Wajax Revenue Decreases 12.9-Percent in Second Quarter
Canadian distributor Wajax Ltd. posted CDN $356.9 million in second quarter revenue, compared to $409.4 million in the second quarter of 2019, a 12.9-percent decrease. Equipment rental was $8 million compared to $9.2 million a year ago, a 13-percent dip.
EBIT decreased $1.0 million, or 4.9 percent,, to $20.0 million in the second quarter of 2020 versus $21.0 million in the same period of 2019. The year-over-year decrease in EBIT is primarily attributable to lower revenue and a higher proportion of lower margin equipment sales compared to higher margin parts and service sales, partially offset by reduced selling and administrative costs and the Canadian Emergency Wage Subsidy recovery.
"Current business conditions, driven primarily by COVID-19 concerns and secondarily by weak resource markets in western Canada, continued to have a negative effect on Wajax's results during the second quarter of 2020,” said Wajax president and CEO Mark Foote. “The volume declines in the first two months of the quarter improved in June as customer activity began to increase, and revenue was positively affected by the early delivery to customers of two large mining shovels which we had previously expected to deliver in the third quarter of 2020. While volumes have recently shown an improving trend, we continue to expect revenue to be lower year-over-year in the third quarter.
"In response to difficult market conditions and consistent with our plan to reduce inventory, Wajax accelerated actions to dispose of aged and used equipment inventory in the second quarter which, combined with a higher mix of lower margin equipment sales, had a negative effect on gross profit rate. While we expect to continue to take actions to reduce inventory to conditions-appropriate levels, we do not expect the same degree of margin decline in subsequent quarters. Wajax expects to partially offset the effect of volume declines with cost reductions while managing customer service levels, working capital and capital spending accordingly. The corporation's current sources of liquidity are expected to be sufficient while preparing to return to growing the business as conditions improve."
For the first six months of the year, Wajax reported $701 million in revenue compared with $784 million for the first six months of 2019, a 10.6-percent decrease. Equipment rental revenue dropped from $18 million in the first six months of last year to $16.5 million this year, an 8.3-percent drop.
In response to difficult market conditions and consistent with the corporation's plans to reduce inventory, Wajax accelerated plans to dispose of aged and used equipment inventory in the second quarter which, combined with a higher mix of lower margin equipment sales, had a negative effect on gross profit rate. While Wajax expects to continue to take actions to reduce inventory to conditions-appropriate levels, it does not expect the same degree of margin decline in subsequent quarters.
Headquartered in Mississauga, Ontario, Canada, Wajax is No. 76 on the RER 100.
About the Author
Michael Roth
Editor
Michael Roth has covered the equipment rental industry full time for RER since 1989 and has served as the magazine’s editor in chief since 1994. He has nearly 30 years experience as a professional journalist. Roth has visited hundreds of rental centers and industry manufacturers, written hundreds of feature stories for RER and thousands of news stories for the magazine and its electronic newsletter RER Reports. Roth has interviewed leading executives for most of the industry’s largest rental companies and manufacturers as well as hundreds of smaller independent companies. He has visited with and reported on rental companies and manufacturers in Europe, Central America and Asia as well as Mexico, Canada and the United States. Roth was co-founder of RER Reports, the industry’s first weekly newsletter, which began as a fax newsletter in 1996, and later became an online newsletter. Roth has spoken at conventions sponsored by the American Rental Association, Associated Equipment Distributors, California Rental Association and other industry events and has spoken before industry groups in several countries. He lives and works in Los Angeles when he’s not traveling to cover industry events.