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Canada rail snafus knock Rocky Mountain profits

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A revival in shares in Rocky Mountain Dealerships stalled after the tractor dealer joined the likes of Mosaic and Louis Dreyfus in revealing damage from the North American rail hiccups, as it unveiled a bigger-than-expected profits fall.

The Canada-based group earned Can$604m in the first three months of 2014, a plunge of 79% year on year, taking its earnings per share to Can$0.03, below forecasts of a $0.09-a-share result.

The decline, on revenues down 4.0% at $198.2m, reflected the dent to agricultural equipment purchases by farmers who found their own cashflows sapped by the impact of the country's rail transport squeeze, besides being hampered in trips to machinery dealers.

Rail operators blamed cold temperatures for their inability to cope with handling last year's record Canadian canola and wheat harvests, forcing trains to run slower, and with fewer wagons.

'Shortage of rail cars'

"Agriculture equipment revenues were down as demand was affected by a backlog in grain haulage by rail affecting customer cash flow and record-low temperatures affecting foot traffic in our dealership yards", said Mike Campbell, the Rocky Mountain Dealerships chief executive.

"A shortage of rail cars to haul grain, combined with 2013's bumper crop and softening in commodity prices, resulted in an elevated retention of crop inventory as we entered 2014," meaning less cash in farmers' hands.

The dent had been felt in particular in used equipment sales, which tumbled 29% to Can$50.8m.

Agriculture sales overall fell 9.3% year-on-year on a like-for-like basis, with new equipment takings flat on these terms.

The company was spared a bigger drop in group takings by a drive to lift support sales, which rose 12.3% to Can$6.98m and a boost to new sales from the disposal of Terex trucks as part of its exit from this line.

Slow thaw

The results add the group to a growing list of companies, including fertilizer groups Agrium and Mosaic this week, to blame Canadian rail hiccups at least in part for a tumble in earnings.

Grain trader Louis Dreyfus has filed a complaint with Canadian authorities over the service provided by CN Rail, the country's biggest rail operator.

And Rocky Mountain Dealerships noted that the thaw this year "is behind 2013 in many areas", a factor which some say is causing some continued rail setbacks.

It may be reflected in the first sowings data of the year to be released on Thursday by farm officials in Saskatchewan, Canada's top grain growing province.

Already, south of the border, the US Department of Agriculture has highlighted delays to spring sowings of the likes of oats, sugar beet and wheat in northern US states such as Minnesota and North Dakota.

Wealthy farmers

However, Rocky Mountain Dealerships said that it remained on course to grow earnings over 2014 as a whole.

"Despite the softness experienced in used agriculture equipment sales this past quarter, Canadian farmers continue to enjoy exceptionally strong balance sheets," Mr Campbell said.

"Early forecasts for the 2014 growing season are optimistic."

The group has historically reported its weakest performance in the January-to-March period, he added.

"We remain well positioned to deliver improved earnings over last year on an annual basis."

Market reaction

The "below expectations" results prompted broker Cantor Fitzgerald to cut to Can$12.00, from $12.50, its target price for Rocky Mountain Dealerships shares, on which it maintained a "hold" recommendation.

The downgrade reflected a cut to hopes for 2014 earnings per share Can$1.19 this year, from a previous estimate of Can$1.38 per share, although this would remain above the 2013 result of Can$0.99 per share on an underlying basis.

Rocky Mountain Dealerships shares - which last month hit a 21-month low of Can$10.37- stood at Can$10.90 in afternoon deals in Toronto, down 1.7% on the day.

Industry data

The Association of Equipment Manufacturers reported a mixed performance for Canadian agricultural machinery sales industry-wide in the January-to-March period.

Sales of small tractors rose by 2.6% year on year to 4,286 units, and combines by 11.2% to 416 vehicles.

But sales of four wheel drive tractors dropped 18.3% to 330 units.


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