Toromont Industries Ltd

TSX:TIH

Earnings Call Analysis

Toromont's Q2 2024 Financial Performance with Future Outlook

Toromont Industries reported a 16% revenue increase and a 2% net income rise in Q2 2024 compared to last year. New equipment sales surged by 39%, driven by robust mining and construction markets. Rental revenue saw a decline, primarily in the light equipment segment. The company's operating income fell by 2% due to lower gross margins and increased expenses. Despite a 13% decrease in quarterly bookings, order backlog remains strong at $1.3 billion. Toromont's Bradford remanufacturing center began operations, promising future efficiencies. The board approved a quarterly dividend of $0.48 per share, reinforcing shareholder value.

Introduction and Financial Overview

Toromont Industries Limited has shown improvement in its financial performance for the second quarter of 2024. Revenue increased by 16% year-over-year, and net income rose by 2% on a continuing operations basis. This growth is primarily driven by improved product delivery and strong order backlog management.

Equipment Group Performance

The Equipment Group saw a 15% increase in revenue for the quarter and 7% for the first half of the year. New equipment sales were notably strong, increasing by 39% in the quarter, driven by activity in the mining and construction sectors. Despite lower rental revenue, which was down 5%, equipment sales including both new and used units contributed significantly to overall growth.

CIMCO's Strong Performance

CIMCO continued to deliver solid results, with a 19% increase in quarterly revenue and an 11% increase for the first half of the year. This growth was supported by strong execution in both Canada and the U.S., along with healthy activity levels. The company's focus on natural refrigerants and new technologies contributed significantly to this success.

Challenges and Market Dynamics

Despite the positive revenue growth, Toromont faced challenges with lower gross profit margins, which decreased by 310 basis points in the quarter. This decline was attributed to a mix of market dynamics and higher input costs. Nonetheless, the company's focus on long-term strategies and disciplined execution helped mitigate some of these impacts.

Investment and Capital Allocation

Toromont increased its investment in non-cash working capital by 17%, driven by higher inventory levels and accounts receivable. The company maintains a strong liquidity position with $804 million in cash and an additional $461 million available under existing credit facilities. Furthermore, Toromont's net debt to total capitalization ratio stands at a healthy negative 6%.

Outlook and Strategic Focus

Looking forward, Toromont remains committed to its long-term investment strategies and operating disciplines. The company plans to continue hiring technicians to support operations and enhance its aftermarket service offers. Management expressed confidence in navigating through market cycles, emphasizing ample liquidity and a strong order backlog supporting future growth prospects.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning. Today is Wednesday, July 31, 2024. Welcome to the Toromont Industries Limited Second Quarter 2024 Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. John Doolittle, Executive Vice President and Chief Financial Officer.

Please go ahead, Mr. Doolittle.

[John Doolittle, executive]

Thank you very much, Joelle. Good morning, everyone, and thank you for joining us today to discuss Toromont's results for the second quarter of 2024. Also on the call with me this morning is Mike McMillan, President and Chief Executive Officer. Mike and I will be referring to the presentation that is available on our website. And to start, I would like to refer you to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions. So let's get started and move to Slide 3.

Mike, over to you to start us off.

[Michael Stanley McMillan, executive]

Great. Thanks very much, John. Good morning, everyone, and thanks for joining us. John and I will be commenting largely on a continuing operations basis since Q2 of 2023 included the sale of our AgWest business and for better comparability, we will generally exclude AgWest in our comments. Results for the second quarter of 2024 improved on a continuing operations basis against the similar period last year with revenue up 16% and net income up 2% from Q2 of 2023. As expected, we are seeing more normalized supply when compared to the market factors we experienced last year. During the quarter, we commenced operations at our remanufacturing center in Bradford, Ontario. We continue to increase volume and activity at this facility along with the installation of new equipment and hiring technicians.

We are excited about this new facility and we are increasing our capacity for remanufacturing and how this will efficiently enhance our service offer for our customers. The Equipment Group executed well in Q2. Revenue increased year-over-year as a result of improving prime product delivery against the strong order backlog. Rental markets were somewhat softer mainly in light of the equipment rental segment. However, product support activity levels remain healthy and we continue to increase technician headcount. Improving equipment availability, good bookings over the first half and a healthy opening order backlog remain supportive. CIMCO continued to deliver solid results for the second quarter driven by good execution in Canada and the U.S. coupled with healthy activity levels.

