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Press release from Marketwire

Strongco Posts Second Quarter Sales Increase in Challenging Market Conditions

Wednesday, July 31, 2013

Strongco Posts Second Quarter Sales Increase in Challenging Market Conditions

06:30 EDT Wednesday, July 31, 2013

MISSISSAUGA, ONTARIO--(Marketwired - July 31, 2013) - Strongco Corporation (TSX:SQP) today reported financial results for the three months ended June 30, 2013.

Summary*

  • Total revenues increased by 6.0% to $140.2 million
  • Gross margin of $24.4 million compared to $23.8 million
  • Operating income of $6.2 million compared to $6.2 million
  • EBITDA of $13.7 million compared to $12.5 million
  • Net income of $2.9 million compared to $3.1 million
  • Earnings per share of $0.22 compared to $0.23 per share

* Comparisons are between second quarter 2013 and second quarter 2012

"In the second quarter, Strongco posted a solid increase in revenue and achieved gains in market share in all of its regions in Canada," said Robert Dryburgh, President and Chief Executive Officer. "This was in spite of prolonged winter weather across the country, tragic floods in Fort McMurray and southern Alberta in June, weak markets in New England, and in Quebec, a significant slowdown in demand, exacerbated by a construction strike in the province at quarter end. Our strong performance is not only a testament to the decision to upgrade our branch presence in Alberta and Quebec, it also reflects on the efforts of Strongco's people working in our enhanced sales organization."

"Inventory levels crested in May, as expected, and we fully expect to meet our planned $50 million year-over-year reduction in equipment, with the resultant impact on floor plan debt by year-end," he continued.

Financial Highlights
Three-Month Periods Ended June 30
(unless otherwise noted)
($ millions except per share amounts) 2013 2012
Revenues $ 140.2 $ 132.2
Operating income $ 6.2 $ 6.2
EBITDA $ 13.7 $ 12.5
Earnings before income taxes $ 4.0 $ 4.2
Provision for income taxes $ 1.1 $ 1.1
Net income $ 2.9 $ 3.1
Basic and diluted net income per share $ 0.22 $ 0.23
Equipment in inventory $ 261.4 $ 244.0
Equipment notes payable $ 233.1 $ 213.4

Second Quarter 2013 Review

Total revenues in the three months ended June 30, 2013 were $140.2 million, up 6.0% from the second quarter of 2012. Gains were made in all revenue categories. Equipment sales increased by 6% from last year to $97.5 million; rental revenues were $7.6 million, up 19% from $6.4 million; and product support revenues totalled $35.1 million compared to $33.4 million from the same period in the prior year.

Gross margin increased by $0.6 million to $24.4 million during the second quarter of 2013. As a percentage of revenue, the overall gross margin was 17.4%, down from 18.0% last year due primarily to a sales mix that included a higher level of equipment sales.

Administrative, distribution and selling expenses during the second quarter totalled $18.5 million, or 13.2% of revenue, compared to $18.6 million, or 14.1% of revenue in 2012. While slightly improved from the prior year due to a lower accruals for management incentive bonus, expense levels reflect the higher cost of the new branches in Edmonton, Baie-Comeau and Trois-Rivières opened in 2012, as well as the cost of additional people to support growth and better service to customers. Also, lower recovery on product support-related expenses and warranty work plus shop labour inefficiencies in some branches resulted in higher net expenses. Training costs primarily related to new technicians were also higher in 2013.

Operating earnings before other income, interest and taxes increased to $5.9 million, or 4.2% of revenue, from $5.2 million, or 3.9% of revenue, in the second quarter of 2012.

EBITDA for the second quarter increased slightly to $13.7 million (9.7% of revenue), up from $12.5 million (9.4% of revenue) a year earlier.

Strongco's net income in the second quarter of 2013 was $2.9 million ($0.22 per share), compared to $3.1 million ($0.23 per share) in the second quarter of 2012.

Outlook

"While momentum in heavy equipment markets slowed in 2013, overall demand for equipment remains moderately ahead of last year with the exception of Eastern Canada," said Mr. Dryburgh. "Looking ahead, market activity in Alberta is positive and current backlogs for the region remain strong. Continuing wet weather is impeding job site activity but, as conditions dry out, higher machine usage will generate increased product support revenues. In Ontario, markets should slowly improve and we expect to see increased customer demand for equipment. Strongco's strong sales backlog and level of RPO contracts in 2013 are positive indicators of continuing demand and we are cautiously optimistic for the balance of the year," he added.

Economic forecasts continue to project modest growth for Canada overall in 2013 and market activity remains encouraging except in Quebec. In the northeastern United States, following a depressed first half of the year, there are early signs of a housing recovery, normally a precursor to economic recovery. While demand will likely vary from region to region, overall construction markets are expected to remain active, which should result in continued demand for heavy equipment.

The long-term outlook for Alberta is positive despite earlier announcements by oil companies and the provincial government of slowing activity in the oil sands and reduced infrastructure spending. Oil prices have recovered and the differential for oil sands product has declined substantially which is a positive sign for continued activity in Northern Alberta.

Construction markets in Ontario are continuing to recover following the recession, but a general lack of optimism and uncertainty over the economy still exists. The equipment market in Ontario remained flat in the first half of 2013, but improved sales performance and a modest increase in market share contributed to stronger revenues for Strongco.

Construction activity in Quebec declined significantly in 2013 due to the ongoing investigation of corruption in the construction industry by the Charbonneau Commission, the suspension of infrastructure spending and increased mining royalties imposed by the new provincial government. As a result, demand for heavy equipment in the region was substantially lower in the first half of the year. Strongco's revenues in the first six months, though below the prior year, are down less than the market overall, producing a slight improvement in market share. While there is growing political pressure to resume spending to repair and replace the seriously deteriorating infrastructure in the province, markets are expected to remain weak for the balance of the year which will continue to negatively affect Strongco revenues.

While the small up-tick in residential housing markets and the increased level of new job creation were positive signs of economic recovery in the United States, the improvement has been less noticeable in New England and has not translated into any significant upturn in construction markets in the area. Heavy equipment markets in the region remain depressed. Economists are still projecting modest economic growth in the United States overall in 2013, but the recovery will be very regional and more pronounced in the latter part of the year. No meaningful recovery is expected in New England in 2013, which will continue to dampen heavy equipment markets and hamper Strongco's sales in the region.

Management remains focused on reducing inventory and floor plan debt in 2013. Equipment in-stock decreased slightly in the second quarter and a more substantial reduction is anticipated in the second half of the year. While the amount of inventory committed to RPOs will remain high, Management is confident equipment inventory and floor plan debt levels will be lower by December 31st.

Conference Call Details

Strongco will hold a conference call on Thursday, August 1, 2013 at 10:00 am ET to discuss second quarter results. Analysts and investors can participate by dialing 416-644-3414 or 1-800-814-4859. An archived audio recording will be available until midnight on August 15, 2013. To access it, dial 416-640-1917 and enter passcode 4626374#.

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 27 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.

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Strongco Corporation
J. David Wood
Vice-President and Chief Financial Officer
905.565.3808
jdwood@strongco.com
www.strongco.com

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