RDO Equipment Company
Address:
2829 South University Drive
Fargo, North Dakota 58103
U.S.A.
Telephone: (701) 237-7363
Fax: (701) 271-6328
http://www.rdoequipment.com
Statistics:
Public Company
Incorporated: 1968
Employees: 1,554
Sales: $578.6 million (1999)
Stock Exchanges: New York
Ticker Symbol: RDO
NAIC: 42181 Construction and Mining (Except Oil Well) Machinery and Equipment Wholesalers; 42182 Farm and Garden Machinery and Equipment Wholesalers
Company Perspectives:
Our mission is to hire and promote people who grow professionally with the company, to continue strong employee achievement programs, and to be totally aware and knowledgeable of our customers' needs. Our vision consists of one strong and bold statement: 'We will strive for excellence and be the premier dealer group in providing superior products and services to our customers.' We will strive: to deliver quality products and services; to maintain strong partnerships based on honesty, integrity, and trust with our employees, our customers, and our suppliers; to continue pursuing innovative change; to encourage teamwork among employees; to remain financially viable through repeat business of satisfied customers; to nurture, develop, and give proper recognition to our employees.
Key Dates:
1968: Ronald Offutt purchases his first John Deere agricultural equipment dealership, launching RDO Equipment.
1997: Company makes initial public stock offering; establishes its Used Equipment Division; acquires RDO Rental Co. and Sun Valley Equipment Corp.; purchases first truck dealership; establishes RDO Financial Services Co.
1998: Company reorganizes into five divisions; becomes dealer of Hyster material handling products; acquires 89 percent of Salinas Equipment Distributors, Inc.; purchases Midlands Rental and Machinery, Inc. and Midlands Material Management, Inc.
2000: RDO Equipment sells its rental division to United Rental Inc.
Company History:
Founded by agriculture mogul Ronald D. Offutt, RDO Equipment Company is a leading retailer of new and used equipment, machinery, and heavy duty trucks. Maintaining the largest network of John Deere dealerships and Volvo truck centers in North America, RDO Equipment sells its products to the agricultural, construction, manufacturing, and transportation industries. RDO Equipment also provides parts and service for its equipment, as well as financial services. Since 1998, RDO Equipment has operated through six chief divisions: RDO Construction Equipment; RDO Used Equipment; RDO Truck Center; RDO Agricultural Equipment; RDO Material Handling; and RDO Financial Services. With 65 stores in 11 states, RDO Equipment is a major player in the ongoing restructuring and consolidation of the equipment and truck retail industries in the United States.
A Farming Background
Ronald D. Offutt, the founder of RDO Equipment Co., was the fourth generation of Great Plains farmers in his family. He grew up on a 200-acre potato farm in western Minnesota, where he worked at his father's side. The elder Offutt gave his son a great deal of responsibility at a young age. When he was only 12, Ronald Offutt was allowed to fire four farm workers.
Offutt left the family farm to attend Concordia College in Moorhead, Minnesota. After graduating in 1964 with a dual degree in business administration and history, Offutt interviewed with four insurance companies, but received no job offers. He returned to the potato farm, and shortly thereafter convinced his father to sell him half of the property for $48,000.
Founding RDO Equipment in 1968
In 1968 Offutt charted a new course. The local John Deere dealer in Casselton, North Dakota was in the process of selling his business. Offutt knew that Deere was one of the most highly regarded manufacturers of agricultural machinery and equipment, and he believed that the Deere dealership could bring his family more profits than farming alone. Offutt turned to his father for assistance and entreated him to take out a second mortgage on the farm to help buy the dealership. Although his father was dubious, he agreed. Offutt also sold a potato warehouse and borrowed an additional $10,000 from his grandmother to secure all the necessary financing. With the Deere dealership in his name, Offutt farmed in the mornings and evenings and spent his days at the store.
Offutt's instincts proved correct, and the dealership quickly turned a profit. Aided by steep inflation and soaring farmland values, the Deere dealership brought the Offutts a constant flow of revenue (as well as a source of inexpensive farm equipment for their own use). He christened his new company RDO Equipment, which stood for his own initials.