Package revenue in the quarter reflects good progression on the order backlog. Product support activity continued to demonstrate strong growth supported by the larger technician workforce. Construction and mining markets provided solid equipment ordering and product support activity. Rental markets have eased somewhat through the first half of the year challenging bottom line results. However, we are very comfortable managing through such cycles and remain committed to this market and its long-term prospects. Across the organization, we continue to focus on our long-term investment strategies and remain committed to our operating disciplines, driving our aftermarket strategies and delivering customer solutions today and in the future. Our strong financial position and order backlog position us well for the remainder of the year.

On Slide 4, I'd like to touch on a few key financial highlights. Investment in noncash working capital increased 17% versus a year ago. We are comfortable with this increase as it was mainly driven by higher inventory levels and accounts receivable balances reflective of the higher levels of activity and normalizing supply conditions. Inventory levels are higher than the prior year driven by a number of factors, including delivery timing, inflation, foreign exchange rates on U.S. sourced supplies, improving availability through the supply chain, seasonality and activity levels. Accounts receivable increased in light of the higher trailing revenue. Days sales outstanding at both the Equipment Group and CIMCO were unchanged from this time last year. Our team continues to closely manage the aging of our receivables, monitor credit levels, quality and metrics.

We ended the second quarter with ample liquidity, including cash of $804 million and an additional $461 million available to us under our existing credit facilities. Our net debt to total capitalization ratio was negative 6%. We purchased and canceled 608,000 shares for approximately $75 million on a year-to-date basis under our NCIB program. These purchases are mainly reflective of good capital hygiene and help to mitigate option exercise dilution. Overall, our balance sheet remains well positioned to support operational needs and we are prepared to manage challenges related to economic variables and business conditions. We continue to exercise the operational and financial discipline one would expect as we evaluate investment opportunities that may develop over time.

Toromont targets a return on equity of 18% over a business cycle. Return on equity was lower at 21% compared to 25.1% for Q2 of 2023 and remains above our 5-year average of 20.8%. Return on capital employed was 27.9%, down from 32.2% for Q2 of '23. Both of these metrics reflect our higher capital investment and excess cash on hand. Finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.48 per share payable on October 2, 2024 to shareholders of record on September 6, 2024.

John, I'll turn it back to you for some more detailed comments on the results.

[John Doolittle, executive]

Thanks a lot, Mike. Now let's turn to Slide 5 for a few additional comments on the consolidated results. As Mike noted, results improved in the second quarter of 2024 on good growth in revenue, good execution against order backlog and project schedules. Gross profit margins were lower compared to prior year as expected given sales mix and market dynamics. Higher revenue and higher interest income on cash balances were effectively offset by the lower gross margins and higher expenses. New bookings were strong through the first half of the year and are supportive of future results. Bookings for the second quarter decreased 13% compared to last year and increased 13% on a year-to-date basis with good orders in mining, construction and CIMCO. Backlog remains healthy at $1.3 billion as of June 30, similar to that reported at this time last year with the decrease in the Equipment Group which is down 7% and an increase at CIMCO up 40%.

Backlog is supportive of future results. On a consolidated basis, revenue increased 16% in the second quarter and 7% through the first half of the year with increases in both the Equipment Group and CIMCO for both periods. Expense levels decreased to 11.1% of revenue for the quarter and increased to 12.4% year-to-date reflecting the higher staffing levels and activity as well as general inflation. Operating income decreased 1% in the quarter and 7% year-to-date as the higher revenue was more than offset by the lower gross margins and higher expense levels. As a percentage of revenue, operating income was 12% on a year-to-date basis compared to 13.8% last year. Net earnings on a continuing operations basis increased 2% or $2 million in the quarter compared to last year and decreased 4% or $10.2 million for the first half of the year. Basic earnings per share on a continuing operations basis was $1.65 in the quarter and $2.67 year-to-date.

