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Update: Rocky Mountain Dealerships Q3 Earnings

|About: Rocky Mountain Dealerships Inc. (RCKXF)


Rocky Mountain Dealerships announced third quarter earnings with a decline in sales and improvement in net earnings.

The original long-term thesis is still in-play although Canada’s situation looks more worrying.

Increase in net earnings was a positive surprise.

Rocky Mountain Dealerships (OTCQX:RCKXF) announced 3rd quarter earnings figures, showing a 15% decline in sales in the quarter. The decline in sales was due to farmers purchasing less equipment but instead focusing on maintaining the existing equipment. What was encouraging was that they were able to increase both gross profit (+1%) and net profit (+5%). This shows that the company was able to keep its operating costs down and improve gross margin when sales were leaning more towards parts and services.

In the original article I was painting the bullish case as one where RMD would reach $32 million in net earnings in 5 years. That seems to be still possible, although to pull the buy-trigger on RMD one needs to be very comfortable with the Canadian economy. With the current, slightly lower share price, RMD is not necessarily a bargain with the somewhat increased possibility of issues in Canada at least partly due to lower oil prices hitting the economy.

It was also mentioned in the article that RMD needs to keep finding attractive acquisition targets in order to keep the topline growing. In 2014 they have made just one meaningful acquisition for $1.2 million in June. For the bull case to play out the company needs to find more decent acquisitions to make, otherwise reaching the 5% growth per year might become too challenging. Regarding management, the company informed that they had appointed Tracey Zell to their Board of Directors. According to the Q3 report she has been advising RMD for years. It remains to be seen how the company manages the transition next year when CEO Campbell and President Stimson retire at the end of this year.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

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