Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Toromont Industries Ltd (TMTNF, Financial) reported a 14% increase in revenue for the third quarter of 2024, reflecting good growth across most market segments.
- The company completed the acquisition of Tri City Equipment Rentals, expanding its heavy equipment rental business in Southwestern Ontario.
- Cimco, a division of Toromont Industries Ltd (TMTNF), delivered solid results with a 17% increase in revenue for the third quarter, driven by strong execution in both Canada and the US.
- The company maintains a strong financial position with ample liquidity, including $671 million in cash and an additional $461 million available under existing credit facilities.
- Toromont Industries Ltd (TMTNF) continues to focus on long-term investment strategies, including hiring more technicians to support operations and enhance product support services.
Negative Points
- Net income for the third quarter of 2024 was down 10% compared to Q3 2023, impacted by lower margins and higher expenses.
- Gross profit margins decreased due to an unfavorable sales mix and lower rental fleet utilization.
- The equipment group's backlog decreased by 17% compared to the previous year, reflecting deliveries against customer orders and more normalized supply conditions.
- Product support revenue in the US region was slightly dampened, affecting overall growth in this segment.
- The company experienced a significant build-up in working capital, driven by higher inventory levels and accounts receivable balances.
Q & A Highlights
Q: Can you provide insights on the flat year-to-date part sales and when new equipment sales might impact parts and service?
A: Michael McMillan, President and CEO, explained that the flat part sales are due to strong new equipment sales and lower activity levels. As new equipment is utilized, part sales should increase. There is no change in market share or competition affecting part sales.
Q: Are there any financial details available for the Tri City acquisition, and were there significant costs associated with it in Q3?
A: Michael McMillan noted that while specific revenue details weren't disclosed, the purchase price allocation in the notes provides some insights. There were minor costs associated with the acquisition, but they were not material to SG&A.
Q: How are customers feeling about the macro environment, especially with recent rate cuts?
A: Michael McMillan mentioned a tone of caution among customers, particularly in the residential segment. While interest rates have started to decrease, it's too early to see significant activity changes. There is cautious optimism, but more activity is expected next year.
Q: How do you view the current pricing environment and its impact on margins?
A: Michael McMillan stated that the supply of equipment has normalized, leading to a more competitive environment. Gross profit margins have been affected by sales mix and lower rental margins due to lower fleet utilization.
Q: Can you discuss the sharp decline in product support revenues in the US for Cimco?
A: Michael McMillan explained that the decline is due to the nature of the work and the smaller size of the business, which makes it more susceptible to fluctuations. It's not indicative of any fundamental issues.
Q: What are the capital allocation priorities given the current cycle and balance sheet?
A: John Doolittle, CFO, outlined four priorities: organic growth, dividend increases, share buybacks, and M&A. The company continues to see opportunities in rental and Cimco in the US.
Q: How is the staffing and utilization ramp-up progressing at the new site?
A: John Doolittle reported good progress, with about two-thirds of the planned 150 technicians hired. The site is state-of-the-art, and further equipment installations are ongoing.
Q: How would lower immigration and flat population growth affect the business?
A: Michael McMillan suggested that while immigration might slow, there is still a significant lag in affordable housing availability. Infrastructure projects and residential requirements should provide positive tailwinds in the long term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