Let's look at the Equipment Group in more detail and turn to Slide 6. Revenue was up 15% in the quarter and 7% for the first half of the year. Equipment sales, including both new and used equipment, were up 33% in the quarter and 13% year-to-date reflecting good inflow in delivery of equipment. New equipment sales increased 39% in the quarter and 15% year-to-date with good activity in the mining and construction markets. Used equipment sales increased 4% during the quarter and remained relatively unchanged year-to-date on higher rental fleet dispositions reflecting fleet management decisions. In the quarter, total equipment revenue increased 16% in construction, 130% in mining, 25% in power and were down 32% in material handling. Rental revenue was 5% lower in the quarter and 4% lower year-to-date mainly in the light equipment market.

The RPO fleet was $64.1 million at June 30, 2024 versus $44.2 million a year ago and rental revenue was up 41% for the quarter and 46% year-to-date compared to similar periods last year. We think of RPO as a financing tool that normally results in an eventual sale. Product support revenue grew 3% in both the quarter and for the first half of the year with increases in both parts and service generally up across all markets and most regions on good end user demand and higher technician base. Looking at specific markets for the quarter, change in revenue was as follows: construction was up 1%, mining up 5%; power systems relatively unchanged and material handling up 5%. Gross profit margins decreased 310 basis points in the quarter compared to last year and decreased 210 basis points on a year-to-date basis. Sales mix was the largest factor with a lower proportion of product support revenue to total dampening margin 180 basis points in the quarter.

Equipment margins decreased 30 basis points as expected given market dynamics at play in the prior year. Rental margins were down 90 basis points on lower fleet utilization with some softer market activity. Product support margins decreased 10 basis points reflecting higher input costs being observed by the business. Selling and administrative expenses were up 8% in the quarter and 7% year-to-date reflecting the higher revenue and activity levels. Compensation costs were higher year-over-year on headcount and regular salary increases. Other expenses such as training, travel and occupancy costs have increased in light of activity levels and general inflation. We are comfortable with the increases as they largely represent investments in our team. Operating income decreased 2% for the quarter, 10% for the first half of the year as the higher revenue was more than offset by lower gross margins and higher expenses.

Bookings decreased 9% in the quarter to $610 million versus a tough comparable in 2023, which included several large mining and power systems orders. Construction markets were active up 12% with a continuing evolution towards more normalized supply and demand dynamics. Mining markets were also strong with good orders received through the first half of the year, however, down 17% from last year's Q2, which was a very strong comparable. Power systems order activity was lower, down 50% reflecting a large project received last year. Backlog of $1 billion remains at healthy levels, down 7% versus last year reflecting deliveries against customer orders from the opening backlog and good new bookings. Approximately 90% of the backlog is expected to be delivered over the next 12 months, but of course this is subject to timing differences depending on vendor supply, customer activity and delivery schedules.

Now turn to CIMCO on Slide 7. Revenue was up 19% in the quarter and 11% for the first half of the year. Package revenue increased 25% in the quarter and 11% year-to-date with good progress on construction in the quarter after a slower start to the year. Industrial market revenue was up 16% with higher activity in Canada and lower activity in the U.S. versus a tough comparator. Revenues from the recreational market increased 51% with higher activity in both Canada and the U.S. Product support revenue increased 12% in both the quarter and on a year-to-date basis with higher market activity in Canada in both periods. Activity in the U.S. was relatively flat for the quarter, however, up year-to-date. Activity levels are reflective of market conditions and increased labor capacity.

Gross profit margins increased 10 basis points in the quarter reflecting higher product support margins on improved execution and higher market activity, largely offset by lower package margins and an unfavorable sales mix. On a year-to-date basis, gross profit margin increased 200 basis points with higher margins in both packages and product support margins. Package margins reflect good operational execution and the nature of projects in process. Product support margins increased on improved execution and a higher volume of activity. Selling and administrative expenses were up 15% in the quarter and 13% for the first half of the year. Compensation costs increased reflecting staff levels, annual salary increases and higher profit sharing accruals on higher earnings. Other expenditures such as travel and training increased to support activity and staffing levels.