Other Ventures in the 1970s and 1980s
Despite RDO Equipment's initial success, Offutt did not give the business his full attention. In 1970 he started raising irrigated potatoes in the sandy soil of Hubbard County, Minnesota. Most observers predicted this endeavor would fail, since never before had any farmer attempted to grow potatoes in a region that required such extensive irrigation. Despite this skepticism, Offutt's experiment was an unequivocal success. By 1974, he had profitably quadrupled his acreage. Flush with this early triumph, in 1976 Offutt bought the famed Rockefeller Ranch in Texas, which proved to be a dismal failure. Not only did the ranch's cattle become sick, but Offutt also had selected a potato seed that grew poorly in the Texas climate. After losing nearly half his net worth by 1978, he returned to Minnesota and concentrated on his ventures there.
In the 1980s, Offutt built up RDO Equipment's network of Deere dealerships. He also expanded his potato farming business, building a potato processing plant in Park Rapids, North Dakota. Operated by another Offutt company--RDO Frozen Foods--the plant cleaned, cut, fried, froze, and packaged his constantly increasing crop of tubers. His sense of timing was uncanny. Just as his processing plant (which could process 50 million pounds of potatoes a year) came up to speed, American consumption of the spud increased dramatically as fast food chains made french fries a staple side dish.
In 1989 Offutt once again returned his attention to RDO Equipment and oversaw an expansion of the company's reach. Rather than continue only to sell and repair agricultural equipment, he began to acquire or build dealerships that offered construction and other industrial equipment and machinery--such as backhoes, crawler dozers, and excavators. Like his farm equipment dealerships, Offutt's construction machinery stores specialized in Deere products, although they did carry other brands, including Vermeer, Nissan, Mustang, Sullair, and Hitachi. Offutt's decision to enter the construction equipment market was informed by his core strategy--what the Fargo Forum termed 'the relentless diversification into related businesses.' Intimately acquainted from his farming background with the periodic downturns of agricultural markets, Offutt wanted RDO Equipment to gain a foothold in a sector divorced from the wild price fluctuations of commodities markets.
Growth in the Early 1990s
In the early 1990s, Offutt added to his network of agricultural and construction dealerships. By the close of 1996, RDO Equipment owned and operated 32 dealerships in seven states: North Dakota, Minnesota, Arizona, California, South Dakota, Texas, and Washington. Although RDO Equipment simply acquired most of the properties in its empire (which retained their original names), the company did construct a few new stores, building four between 1991 and 1996. RDO Equipment's sales kept pace with the steadily increasing number of dealerships. The company's annual revenues rose from $71.2 million in fiscal year 1992 (ending January 31, 1992) to $223.6 million for fiscal year 1996. During the same period, RDO Equipment's net income grew from $1.7 million to $4.8 million.
Rapid Expansion: 1997
Despite these impressive gains, RDO Equipment's true growth spurt did not begin until 1997, when Offutt opted to take the company public with the hope of generating capital with which to fuel future expansion. In its initial public offering, launched in January 1997, RDO Equipment sold about 42 million shares and raised $68.3 million, becoming the first corporation based in North Dakota to be listed on the New York Stock Exchange. The company immediately used $10 million of this total to retire debts and paid out another $15 million in dividends to existing shareholders. The remaining $34 million was intended 'to allow us to continue to grow the company, expand our dealership numbers,' Offutt explained to the Fargo Forum.
Offutt's plan to bulk up the RDO Equipment Network and to branch out into new markets was logical. Although its construction equipment sector was performing well--spurred by low interest rates, low inflation, and economic growth--RDO Equipment's agricultural dealerships were dealt a severe blow by the farm crises of the mid-1990s. The weather phenomenon known as El Niño had caused a tremendously wet winter in 1996-97, which wrought havoc on crop production. Compounding the situation was the fact that the Asian economic collapse of 1997 eroded export markets for American farmers. To make matters even worse, domestic commodity prices were also quite low. Not surprisingly in this environment, farmers lost confidence in their future earning potential and deferred making major capital investments--including the purchase of new equipment.
