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Strongco Boosts Rentals, Profits While Q2 Revenues Decline

Canadian distributor Strongco, which, among others, is a dealer for Case, Volvo Construction Equipment, Manitowoc cranes and others, posted $112.7 million in revenue in the second quarter, compared to $122 million in the second quarter of 2018, a 7.6-percent decline.

Canadian distributor Strongco, which, among others, is a dealer for Case, Volvo Construction Equipment, Manitowoc cranes and others, posted $112.7 million in revenue in the second quarter, compared to $122 million in the second quarter of 2018, a 7.6-percent decline. However, the company reported higher profits and increased equipment rental activity.

For the first six months of 2019, revenues totaled $204.7 million compared to $211 million for the same period of 2018, a 3-percent drop. Equipment rental revenue in the second quarter was $4.4 million, compared to $3.7 million a year ago, an 18.9-percent leap. For the first six months of the year, equipment rental reveue was $8.6 million, compared to $8.5 million in the first six months of 2018, a 1.2-percent increase.

“We are pleased to report that our profits are continuing to grow,” said Robert Beutel, executive chairman of Strongco. “Excluding the additional non-case expenses due to IFRS 16, the bottom line grew by $0.5 million in the quarter and $1 million year-to-date. Omitting the one-time charge in Q3 2018 due to a lease termination in Fort McMurray, this is our sixth consecutive profitable quarter, and cash generated from operations continues to increase. While we did see a decline in equipment sales this quarter versus last year, rental and product support revenues were both higher, and gross margins increased. This, combined with lower expenses from our cost reduction initiatives, resulted in substantially improved operating profit. These improvements are the result of the diligent efforts of the entire team in keeping customers satisfied and having a long-term perspective.

“We remain cautiously optimistic that market conditions will rally over the balance of 2019 and will continue to align both inventory and expense management with anticipated demand, paving the way for further success. Subsequent to the quarter end, in response to its improved performance over the last several quarters, the company was granted a 100 bp decreased in the cost of funds on its operating line from its bank.”

In the second quarter, sales of construction equipment and cranes were lower in Quebec and the Atlantic, partially offset by higher sales in Ontario. In Alberta, strong sales of articulated trucks were offset by weaker sales of other construction equipment in the province, while crane sales were higher.

Rental revenues were higher because of increased demand for rentals, especially in Alberta. Product support revenues (sales of parts and service and warranty) were higher in eastern and central Canada. As a percentage of revenue, gross margin rose to 17.3 percent from 16.1 percent. Gross profit was $19.5 million, down slightly from $19.7 million a year ago.

Headquartered in Mississauga, Ontario, Strongco Corp. is No. 89 on the RER 100.

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