As a percentage of revenue, selling and administrative expenses increased to 16.2% in the first half of the year versus 15.9% in the similar period last year reflecting higher spending levels to support current and future business. Expenditure control measures on discretionary spend remain a key focus area for the CIMCO team and the company in general. Operating income was up $2.4 million or 25% for the quarter and $5.4 million or 37% for the first half of the year reflecting the higher revenue and improved gross margins, partially offset by higher relative expenses. Operating income as a percentage of revenue increased 180 basis points compared to last year to 9.5%. Bookings decreased 49% to $32.6 million in the quarter, however, were 31% higher for the year-to-date period. Recreational bookings were 166% higher through the first half of the year with excellent activity in both Canada and the U.S.

Industrial orders were down 15% in the first half. Canadian orders were lower against a strong comparative while the U.S. was higher. Backlog of $289.7 million was 40% higher versus last year with an increase in both markets. Industrial backlog increased 45% with an increase in both Canada and the U.S. Recreational backlog was up 34% reflecting a strong increase in Canada and a modest increase in the U.S. Approximately 80% of the backlog is expected to be realized over the next 12 months. However, again this is subject to construction schedules and potential changes stemming from supply chain dynamics. And with that, we can move to Slide 8.

I'll turn it back to Mike to highlight some of the key takeaways as we look forward to the second half of the year.

[Michael Stanley McMillan, executive]

Thanks, John. As one would expect, we consistently focus on key priority areas including safe operational execution, serving and supporting our customer requirements and our disciplined long-term focus on building our business for the future. Our backlog levels remain healthy, as John highlighted, while bookings in the quarter were softer in both groups. This is reflective in part to a relatively strong start to the year. We continue to hire technicians to support our operations and this remains an essential focus for our aftermarket service strategies and value-added product and service offerings. Operationally and financially, we remain well positioned with ample liquidity and our strong leadership teams, disciplined culture and focused operating models.

Our teams remain committed to disciplined execution with our decentralized empowered operating model adapting to changes in the business environment while remaining focused on executing customer deliverables. We continue to monitor key metrics, including supply and demand dynamics. As noted, our long-term focus on growth and returns means we remain committed to our operating and financial disciplines to manage our cost structure and discretionary spend while we invest in capacity and capabilities to provide exceptional service to our customers today and in the future. With our solid order backlog and balance sheet, we are well positioned and will continue to support the business through thoughtful capital deployment. We appreciate our entire team's effort and commitment to support our customers and deliver value to our stakeholders. Thanks also to our valued customers, supply partners and shareholders for their continued support.

That concludes our prepared remarks. At this time, we'll be pleased to take questions. Joelle, over to you, please, to set up the first call.

[Operator]

[Operator Instructions] Your first question comes from Cherilyn Radbourne with TD Cowen.

[Cherilyn Radbourne, analyst]

First question is on the Equipment Group. Clearly there was some contribution from deliveries that were delayed in the first quarter. But with new equipment sales up 15% on the year-to-date period, it's hard to say that that's all it is. What is your overall sense of customer confidence levels at this point?

[Michael Stanley McMillan, executive]

Cherilyn, it's a good question. I think I would reflect back as well on Q4 where we had a pretty solid finish to the year, which again I think affected some timing of delivery and so forth in Q1. But then we also, as you mentioned, on a year-to-date basis we saw good numbers at 15% on new, you're referring specifically to new, and really 39% in the quarter. I think there's still a tone of caution out there. If you look at our backlog today, it's a nice split between the construction side, mining, power and so forth. And so I think generally depending on vertical, there's still considerable investment and work we're doing on the mining side.

I think on the construction side, there has been this tone of patience while we look at the broader economic factors. We did see -- I think in certain segments as well like when we think of residential in other areas, we see a little bit lower activity on that side on the infrastructure side supporting residential. But in other areas, we continue to see some decent activity. And so I think it's a multidimensional sort of view. But we feel confident I think cautiously in that sense when we look forward just because of the backlog and some of the availability I think also supports, customer decision-making gives them also some time to think through the timing of their cash flows as they monitor economic factors.

