Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wajax Corp (WJXFF, Financial) has a strong operational history with 166 years in Canada and operates across 116 branches with over 3,100 employees.
- The company has a diversified revenue stream with heavy equipment categories and industrial parts making up 55% and 45% of total revenue, respectively.
- Wajax Corp (WJXFF) has implemented cost-saving initiatives, resulting in a decrease in selling and administrative expenses by $5 million or 6.6% compared to the previous year.
- The company reported an increase in equipment sales, particularly in the construction and forestry categories in Western and Eastern Canada.
- Wajax Corp (WJXFF) has a significant backlog of $588.1 million, indicating strong future demand, particularly in construction, forestry, and mining sectors.
Negative Points
- Revenue decreased by $28.7 million or 5.6% in the third quarter, primarily due to lower mining equipment sales and softer market conditions.
- Gross profit margin declined by 300 basis points to 19.2%, driven by a higher proportion of equipment sales and increased market pressures.
- Adjusted EBITDA decreased by $12.6 million or 25.3% from the third quarter of 2023, reflecting lower sales volumes and gross profit margins.
- The company's leverage ratio increased to 2.78 times, outside the target range of 1.5 to 2 times, due to higher debt levels and lower earnings.
- Wajax Corp (WJXFF) faces increased competitive pressures in industrial parts and product support, impacting margins and sales.
Q & A Highlights
Q: Can you elaborate on the increased competitive pressures in product support and industrial products margins? How should we think about the margin trajectory for these product lines for the rest of 2024 and into 2025?
A: Ignacy Domagalski, President and CEO, explained that the economy has slowed, leading to customers deferring spending on CapEx and maintenance. This has resulted in increased competitive pressures. While Q4 is expected to be solid for mining, uncertainty remains, especially with the US election. The company anticipates more stability in the market and a return to customer buying decisions in the new year.
Q: The product support and industrial products revenues were softer than anticipated, but new equipment sales were strong. How do you reconcile these trends?
A: Ignacy Domagalski noted that the sales teams have done a great job, supported by strong manufacturing partners like Hitachi and Tiger Cat. Supply chains have normalized, and inventory levels are higher than desired, allowing for more equipment availability for sale.
Q: Can you speak to the increase in competitive market pressures for industrial parts and product support? Was this concentrated in certain regions or markets?
A: Ignacy Domagalski stated that competitive pressure is widespread, not limited to specific markets or areas. While energy and mining remain strong, other areas face competitive pressure due to customers pulling back on spending.
Q: How do current gross margins for industrial parts and product support compare to pre-pandemic levels?
A: Ignacy Domagalski mentioned that current margins are similar to pre-COVID levels.
Q: Can you provide context on the increased use of supplier financing programs?
A: Stuart Auld, CFO, explained that a portion of the financing is related to Hitachi, with the financing now going through Xaxis instead of Hitachi, which is new to the company.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
