Strongco Volumes Decline in First Quarter Despite Improved Outlook
Canadian equipment distributor and rental company Strongco Equipment posted a 26.4-percent revenue decrease for the first quarter ended March 31, with revenues declining from CA$73.0 million for the first quarter in 2009 to CA$53.7 million (about U.S. $50.6 million). While the recession is considered to be ended in Canada, construction and heavy equipment markets typically lag by at least six months.
The company said customers remained reluctant to purchase larger, higher-priced equipment, and increased competition from dealers carrying excess supplies of aging inventories put pressure on selling prices. Reduced supply and longer delivery lead times for heavy equipment from OEMs also hampered sales. A mild winter in eastern Canada meant less usage of snow-removal equipment, the company said.
Equipment sales decreased by 32 percent to 29.9 percent, while equipment rentals dropped 13 percent from $4.3 million to $3.7 million. Product support revenues declined 19 percent, from $24.6 million to $20.1 million.
“The recessionary business pattern that existed during most of 2009 continued in the first quarter of 2010,” said Robert Dryburgh, president and CEO of Strongco. “The first quarter of 2009, although in recession, enjoyed carryover backlogs from 2008. Conversely, while the economy is officially now in recovery, construction markets tend to lag the broader economy by about six months. Consequently, many customers have continued to defer purchases of new equipment until they experience tangible signs of an improvement…. We expect demand for heavy equipment will increase for the balance of 2010.”
Dryburgh added that cost reductions and restructuring initiatives completed in 2009 have given Strongco a lower operating cost base and the company has maintained overall gross margins. “We anticipate improved profitability as construction markets recover during the year,” Dryburgh said.
One of the world’s leading Volvo Construction Equipment dealers, Strongco Equipment, based in Mississauga, Ontario, Canada, is No. 82 on the RER 100.
In other Strongco news, the company’s unitholders approved the conversion of the company’s income trust structure into a public corporation named Strongco Corporation, a process Strongco expects to complete by early July.