[Cherilyn Radbourne, analyst]

That's helpful perspective. And then it seems to us that on a mix adjusted basis, the Equipment Group margins are holding in very well relative to the high levels experienced during that 2022-2023 period. Is that your impression as well and are there margin specific initiatives that you have underway?

[Michael Stanley McMillan, executive]

I think we always refer I think to -- and John, you can weigh in on this. When we think of margin, I mean we always go back to the fundamentals, right? When we think of -- certainly as you mentioned, we've had a period of strong margins, but limited availability and availability has changed quite dramatically. And I think the mix has also been a big factor. So when we think of the mix of new, certainly we just covered that, much stronger availability, a higher proportion of mix. I think also within the mix when you think of mining deliveries and their contribution versus other equipment, that can affect margin in the near term. The mix of sales on equipment new and used versus, say, product support as well is a factor. Where we see stronger unit deliveries on prime product, that's a factor. And the other piece that we always refer to is on the rental side. And so not unusual to see a softening in some rental when equipment sales are stronger and vice versa. And so a number of factors I think when we look at the margin levels, I think we need to consider and always reflect on that composition of mix.

[John Doolittle, executive]

Yes. I mean I would just add to that, Mike, and say, Cherilyn, we've been kind of calling out some compression on new and used equipment over the last couple of quarters, which we continue to see although maybe not as marked as you would have thought. And then on rental, rental is down 90 basis points and that reflects lower utilizations and we also have been calling out the softness in the residential activity sector and that's what we saw in rental in the quarter.

[Cherilyn Radbourne, analyst]

And if I could sneak in just the last one on that rental performance. Is your intention to respond to that in terms of your net fleet adds for the year or are you going to continue to drive on and invest for the future plan?

[Michael Stanley McMillan, executive]

Yes. I think again it's a little bit of an optimization. But I would say, as I mentioned in my comments, we're very committed to this market. We're very supportive of the long-term prospects. And so the investment -- if you look at our numbers today, we'll taper our CapEx a little bit, but it's really marginal. So we are quite committed. We're also renewing the fleet and we're turning over some of those fleets with availability and so you'll see a little higher acquisition cost going in. But the short answer I think is we are committed to the long-term investment strategy there. We are going to manage through cycles and we always have in the past and I think the key there is not to overreact, but also look for investment in other areas. We continue to look at broadening our product offer, increasing our fleet and looking at some specialty areas as well. And I think those are longer-term perspectives in that business and again we're very committed to that piece of our business.

[Operator]

Your next question comes from Yuri Lynk with Canaccord.

[Yuri Lynk, analyst]

Maybe just a follow-up on the question on the equipment sales in the quarter, $559 million. I think that's far and away a record for the company. Understand some of the supply-demand dynamics and availability. But just any additional color in terms of there being one or more large package sales in there or is it just simply the fact that you've got the equipment on hand now to be able to put it into the customer?

[Michael Stanley McMillan, executive]

Yes. Maybe a couple of things just to highlight there, Yuri. And again I would look at it on a year-to-date basis because we have seen some -- we continue to see some interesting dynamics there in terms of customer buying behaviors in the macro environment. But when we look at -- we do break out in some of our disclosure a little bit more color a little bit around the composition like when you think of construction, mining and so forth. We had some good deliveries in Q2 on the mining side for example. And so those are things to keep in mind as we go forward because those can be a little bit more lumpy based on customer delivery schedules and requirements I think. But broadly you're correct in the sense that availability has improved significantly over the last 12 months and we continue to support that execution with our teams and so forth. So you've seen a bit of that in Q2 also with the seasonality is not uncommon, right?

[Yuri Lynk, analyst]

Okay. I do want to acknowledge CIMCO. They're on a very nice roll here, really impressive results over the last little while. Is the plan to just keep on with the organic growth strategy because it's obviously working? But is there an opportunity to support that with some acquisitions or what's the plan there?

