RDO Equipment Co. Reports Second Quarter Fiscal 2003 Results; Expands Stock Repurchase Program
FARGO, N.D.--Aug. 22, 2002--RDO Equipment Co. :Highlights:
| -- | Quarterly profitability nearly triple prior year level |
| -- | Inventory control and a strong equity position minimize interest expense |
| -- | Management developing and implementing sales productivity enhancement tools |
RDO Equipment Co. today reported the Company's results of operations for the second quarter of its 2003 fiscal year. For the three months ended July 31, 2002, the Company reported net income of $1,333,000, $0.10 per diluted share, compared to $478,000, $0.04 per share, for the same period in fiscal 2002. Year to date, the Company posted net income of $2,367,000, $0.18 per share, compared to net income of $122,000, $0.01 per share, for the first six months of the previous year. The results reflect the Company's refocus on its core businesses of construction and agricultural equipment sales and service.
Revenues for the second quarter totaled $144.6 million, compared with $148.9 million for the same period a year ago. The slight decrease reflects soft demand for construction equipment in the regions the Company serves, mostly offset by strong agricultural sales. The annual market for construction equipment is down nearly 10 percent compared to the same time one year ago and is off over 30 percent from the peak demands experienced in the Company's fiscal year 2000. Construction revenues declined $13.7 million for the quarter. The Company's agricultural segment significantly increased revenues, up 24 percent or $10.8 million for the current quarter. For the six months ended July 31, 2002 revenues totaled $292.9 million versus $303.6 million a year ago. The Company's decision to sell two truck dealership locations at the end of the first quarter of the last fiscal year was the largest contributor to the revenue decline for the six-month period.
"The Company's continuing profitability improvement is very encouraging. Our focus on inventory control has been beneficial in this time of declining market demand in the construction segment." said Ronald D. Offutt, chairman and chief executive officer. "The performance of our agricultural segment is particularly pleasing in light of an unsettled farm economy."
Offutt continued by saying, "We will remain focused on running a lean organization. As the economy recovers we expect the efforts of the past year and a half to continue the trend of improved profitability."
Gross profit as a percentage of total revenue was 17.5 percent for the quarter, up 0.3% from the same period one year ago. For the six-month period gross profit was 17.0 percent of total revenue compared to 16.9 percent a year ago.
Selling, general and administrative (SG&A) expenses were $22.8 million, or 15.8 percent of total revenue for the quarter, compared to $23.2 million, or 15.6 percent of revenue for the same quarter last year. Year to date SG&A expenses were $45.0 million or 15.4 percent of revenue compared to $47.2 million or 15.5 percent a year ago. The reduction in SG&A expense is the result of selling truck dealerships and streamlining the Company's management structure. In the current year the Company adopted the Statement of Financial Accounting Standard No.142 that results in discontinuing the amortization of goodwill. The resulting expense saving was $257,000 for the quarter and $515,000 year to date.
Total assets were $226.7 million, compared to $276.3 million one year ago, a 17.9 percent decrease. A $30.3 million or 18.3 percent decrease in inventories and $12.6 million or 27.2 percent decrease in receivables were the largest categories of asset reduction. The Company's equity of $88.6 million at July 31, 2002 represents 39 percent of assets. The equity to asset ratio has increased 6.1 percentage points from the same point one year ago. The reduction in assets and the increased equity to asset ratio along with lower interest rates resulted in interest expense of $747,000 for the current quarter, down $1.4 million or 65.4% from the second quarter of last year. Year to date interest expense of $1.6 million compares to $4.9 million one year ago.
"With the Company's strong balance sheet and improved profitability, we are turning management's attention to improving sales," said Christi J. Offutt, Chief Operating Officer. "For the past two years we have been developing an internet-based productivity enhancement tool for our sales force. The tool includes sales quoting, activity management and customer awareness features. During the next few months we will be completing our test market trials of the most recent upgrades and begin implementing this tool across the entire Company. In the test market, the Company experienced an increase in the market share of equipment sales during the trial period. We believe this tool will help the Company to continue to improve sales in the years to come."
Share Repurchase Program Expanded
The Company announced that the Board of Directors approved repurchasing up to an additional five percent of the outstanding Class A common stock from time to time in both the open market and in privately negotiated transactions. This action expands the previously announced program to repurchase up to ten percent of the outstanding Class A common stock. Through July 31, 2002 the Company has repurchased 516,200 shares or 9.1 percent of the outstanding Class A common stock at an average cost of $3.99 per share. The book value per share of outstanding common stock was $6.99 per share at July 31, 2002.
