Canadian distributor posted CDN $365.1 million in the third quarter compared to $367.1 million in the third quarter of 2018, a 0.5-percent decline. Equipment rental revenue, however, increased from $8.8 million a year ago to $9.3 million, a 5.7-percent increase. For the first nine months of the year, Wajax’s revenue increased 5.2 percent from $1,091.8 million a year ago to $1,149.1 million this year. Equipment rental revenue for the first nine months was $27.4 million compared to $25.7 million in the same period in 2018, a 6.6-percent jump.
The overall revenue decrease in the third quarter was because revenue in western Canada declined 19.8 percent to $141.8 million. Revenue in central Canada was $71.5 percent in the quarter, a 0.6-percent increase primarily because of strong forestry equipment sales and higher Engineered Repair Services sales resulting primarily from the acquisition of Groupe Delom in the fourth quarter of 2018. This increase was partially offset by lower power generation and construction equipment sales.
Revenue in eastern Canada of $151.8 million was a 27.3-percent year-over-year jump because of sales gains in a majority of product categories, including higher ERS sales from the Delom acquisition and higher forestry and industrial parts sales.
“Consolidated results in the third quarter were below our expectations due to lower than expected revenue in western Canada as well as $1.2 million in engineering project losses,” said president and CEO Mark Foote. “These costs have been deemed to be unrecoverable from sub-contractors or manufacturers and we have elected to complete the relevant projects at our own costs due to the importance of our relationships with the customers involved. We are pleased, however, that our momentum in eastern Canada continued and that revenue trends in central Canada improved. Backlog at the end of the quarter remained strong. The gross profit rate of 19 percent was consistent with the prior quarter despite the engineering project losses. The selling and general administrative expenses rate of 13.6 percent continues to demonstrate strong cost control.
“The Management Realignment that commenced during the quarter will further strengthen the partnership between sales and product support and completes the integration of our legacy ERS business with Delom. In addition to these and other benefits, the changes are expected to deliver $5 million in pre-tax cost reductions annually going forward.”
Foote said that revenue was below expectations and inventory was higher than planned. “While we continue to expect both to improve by year end, further actions are being taken to provide additional financial flexibility to execute our business plan. These actions include the sale of certain owned properties where the site will close due to our branch rationalization plan or where material gains in value exist and capital can be released and applied primarily to debt reduction. We expect to be able to report more on the effect of these actions with our year-end results.”
Despite disappointing revenue in the third quarter, Foote said Wajax still expected 2019 full year adjusted net earnings to increase compared to 2018 “based on consolidated revenue improvements and the full-year effect of the acquisition of Delom. We continue to focus closely on margin rates, costs and inventory management while we pursue our growth plans.”
Wajax, headquartered in Mississauga, Ontario, Canada, is No. 72 on the RER 100. The company is a distributor for multiple brands, including Hitachi, Hyster, MTU, Doosan, Genie, Volvo Penta and more.