[Michael Stanley McMillan, executive]

Yes. Maybe just to start on that, Yuri. I think again the team has done a really nice job both in Canada and the U.S. And I think if you look at our backlog, they've secured some good business and doing a nice job there, managing our margins, our execution, building the team, a little bit of spending there to support future growth and generally quite pleased with the systems and processes that they put in place as well. When it comes to acquisition side, again we always look at that very carefully because I think in that business, it's capital light in a sense. We tend to look at opportunities, it's pretty fragmented. And so we certainly will look at opportunities, but organically we are well positioned to grow that business. I think with the technologies in that business and you think of some of the things that we're doing, we talked about Bradford at our annual meeting. You look at some of the net 0 initiatives and so forth. And I think they're in a good position from that perspective. And I would say the primary focus is organic, but supplemented with other opportunities if we think it makes sense at good value and we can make a difference in that with a tuck-in and that sort of things.

[Operator]

Your next question comes from Steven Hansen with Raymond James.

[Steven Hansen, analyst]

Was just hoping you could give a little more granularity on where exactly you're at on the Reman site, staffing levels and sort of the pace that you expect to ramp up utilization here going forward given that it's a relatively new marquee facility for you?

[Michael Stanley McMillan, executive]

As a matter of fact, we had one of our meetings there yesterday. And that facility actually is pretty good. We still -- I would say we've mentioned it's about 143,000 square foot facility. We expect that full peak to be in around the 150, 160 technician range. I'd say we're just over 100 at the moment as we transition activity into that operation. We're doing a lot of engine work and other things at the moment. But there's still some other areas that we're continuing to put equipment in to support other opportunities and transfer some volume. So I would say we're going to be in transition there for a period of time yet as we look at our facilities down here in our office in Concord [indiscernible] and continue to install some pretty sophisticated equipment in that facility. But it is fully functional for the most part and pretty active.

[Steven Hansen, analyst]

And just a quick follow-up. It's a smaller piece, but the power gen market, it's not been one that's been as robust as the others lately. Just maybe some commentary around that and how that's been performing and why it's been dipping.

[Michael Stanley McMillan, executive]

Sorry, Steve, you're asking about the power segment?

[Steven Hansen, analyst]

Yes, the power segment mix.

[Michael Stanley McMillan, executive]

Yes. I think the power segment has actually done pretty well. In our results, you'll see we booked -- for example if you look at our backlog, we booked a fairly large project last year and the team has been executing on that project for a customer throughout the course of the year and into Q2. And so it can be a little bit lumpy just the nature of that business. But I would say it's performing well, but it is project based. In a lot of ways it's somewhat similar to when I think of CIMCO at times where you can have some larger projects in certain periods and then a number of smaller and aftermarket support projects as well. And so I think the future potential for that business is very strong as we look at energy transition supporting customers in remote locations like mines and the standby power opportunities if we think of other areas, other segments that we can look at and actively pursue in Canada here.

[John Doolittle, executive]

Yes. The only thing I would add there, Steve, as Mike said, it was a bit lumpy. If you look at the backlog in the Equipment Group, it's about $1 billion and $280 million of that approximately is in power. So we've got a very good backlog sitting there.

[Operator]

Your next question comes from Devin Dodge with BMO Capital Markets.

[Devin Dodge, analyst]

Start with a question on the rental business. So just wondering if you can -- I'm just wondering how much of the sluggish rental demand do you attribute to softer end market conditions versus maybe the unwind of some customers that were maybe forced into the rental channel due to limited availability of new or used.

[Michael Stanley McMillan, executive]

It's a good question, Devin. I think I would tend to say that the dynamics that we outlined in some of our comments and talked about earlier are really the ones to think about. Certainly I would say when you go through business cycles and we had a pretty robust rental market when we had a lack of availability, we deliberately managed our fleet so that we had options available for customers and so that supported the rental activity and utilization. I think when we get into a period like we are in now with higher levels of availability, certainly customers are able to secure equipment and time it more effectively. And so there is -- I would say there is a small factor there. I think really though when we look at that business in particular outside of those cycle dynamics, I would say again in the residential market we're seeing a little bit of softness in some of the infrastructure and the kickoff of some projects. I think long term we feel very positive about that because there's a lack of affordable housing we expect especially in our primary markets to see significant amount of activity and you hear about that quite commonly. So I would say that's probably more of a factor. That combined with slightly higher acquisition cost on our fleets when we -- as we continue to replace the fleets with new equipment and so forth. So there are a number of dimensions I think in there.

