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Equipment retailer sees business dry due to U.S. drought

By: Murray McNeill

Friday, Aug. 17, 2012 at 8:16 AM | Comments: 0

Ag Growth International CEO Gary Anderson is facing less demand for his equipment.

THE U.S. drought has derailed what could have been a banner year for farm equipment manufacturer Ag Growth International Inc., forcing the early layoff of 60 local employees.

Company officials said Thursday with the drought expected to take a big bite out of its U.S. sales of grain-handling equipment this fall, the firm's Westfield Industries grain-auger plant in Rosenort was forced last month to cut its 290-member workforce to about 230 workers.

AGI president and chief executive officer Gary Anderson and chief financial officer Steve Sommerfeld said it's customary for Westfield to pare back its production staff in October or November, after most farmers have purchased their grain-handling equipment for the year.

"But this year it (the number of layoffs) is a little earlier and a little deeper than usual," Sommerfeld said.

The layoffs are a bitter pill to swallow given how rosy things were looking earlier in the year, when commodity prices were climbing and U.S. officials were forecasting a record corn harvest for 2012.

"We really were on track to have a great year," Anderson said, noting sales in Canada were up 31 per cent at the half-way point of the year and offshore sales were running 24 per cent ahead of last year's pace.

"But now the U.S. drought has derailed the year," he said, noting the less grain farmers are harvesting, the less grain-handling equipment they purchase.

The saving grace is prospects for an excellent harvest in Western Canada and expectations off-shore equipment sales will grow at an even faster pace in the second half of the year.

That should enable the company to come close to matching 2011's EBITDA (earnings before interest, taxes, depreciation and amortization) total of about $53.3 million.

AGI has five manufacturing plants in the United States, four in Canada and one in Finland. It manufactures both portable and stationary grain-handling, storage and conditioning equipment, including augers, belt conveyors, handling accessories and aeration equipment.

Its second-quarter financial results, released earlier this week, showed sales grew by $12.8 million to $99 million during the quarter, and adjusted EBITDA climbed to $20.1 million from $18.2 million.

However, due mainly to a loss on its derivative contracts, profit for the quarter fell to $8.8 million, or 70 cents per share, from $12 million, or 91 cents per share, a year earlier, when it saw a substantial gain on its derivative contracts.

Anderson noted the U.S. market accounts for about 60 per cent of AGI's annual sales, the Canadian market about 20 per cent and offshore markets the remaining 20 per cent.

"This is one year where I wish we had a higher weighting of our business in Western Canada," he said. "But 19 out of 20 years, we'd rather have 60 per cent of our weighting in the corn belt in the United States."

He said the company's decision five years ago to begin aggressively growing its offshore sales and diversifying its product offering, mainly through acquisitions, is paying big dividends this year by helping to offset weaker U.S. sales.

"And we look forward to a nice rebound in 2013... with grain prices where they are," he added.

AGI shares (TSX:AFN) closed Thursday up 63 cents to $31.89.

murray.mcneill@freepress.mb.ca

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