Ag Growth International bucked the weakness in the farm
machinery sector, unveiling a jump in earnings and foreseeing profits remaining
strong, thanks to the prospect of large harvests.
The Canada-based maker of grain handling and storage
equipment reported a more than doubling in earnings, to Can$13.64m, for the
April-to-June quarter, on revenues up 19.7% at Can$112.4m.
"Favourable crop conditions in North America and continued
investment in agricultural infrastructure lead to robust demand for on-farm and
commercial grain handling, storage and aeration equipment," Ag Growth
With demand in many overseas markets boosted by desire to
fill "a significant storage and handling infrastructure deficit", revenues hit
record levels "in all geographies" for the first half over 2014 overall.
Orders remain strong
too, ahead of what are expected to be record corn and soybean harvests in the
US, and with bumper crops in many other countries too.
"With what is forecast to be another huge crop looming the
market environment for our on-farm equipment is simply excellent," said Gary
Anderson, the group's chief executive.
Although Canada is expected to see smaller crop volumes this
year than in 2013, when yields were unusually high, demand in Ag Growth's domestic
market is being spurred by the after-effects of the deregulation of Canadian
grain marketing, and the removal of Canadian Wheat Board monopolies.
The reform "has spurred incremental investment as commercial
grain handlers seek efficiencies and expand their footprint to compete for
The group also flagged continued strong business in
crisis-hit Ukraine, a key foreign market, to where Ag Growth expects to ship $50m
in product over the "next several quarters".
"Management expects to transact significant business in
Eastern Europe, particularly Ukraine" this year, the company said.
"Our customers in Ukraine are predominantly well-capitalised
entities that either qualify for Export Development Canada insurance, direct
financing or are able to pay cash in advance of shipment".
With the Ukraine customers generally transacting "a
significant portion of their business" in US dollars, they are "largely insulated
from volatility in local currencies.
"We remain in regular contact with our customers in the
region and to date there has not been an indication that their capital
expenditure plans have been substantially impacted by the recent events."
The comments contrast with those from many other farm
machinery groups - in particular those making field equipment rather than the
storage needed for a large harvest - which have reported a dent to takings as
low crop prices reduce growers' willingness to spend.
Overnight, AgJunction, a maker of farm satellite equipment,
reporting a fall $585,000 into the red for the April-to-June quarter, compared
with earnings of $1.13m a year before, said it was "impacted by the downturn in
agriculture which has led to reduced equipment sales".
Revenues dropped 37% to $10.3m.
The results came hours after machinery giant Deere & Co
reported a fall in earnings and cut its guidance for its financial year, warning
that "falling commodity prices are contributing to a reduction in farm income".
Ag Growth's earnings equated to Can$0.98 per share, ahead of
the Can$0.90 that investors had expected.
Cantor Fitzgerald raised by Can$2 to Can$53 its target price
for Ag Growth shares, on which it kept a "buy" rating.
"Notably, we do not factor in potential upside from the
consummation of any acquisitions which has been a key success factor in driving
shareholder returns," Cantor analyst Peter Prattas added.
"One area where Ag Growth may look to acquire next is in
Brazil where it sees a giant opportunity for the sale of its products."