Two publicly held Canadian dealerships — Cervus Equipment Corp. (“CVL” – John Deere) and Rocky Mountain Dealerships (“RME” – Case IH & New Holland) — issued firstquarter earnings reports on May 11. According to Raymond James Ltd. analyst Ben Cherniavsky, one hit the mark while the other didn’t live up to expectations.

Cervus Equipment. “Cervus reported consolidated revenues of $67.2 million, below our estimate of $78.3 million and marginally better than last year’s $66.3 million,” Cherniavsky said. “Lower than expected ag results were the culprit, falling $8.2 million or 16% year-over-year.”

The analyst says that several factors contributed to the year-over-year decline including a tough year-over-year comparable stemming from an abnormally active early order program in 2008. This resulted in first-quarter 2009 equipment deliveries vs. the typical second and third quarter delivery schedule.

He also listed Cervus’ more conservative trade-in policy, due to exchange rate concerns, that effectively dampened new equipment sales. Farmers also postponed purchases in the quarter. “Encouragingly, despite lower volumes, consolidated gross margin improved 290 bps year-overyear to 22.7% due to labor efficiencies and the addition of the A.R Williams business, which is heavily weighted towards product support,” Cherniavsky said.

“However, margin gains were not enough to offset the volume declines and higher than expected SG&A, which resulted from the addition of the A.R. Williams and Ranchers Supply acquisitions.” Reported EBIT of $0.7 million fell short of the analyst’s $1.2 million estimate and 2009’s first quarter of $1.1 million. Despite the soft first quarter results, the analyst says that he maintains a favorable long-term outlook for Cervus as the construction markets improve and with the company’s attractive 6% yield. Cervus currently owns and operates 30 ag, construction and material handling equipment dealership locations in Alberta, Saskatchewan and Manitoba.

Rocky Mountain Dealerships. RME reported revenues of $120.5, which the analyst says “came in almost exactly in?line with our expectations.” This represented a year-over-year increase of 12.5% with new equipment sales (+30%) showing particular strength “due to solid organic growth and market share gains on the ag side of the business.”

Sales of construction equipment remain a drag on RME’s earnings, dropping 31%. Despite this, the company reports that March sales were flat and the light-equipment segment has begun showing year-over-year gains. Gross margin was stronger than expected, coming in at 16% vs. 15% last year.

“Overall, there were no big surprises in the quarter and the results reinforce our positive view on the stock. We believe the company will continue to operate like a well oiled machine and execute their stated consolidation strategy,” Cherniavsky says.

He includes several positive factors that should contribute to a continuing strong performance by RME. These included a good start to he seeding season with favorable weather conditions, the addition of a New Holland location in Edmonton, and improved industry outlooks from OEMs on the ag side of the business.

Rocky Mountain owns and operates 25 Case IH and New Holland ag dealerships, and Case Construction dealerships throughout Alberta, Saskatchewan and Manitoba.