Outlook
With the construction equipment market softer than anticipated and the sale of the Riverside, CA truck dealership projected to close in the third quarter, the Company estimates that revenues will be down slightly in the next few quarters when compared to the prior year. Tight asset management and the favorable interest rate environment will keep interest expense significantly lower than the prior year.
About RDO Equipment
RDO Equipment Co. specializes in the distribution, sale, service, rental and finance of equipment and trucks to the agricultural, construction, manufacturing, transportation, and warehousing industries, as well as to public service entities, government agencies and utilities. These operations, which consist of 47 retail stores in 9 states, include one of the largest networks of John Deere construction and agricultural stores in North America. Information about the Company, including recent news and product information, is available on the Internet at - www.rdoequipment.com.
Forward Looking Statement
The future results of the Company, including results related to forward-looking statements in this news release, involve a number of risks and uncertainties. Important factors (such as customer confidence, economic conditions, interest rates, weather, the successful closing of the sale of the Company's Riverside, CA truck dealership, and actions of the Company's suppliers and competitors) that will affect future results of the Company, including factors that could cause actual results to differ materially from those indicated by forward-looking statements, are discussed in the Company's filings with the Securities and Exchange Commission. The Company's forward-looking statements are based upon assumptions relating to these factors. These assumptions are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that are often revised. The Company makes no commitment to revise forward-looking statements, or to disclose subsequent facts, events or circumstances that may bear upon forward-looking statements.
SELECTED FINANCIAL AND OPERATING DATA
(in thousands, except store and per share data)
(unaudited)
Three Months Ended Six Months Ended
July 31, July 31,
------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenue Data:
Total segmented
revenues $ 144,563 $ 148,935 $ 292,860 $ 303,567
Construction 49.3 % 57.1 % 51.1 % 53.6 %
Agricultural 38.4 % 30.0 % 35.9 % 30.7 %
Truck 12.3 % 12.9 % 13.0 % 15.7 %
Construction revenue
mix $ 71,221 $ 84,970 $ 149,779 $ 162,773
Equipment sales 67.3 % 70.1 % 70.0 % 70.6 %
Parts and service 32.7 % 29.9 % 30.0 % 29.4 %
Agricultural revenue
mix $ 55,489 $ 44,705 $ 105,098 $ 93,207
Equipment sales 77.0 % 71.6 % 77.1 % 74.5 %
Parts and service 23.0 % 28.4 % 22.9 % 25.5 %
Truck revenue mix $ 17,853 $ 19,260 $ 37,983 $ 47,587
Truck sales 71.3 % 71.4 % 73.2 % 71.7 %
Parts and service 28.7 % 28.6 % 26.8 % 28.3 %
Income Statement Data:
Revenues:
Equipment and truck
sales $ 103,348 $ 105,315 $ 213,629 $ 218,437
Parts and service 41,215 43,620 79,231 85,130
-------- -------- -------- --------
Total revenues 144,563 148,935 292,860 303,567
Cost of revenues 119,261 123,350 242,961 252,285
-------- -------- -------- --------
Gross profit 25,302 25,585 49,899 51,282
Selling, general and
administrative
expenses 22,822 23,186 44,970 47,164
Loss on sale,
restructure charges &
asset impairment --- --- --- ---
-------- -------- -------- --------
Operating income 2,480 2,399 4,929 4,118
Interest expense 747 2,156 1,613 4,869
Other income 526 554 696 955
-------- -------- -------- --------
Income before income
taxes and minority
interest 2,259 797 4,012 204
Provision for income
taxes 926 319 1,645 82
-------- -------- -------- --------
Minority interest --- --- --- ---
Net income 1,333 478 2,367 122
======== ======== ======== ========
Net income per share -
basic and diluted $ 0.10 $ 0.04 $ 0.18 $ 0.01
======== ======== ======== ========
Operating Data:
Comparable store
revenues increase
(decrease) (3)% (7)% (1)% (7)%
Stores open at
beginning of period 47 53 47 53
Stores acquired 0 0 0 0
Stores consolidated/
sold/closed 0 (5) 0 (5)
-------- -------- -------- --------
Stores open at end of
period 47 48 47 48
-------- -------- -------- --------
Net purchases (sales)
of rental equipment $ (67) $ 272 $ (179) $ (75)
Net purchases of
property and
equipment 462 148 711 394
Depreciation and
amortization 1,181 1,575 2,206 3,065
July 31,
-------------------
2002 2001
---- ----
Balance Sheet Data:
Working capital $ 51,210 $ 48,822
Inventories 135,675 165,980
Total assets 226,729 276,255
Interest-bearing
floorplan payables 72,097 90,133
Noninterest-bearing
floorplan payables 30,236 46,580
Total floor plan
payables 102,333 136,713
Total debt 5,476 17,857
Stockholders' equity 88,592 90,835