax expense(1)

2,186

(84%)

13,621


(554)

(105%)

10,835

 

Conference Call Information

Cervus will host its second quarter 2019 results conference call and webcast on Friday, August 9, 2019 at 11:00 a.m. Eastern Time . President and CEO Angela Lekatsas and CFO Adam Lowther will discuss Cervus's financial and operating results for the quarter ended June 30, 2019 , and then take questions from securities analysts and institutional shareholders.

Interested parties may access the conference call by dialling (647) 427-7450 or 1-888-231-8191. Please connect approximately 10 minutes prior to the beginning of the call. The conference call will be archived for replay until Friday, August 16, 2019 at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 3778254 followed by the number sign.

Interested parties may access the webcast of the conference call which includes a slide presentation at:
https://event.on24.com/wcc/r/2007003/5A8CD20CCB0D1295D149002717A8215B
.
Please connect approximately 10 minutes prior to the beginning of the call to ensure adequate time for any software download that may be required to join the webcast and view the slides being presented. The webcast will be archived at the above website for 90 days.

About Cervus Equipment

Cervus acquires and operates authorized agricultural, transportation and materials handling equipment dealerships. The Company has interests in 63 dealerships in Canada , New Zealand , and Australia , employing more than 1,500 people. The primary equipment brands represented by Cervus include John Deere agricultural equipment; Peterbilt transportation equipment; and Clark, Sellick, Doosan, JLG and Baumann material handling equipment. The common shares of Cervus are listed on the Toronto Stock Exchange and trade under the symbol "CERV".

Footnotes

(1)

These non-IFRS financial measures do not have any standardized meaning under IFRS, may not be comparable to similar  measures presented by other issuers and are defined and reconciled to their most directly comparable IFRS measure within Cervus' Management's Discussion and Analysis for the quarter ended June 30, 2019 under the section "Non-IFRS Financial Measures", which is available electronically at www.sedar.com under Cervus' profile. 

 

Forward Looking Information

This press release contains certain forward‐looking information ("forward‐looking information") within the meaning of applicable Canadian securities laws. Forward‐looking information is often, but not always, identified by the use of words such as "anticipate", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. Forward‐looking information is not a guarantee of future performance and involves a number of assumptions and a number of risks and uncertainties some of which are described herein. These risks and uncertainties include the risks identified under the heading "Business Risks and Uncertainties" in the Second Quarter 2019 Management Discussion & Analysis of Cervus Equipment Corporation dated August 7, 2019 , available electronically at www.sedar.com under Cervus' profile. Cervus believes the expectations reflected in such forward‐looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward‐looking information should not be unduly relied upon. You are cautioned that the preceding list of assumptions and risks is not exhaustive. Any forward‐looking information is made as of the date hereof and, except as required by law, Cervus assumes no obligation to publicly update or revise such information to reflect new information, subsequent or otherwise.

The Toronto Stock Exchange does not accept responsibility for the adequacy or accuracy of this release.

SOURCE Cervus Equipment Corp.


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