Responding to this adverse trend, RDO Equipment established a new subsidiary--RDO Rental Co.--in February 1997, with the twin goals of extending its brand and retail presence and of raising its profile in the service and repair sector. The same month it was created, RDO Rental Co. acquired Sun Valley Equipment Corp. for $8.1 million. A major construction equipment rental business, Sun Valley offered RDO Equipment a decisive entrance into this new sector and boosted the rental division's store number from five to 12.
RDO Equipment formed another new subsidiary in February 1997 as well. In an effort to complement its industrial and construction equipment operations--and thereby to protect itself further from the vicissitudes of the commodities market--RDO Equipment began to sell and service heavy-duty trucks through its RDO Mack Sales and Service division. With the acquisition of its first truck dealership--a Mack truck outlet in Fargo, North Dakota--RDO Mack Sales and Service also gained the right to purchase Mack dealerships or win Mack franchises in the sales territory encompassing North Dakota and parts of Minnesota. Capitalizing on this development, RDO Mack Sales built a Mack sales and service center in Grand Forks, North Dakota, in March 1997.
At the same time, RDO Equipment continued to pursue a greater share of the construction equipment market. In May 1997, the company announced that it would acquire Kuenstler Machinery, which distributed, sold, rented, and serviced construction equipment through its stores in Austin, Laredo, and San Antonio, Texas. With 1996 sales exceeding $20 million, Kuenstler also provided RDO Equipment with a Deere sales territory of 41 Texas counties. As a result of its spate of acquisitions, RDO Equipment could claim ownership of 42 retail stores by May 1997. Paul Horn, the company's president and chief operating officer, told the Fargo Forum on May 31, 1997 that he was confident that RDO Equipment would grow 'to a billion dollars and beyond.'
But the company was not content to grow only by acquiring more stores and penetrating new markets. RDO Equipment also wanted to increase the sales generated by its existing stores. In an effort to ensure that its customers would return to the various RDO Equipment stores, the company created another subsidiary in December 1997. This new RDO Financial Services division was established to provide equipment loans and leases to customers of the dealer network, as well as to offer extended warranties, credit life insurance, and disability insurance. As Horn explained in a press release, RDO Financial Services was designed to 'strengthen our relationship with customers, improve same store sales, and as a result, enhance revenues and earnings.'
RDO Equipment's first year as a public company had proved successful. The number of stores in its network had grown from 32 to 50, mainly through the acquisition of existing dealerships. Of this total number, 26 were construction equipment dealerships, 16 provided agricultural machinery, and eight offered equipment rentals. Sales for 1997 rose to $302.4 million, and income grew to a record $11.1 million. RDO Equipment's year-on-year track record was even more impressive. The company's revenues had increased at an annual compound rate of 33 percent from 1992 through 1997, while its net income had grown at a compound annual rate of 45 percent during the same period. But Offutt was not content with these gains. 'Going forward we will continue to grow the business by taking advantage of industry trends toward further dealer consolidation and by leveraging our strength and expertise in acquisitions, consolidation and retail sales, service and marketing,' he proclaimed in a press release on March 19, 1998.
New Markets: 1998
In accordance with this agenda, RDO Equipment made another series of acquisitions in 1998. On January 1, the company completed its purchase of John Deere construction equipment dealerships in Billings and Great Falls, Montana. On January 12, RDO Equipment agreed to acquire Hall GMC, Inc. and Hall Truck Center, heavy-duty truck dealerships in Fargo and Grand Forks, North Dakota. At the same time that it bolstered its construction and trucking markets, RDO Equipment shed its agricultural irrigation equipment business, in part because the farm industry was still mired in a slump.
