Ag Growth International highlighted both setbacks and fillips from the policy agenda being followed by US President Donald Trump – with steel tariffs raising raw material prices, while tax cuts are boosting sales.
The maker of grain storage and handling equipment said that volatility in steel prices, which have already “increased significantly in recent months”, may be “exacerbated” by Mr Trump’s plans for a 25% tariff on US imports.
“The company endeavours to mitigate its exposure to higher input costs through strategic procurement of steel, sales price increases and limiting the length of time commercial quotes remain valid,” said Ag Growth International (AGI) which, while based in Canada, has significant manufacturing operations in the US.
“However, the pace and volatility of input price increases may negatively impact earnings.”
‘May encourage capital investment’
By contrast, the Canada-based group flagged too a boost to demand for its products from a tax shake-up, including a cut to the US corporate tax rate, introduced by Mr Trump.
“US tax reform in 2018 may encourage capital investment” by corporate customers, AGI said, foreseeing a boost to demand from farm customers too.
“US tax reform in 2018 may stimulate demand as many farmers will pay lower taxes and may be eligible for accelerated depreciation on equipment purchases.”
The prospect of this stimulus to producer orders comes at a time of “pent-up demand, the result of under-investment in equipment over the last several years, and market expectations for another year of significant planted acreage”.
‘Record order backlog’
Ag Growth International forecast too a “significant” rise in sales to commercial clients in Canada, and flagged a “record backlog” of orders by corporates at its international division, “with particular strength in Eastern Europe and South America”.
That said, in Brazil, “access to capital and a cautious approach to capital investment continue to contribute to a competitive marketplace”, although AGI forecast its own operations achieving higher sales this year.
The group, overall, forecast higher sales and underlying earnings before interest, tax, depreciation and amortisation (ebitda) this year, stressing “high” order backlogs and its expansion into the fertilizer logistics market.
The comments came as the group reported a narrowing to Can$268,000 in losses for the October-to-December quarter, from Can$4.71m a year before, on revenues up 37% at $173.0m.
Underlying ebitda rose by 16.6% to Can$21.25m.
Sales growth, excluding acquisitions, rose by a more modest 9.0% to Can$115.8m, with strength in particular in the commercial sector and, by geography, in the US and International divisions.
Ag Growth International shares stood 0.6% higher at Can$53.61 in afternoon deals in Toronto.