WINNIPEG, MANITOBA, CANADA — Ag Growth International (AGI) reported on Aug. 14 that earnings for the second quarter were C$8,173,000 (C$6,250,000) or C58¢, down 4% from C$13,638,000 or C99¢ per share in the same quarter last year.

“By far, the highlight of the quarter was the closing of the Westeel transaction on May 20th,” said Gary Anderson, chief executive officer of AGI.

On May 20, AGI completed its acquisition of the Westeel division of Vicwest Inc., and for the period May 20 to June 30 Westeel sales and adjusted EBITDA included in AGI’s consolidated results were C$18,097,000 and C$2,313,000, respectively, the company said. Integration of the Westeel business is ahead of expectations and is well advanced in all aspects of the operation including production, coordination of North American and International sales efforts, centralization of the marketing function, information technology transfer and the human resources and finance functions, the company said.

Sales in Canada were negatively impacted by poor crop conditions that resulted from a lack of moisture in most key crop growing regions. Demand for portable grain handling equipment, aeration products and storage bins declined significantly, impacting sales for all AGI brands including Westeel.

The impact of poor growing conditions is expected to affect demand in the second half of 2015.

The geographic sales mix of Westeel is weighted toward western Canada and, accordingly, AGI’s exposure to the region increased subsequent to the acquisition. Crop conditions in the U.S. are variable but generally favorable. However, farmer sentiment and cash flow considerations at the dealer level are contributing to cautious buying behavior. As a result, sales of on-farm handling equipment decreased compared to 2014.

Commercial equipment sales in the second quarter increased compared to 2014, primarily in the processing sector. For the six-month period ended June 30, commercial sales decreased compared to the prior year as a weak first quarter, the result of a return to more traditional seasonality and a somewhat softer domestic market to begin the year, more than offset gains made in the second quarter.

AGI’s international sales for the three- and six-month periods ended June 30 increased 65% and 55%, respectively. Strong international sales were the result of continued momentum in Latin America and a high level of activity in RUK (Russia/Ukraine/Kazakhstan). In Latin America, large projects in Peru and Bolivia contributed to an increase in sales in the six months ended June 30 from C$6.2 million in 2014 to C$11.3 million in 2015. In RUK, sales increased from C$15 million in the first half of 2014 to over C$25 million in the current year, largely due to business in Ukraine with multinational grain traders.

“We have made great progress with integration, completing a revised organizational structure that includes substantial annualized cost savings. Cost savings from restructuring along with some initial supply chain synergies have combined to meet our near-term goal of C$5 million in annual synergies. Our work has now turned to the longer term process of creating revenue synergies and new market development. While the drought in western Canada has taken some of the wind out of our sails for the remainder of this year, we remain very excited with this acquisition and the benefits Westeel will deliver in the long run.”

Adjusted EBITDA decreased compared to the second quarter in 2014 as drought conditions in western Canada and cautious buying behavior in the U.S. negatively impacted sales of on-farm products including portable grain handling, aeration and storage equipment.

While AGI’s North American commercial business progressed at a reasonable pace, the level of activity remained below the very strong demand experienced in 2014.

AGI’s international business performed very well in the first half of 2015 and sales increased significantly due to continued momentum in Latin America and projects with multinational grain handlers in Ukraine.

The long-term trend toward increasing amounts of grain grown continues to drive demand for capacity and efficiency enhancements throughout the North American commercial grain handling infrastructure. The pace of customer commitment in North America for commercial equipment increased after the first quarter and as a result AGI’s domestic order backlog as at June 30 approximated the high levels of 2014. Management anticipates strong sales of commercial equipment in the third quarter of 2015. However, it does not expect these sales to reach 2014 levels.

Quoting activity remains strong and accordingly management anticipates healthy North American sales of commercial equipment in the fourth quarter. However, the magnitude of these sales will depend largely on the timing of customer commitments.

AGI’s international sales in the six months ended June 30 increased 55% over the first half of 2014. The strong performance was largely related to projects in Ukraine, primarily with multinational grain handlers and continued success in Latin America. AGI was able to deliver on many of these large projects in the first half of the fiscal year and still exit the second quarter with an international backlog similar to the prior year. AGI has a high quality quote log and expects to finalize additional new business in the near term. Management currently expects international sales in the second half of 2015 to approximate the strong levels experienced in 2014. However, these sales may be influenced by the timing of customer commitment and their delivery requirements.

AGI’s financial results are impacted by the rate of exchange between the Canadian and U.S. dollars and a weaker Canadian dollar relative to its U.S. counterpart positively impacts profit and adjusted EBITDA. AGI’s average rate of exchange in fiscal 2014 of C$1.10 was significantly lower than prevailing rates and, accordingly, AGI’s financial results in 2015 may significantly benefit from a weaker Canadian dollar compared to the prior year. A portion of the company’s foreign exchange exposure has been hedged through forward foreign exchange contracts and based on current rates of exchange the company expects to recognize significant loss on these contracts in the second half of 2015. At June 30, the fair value of the company's outstanding forward foreign exchange contracts was a loss of C$15.2 million.

Sales in the second half of 2015 will be influenced by weather patterns, crop conditions and the timing of harvest and conditions during harvest. Changes in global macroeconomic factors as well as sociopolitical factors in certain local or regional markets, including the ongoing uncertainty and volatility in Ukraine, and the availability of credit and export credit agency support in offshore markets, also may influence sales, primarily of commercial grain handling and storage products. Results may also be impacted by changes in steel prices and other material input costs and the rate of exchange between the Canadian and U.S. dollars.

Although management anticipates a challenging second half in 2015, the company said it remains very enthusiastic with respect to its prospects for long-term growth both in North America and overseas. The strength of its on-farm and commercial businesses in North America remains intact and AGI said it will benefit from the continuing trend toward higher grain volumes. The company said its international business continues to gain momentum and has become more geographically diverse. AGI said it remains particularly excited with respect to the enormous potential of Brazil and looks forward to positive results from its operations in that country in 2016.

Finally, the company’s integration of Westeel is ahead of schedule and it is confident that synergies from this acquisition will exceed its initial expectations. The benefits of this strategic acquisition will contribute to the growth and prosperity of AGI over the long term, the company said.