Strongco Corporation

Strongco Corporation

March 19, 2013 21:00 ET

Strongco Announces Fourth Quarter and Full Year 2012 Results

Solid Increases Reported in Revenues, Gross Margin and EBITDA

MISSISSAUGA, ONTARIO--(Marketwire - March 19, 2013) - Strongco Corporation (TSX:SQP) today reported financial results for the fourth quarter and year ended December 31, 2012.


  • Total revenues increased by 10% to $464.2 million
  • Gross margin increased by 7% to $86.5 million
  • Operating earnings increased by 9% to $18.5 million
  • EBITDA increased to $49.1 million from $43.1 million
  • Net income totalled $7.6 million compared to $9.9 million
  • Earnings per share of $0.58 compared to $0.76 per share

* Comparisons are between full year 2012 and full year 2011

"In 2012, Strongco increased revenues, gross margin and EBITDA. At the same time, we expanded our market presence with the opening of four new branches in regional markets across Canada. We are already seeing the benefit of the investment in these new branches as our clients have responded positively to our greater commitment to better service," said Robert Dryburgh, President and Chief Executive Officer of Strongco. "However, we have accumulated a higher level of inventory to mitigate our concerns arising from the poor delivery of equipment we experienced in 2011. As a result, related equipment notes were higher than planned as was the corresponding interest that offset the gains we made in operating profits, reducing net income year over year."

Financial Highlights*
($ millions except per share amounts)
Period ended December 31 3 months 12 months
2012 2011 2012 2011
Revenues $ 115.9 $ 113.2 $ 464.2 $ 423.2
Gross margin 20.7 20.8 86.5 80.6
EBITDA 13.1 12.5 49.1 43.1
Net income 0.6 2.1 7.6 9.9
Basic and diluted earnings per share $ 0.05 $ 0.15 $ 0.58 $ 0.76
* All financial information conforms to International Financial Reporting Standards.

Fourth Quarter 2012 Review

Total revenues in the three months ended December 31, 2012 were $115.9 million, up 2% from the fourth quarter of 2011. Equipment sales increased by 1% from last year to $75.0 million; rental revenues were $10.4 million, up 17% from $8.9 million; and product support revenues totalled $30.5 million compared to $29.8 million from the same period in the prior year.

Gross margin decreased by $0.1 million to $20.7 million during the fourth quarter of 2012. As a percentage of revenue, the overall gross margin was 17.9%, down from 18.4% last year due primarily to a lower margin on equipment sales.

Administrative, distribution and selling expenses during the fourth quarter totalled $17.7 million compared to $17.0 million in 2011. Expenses were higher in the fourth quarter of 2012 due in part to the incremental operating expenses of new branches and as a result of additional employees hired at Canadian operations to support revenue growth.

EBITDA for the fourth quarter decreased slightly to $13.1 million from $12.5 million a year earlier.

Strongco is now fully taxable whereas the company was able to utilize loss carry forwards to offset tax expenses in 2011. Consequently, Strongco's net income in the fourth quarter of 2012 was $0.6 million ($0.05 per share), compared to $2.1 million ($0.15 per share) in the fourth quarter of 2011.

Fiscal 2012 Financial Review

Revenues for 2012 totalled $464.2 million, including $56.1 million from Chadwick-BaRoss. This compared to $423.2 million in total revenue for Strongco in 2011.

Strongco's equipment sales increased by 11% in 2012 to $305.5 million, following a 50% increase in 2011. Rental revenue in 2012 was $32.3 million, which was up 9% from 2011; product support revenues were higher in 2012 in all regions of Canada, as well as at Chadwick-BaRoss in the United States.

As a result of higher overall revenues in 2011 and 2012, gross margins increased by 7% in 2012 to $86.5 million. As a percentage of revenues, total gross margin in 2012 was 18.6% compared to 19.0% last year. The slight decrease was primarily the result of a higher proportion of equipment sales in 2012 and 2011, which offer lower margin percentages than product support activity and rentals.

Administrative, distribution and selling expenses in 2012 increased by 8% to $69.8 million. As a percentage of revenue, administrative, distribution and selling expenses were 15.0% in 2012, down slightly from 15.3% in 2011.

The Company's EBITDA in 2012 increased to $49.1 million compared to $43.1 million in 2011.

Strongco ended the year with a net income of $7.6 million or $0.58 per share, compared to $9.9 million or $0.76 per share in 2011.


"Management remains cautiously optimistic that while demand for heavy equipment may soften in the near term in certain regions, Strongco's recent investments, new branches and planned investment in additional new facilities, will lead to an increase in revenues in 2013 and further growth in the future," said Mr. Dryburgh.

Most economists are forecasting continued modest economic growth in Canada overall in 2013, although the pace of growth is expected to be lower than in 2012. As a result, construction markets across the country are generally expected to remain active, which should result in continued demand for heavy equipment. However, the demand will vary from region to region. While the long-term outlook for Alberta is positive, the high cost of refining oil from bitumen (the oil sand raw material) and the high cost of transportation have created an air of caution regarding the pace of activity in the oil sands. As a result, there is concern that the demand for heavy equipment in the region could soften with most of the reduction affecting large equipment used directly in the oil sands. We expect that less expensive equipment used for infrastructure development in the region would be less impacted and that the increased presence in the market with new branches will mitigate any market softness.

Demand for heavy equipment in Quebec has declined recently, prompted by the Charbonneau Commission's investigation of corruption in the construction industry and the announcement of a suspension of infrastructure spending by the newly elected provincial government in Quebec. However, both of these government actions are viewed as temporary as there is growing pressure to resume spending to repair and replace the seriously deteriorating infrastructure in the province. In addition, mining and infrastructure activity in Northern Quebec continues despite the uncertainty surrounding development activity following last year's provincial election.

In Ontario, while construction markets have shown recovery from the recession, there remains an overall lack of optimism and uncertainty over the economy which has caused many customers to curtail spending on heavy equipment and take a wait-and-see approach toward the marketplace in general. Increased activity and planned development in the mining sector in northern Ontario and continued spending on infrastructure across the province are expected to lead to ongoing demand for heavy equipment.

With the recent evidence of recovery in residential housing markets and the increased level of new job creation, economists are also projecting modest economic growth in 2013 in the United States with a bias towards second half growth. This is a positive indicator for ongoing recovery in construction markets and demand for heavy equipment.

Strongco's sales backlogs grew during the first quarter of 2012 and remained robust through the balance of the year. In addition, the level of rental contracts with purchase options ("RPOs") activity increased throughout 2012 and at year end, there was $48.0 million of equipment inventory on RPO contracts. The strong backlog and level of RPO's are a positive indication of the continued demand for heavy equipment.

Conference Call Details

Strongco will hold a conference call on Wednesday, March 20, 2013 at 10:00 am ET to discuss fourth quarter and year end 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 April 3, 2013. To access it, dial 416-640-1917 and enter passcode 4589630#.

About Strongco Corporation

Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada and in the United States. Strongco sells, rents and services equipment used in sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste management and forestry. The Company has approximately 690 employees serving customers from 26 branches in Canada and five in the United States, operating under Chadwick-BaRoss. Strongco represents leading equipment manufacturers with globally recognized brands, including Volvo Construction Equipment, Case Construction, The Manitowoc Company, National, Grove, Terex Cedarapids, Terex Finlay, Ponsse, Fassi, Allied Construction, Taylor, ESCO, Dressta, Sennebogen, Jekko, Takeuchi, 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.

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