Shares in Canada’s largest farm equipment dealer fell by more than seven per cent Wednesday after it said it expects lower sales of new products in the second half of 2018 as prices rise due to U.S. tariffs on steel and the lower value of the Canadian dollar.
Rocky Mountain Dealerships Inc. says it doesn’t expect to repeat the record level of new equipment sales it posted in the three months ended June 30, as farmers cashed in receipts from last year’s bumper crops to buy new combines and tractors.
Rising prices for products made in the United States will likely steer more buyers into the used equipment areas at his company’s three dozen dealerships in Alberta, Saskatchewan and Manitoba in the latter half of the year, CEO Garrett Ganden said on a conference call.
“As we look towards the second half of 2018, we are beginning to see the impacts of tariffs and a weaker Canadian dollar being reflected in new equipment pricing,” he said.
“While likely to moderate new equipment sales growth to an extent, increased pricing may encourage our customers to consider used equipment as a more cost-effective alternative.”
Watch below: Are steel and aluminum tariffs affecting decisions by farmers on whether to purchase new machinery?
The company’s large inventory of used equipment accepted as trade-ins for new, he said, should allow sales revenue to continue at normal levels.
Rocky Mountain shares were down 88 cents or 7.3 per cent to $11.12 at mid-afternoon on the Toronto Stock Exchange.
“The general view is agricultural equipment is one of the big losers from Trump’s trade war,” said CIBC analyst Jacob Bout in a summer outlook report published two weeks ago.
“Canadian players should be less impacted than U.S. counterparts (given expectations of robust farm incomes in Canada, unlike the U.S.), but will be impacted nonetheless if trade uncertainty continues.”
He said higher steel prices due to the U.S. tariffs on imports imposed in June increase new equipment prices which are swollen again when translated into weak Canadian dollars.
Rocky Mountain reported second-quarter net earnings of $6.1 million or 31 cents per share on sales of $303 million, up from a profit of $4.9 million or 25 cents on sales of $237 million in the year-earlier period.
Analysts had expected $7 million in net earnings on sales of $260 million, according to Thomson Reuters Eikon.
New equipment sales increased 46 per cent in the second quarter compared with the same period in 2017 and used equipment sales were up 18 per cent, the company reported.
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