In a prepared statement, Offutt announced that strengthening RDO Equipment's share of the heavy-duty truck market was his 'top priority' for the middle of 1998. This goal was achieved when RDO Equipment signed a letter of intent with Volvo Trucks North America, Inc. in May, whereby RDO was granted rights to expand its ownership interest in Volvo truck dealerships.
RDO Equipment ventured into yet another new business sector in August 1998, when it was chosen by the Hyster Company to distribute, sell, service, and rent Hyster's lift trucks in the upper Midwest. A month later, RDO acquired another significant player in the material handling business, Midlands Rental & Machinery Assets (composed of Midlands Rental & Machinery Inc. and Midlands Material Management Inc.). With annual revenues of about $429.4 million, Midlands offered RDO Equipment a significant presence in this segment of the market. 'Material handling is a great way to leverage our basic skill set across another platform of growth and continue our strategy of revenue diversification,' Horn told Business Wire. That same month, RDO Equipment expanded its core operations into a new region, when it purchased an 89 percent stake in the Salinas Equipment Distributors, Inc.
To integrate all of its various acquisitions, RDO Equipment reorganized its operations into distinct divisions in October 1998--construction equipment, agriculture, trucks, used equipment, rent to rent, and materials handling. At the same time, RDO Equipment cut prices in its newly constituted agriculture division, because sales for the year had dropped about 20 percent. The company hoped that this new corporate structure would allow it to maintain closer relationships with its customers.
1999 and Beyond
RDO Equipment entered 1999 with the task of implementing its new divisional strategy. At the same time, though, the company continued to expand. In February 1999, RDO Equipment acquired a Volvo truck dealership with full-service truck centers in Dallas and Fort Worth, Texas. With this purchase, the company gained access to the second largest heavy-duty truck market in the United States.
But the company's rapid growth had left it stretched thin. With the market for its agricultural products still weak, and facing increased competition in other segments, RDO Equipment's profit margins dropped in 1999. Although the company's total sales reached $578.6 million that year, its net income fell precipitously to $1.7 million. In response, RDO Equipment sold its rental division to United Rental, Inc. in February 2000. It planned to use the proceeds of the sale to focus on its other divisions. Despite the new challenges facing the company, RDO's position was strong. With more than 65 dealerships, the company had cultivated leadership in areas far beyond its original focus on agriculture.
Principal Subsidiaries: RDO Financial Services Co.; Salinas Equipment Distributors, Inc.
Principal Divisions: RDO Construction Equipment Division; RDO Agriculture Division; RDO Used Equipment Division.
Principal Competitors: AGCO Corporation; Caterpillar Inc.; CNH Global N.V.; Ingersoll-Rand Company; Kobe Steel, Ltd.; Komatsu Ltd.
Further Reading:
Conlin, Michelle, 'The Sultan of Spuds,' Forbes, May 19, 1997, p. 60.
Copeland, Julie, 'RDO Announces 35 Percent Revenue Rise,' Grand Forks Herald, November 20, 1998, p. B7.
Cory, Matt, 'RDO Hits Stock Market,' Grand Forks Herald, January 25, 1997, p. D1.
------, 'RDO Records Banner Year,' Grand Forks Herald, March 20, 1998, p. B7.
Knutson, Jonathon, 'Offutt Conducts First RDO Stockholders Meeting,' Fargo Forum, May 31, 1997, p. B1.
Pates, Mikkel, 'He's Much More Than a Farmer: Diversification Keeps Offutt Going Strong,' Fargo Forum, October 14, 1995, p. 1.
------, 'Offutt Says Now Is Not Time for Potato Expansion,' Fargo Forum, March 22, 1997, p. B4.
Perkins, Jerry, 'The Lord of the Fries,' Des Moines Register, September 25, 1994, p. 3.
Richardt-Sylskar, Hope, 'RDO Expands with Local Office,' Marshall (Minn.) Independent, May 13, 1996, p. A8.
'RDO Equipment Co. Announces Results for 1998 Fiscal Year,' Business Wire, March 19, 1998.
'RDO Equipment Co. Forms Finance Subsidiary,' Business Wire, December 9, 1997.
Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.