[Devin Dodge, analyst]

Okay. Good color. And then maybe just continuing on that theme. Just wondering if you can give us a sense for where financial utilization of the rental fleet sits currently versus what you view to be an acceptable level? And what is that path to narrow or close that gap? Is it just demand or are there things internally you're working on as well?

[Michael Stanley McMillan, executive]

Well, a couple of things I'd say. I think again we don't publish our utilization rates. But if you looked at some of the public available information through us and other sources, I think what you'll find is industry physical utilization is running a little lower than last year, which is pretty common. So that's kind of the benchmark to look at. It is a few points. Now it's going to ebb and flow through the summer season here as well and so that's a difficult one to predict. But I would say it is lower than last year and I think from our perspective again, we're committed to the market. As far as where we'd like to see it, we still have growth potential. I think we often talk about Quebec and the Maritimes. But I think broadly as we enhance our offer with fleets, some specialty products, we get some of that equipment into the marketplace; that's going to provide us with an opportunity to deploy more capital and also penetrate the market and build utilization. And so ultimately I think we have room in all of our markets to continue to improve utilization, maybe perhaps a little bit more in the eastern part of our territory as we continue to work through that business plan and then on that specialty side I just covered.

[Operator]

Your next question comes from Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, analyst]

Just a quick question on product support. So given the improving equipment supply backdrop, what is your outlook for this business line...

[John Doolittle, executive]

Yes, it was a bit tough to hear you. If you wouldn't mind, just ask it again.

[Sabahat Khan, analyst]

Just a quick question on product support. So given the improvement in equipment supply backdrop, just curious what your outlook is for this business line kind of over the coming quarters or years.

[John Doolittle, executive]

I mean obviously we're committed to driving product support improvements and increases. We continue to hire technicians, which is the most important part or component of increasing product support revenue. The new equipment sales so far this year and in the quarter bodes well for product support increases in the future. But in terms of a specific number, I'm not going to give that, but that's generally our feeling on product support.

[Michael Stanley McMillan, executive]

Yes. And I think just on your unit delivery sort of implied in your question. I think over the long term of course as we see unit deliveries and good sales numbers on used, I mean that supports a longer-term view and we look at certain verticals like mining and construction so the larger gear again. Those are great opportunities for us over the long term. And so like Bradford, we are investing now for the long term and we want to be there to support our customers as they utilize the equipment and it goes through their normal cycles and rebuild cycles and so forth down the road.

[Sabahat Khan, analyst]

Okay. And I think you mentioned that equipment margins were down 30 basis points on the year just given the market dynamics at play in the previous year. Is that just referring to the sort of improving equipment supply backdrop where margins last year might have benefited from a lack of equipment availability.

[John Doolittle, executive]

That's correct.

[Michael Stanley McMillan, executive]

And I think we always have to think about mix within those components as well. Again availability and certain things like that certainly is a factor, but I think it's also when you think of the overall mix. I mentioned earlier the composition of, say, mining equipment versus some of our construction equipment in CCE where you have different market factors to consider depending on demand and mix within those categories.

[Sabahat Khan, analyst]

And then just last one for me. Obviously you guys were active on the buyback in the quarter. Just curious to hear your thoughts on how you're thinking about the buyback today and kind of over the course of the remainder of the year? And if you have any updates to sort of your capital allocation outlook just given the current macro backdrop?

[John Doolittle, executive]

Yes. So as Mike noted in his remarks, our primary goal on the buyback program is capital hygiene, which is offsetting option exercise issuance and then occasionally we'll be opportunistic. But Mike also mentioned we have ample opportunities to deploy our capital in organic growth. That's our primary #1 capital allocation objective. Also we have an active funnel of M&A opportunities, somebody asked about the CIMCO side, and we have an active funnel kind of across the group. And buybacks are just 1 tool in the toolbox and striking a good balance on capital allocation. So our capital allocation priorities have not changed; it's organic growth, it's our dividend, it's M&A opportunities and it's the buyback program as well.

[Operator]

[Operator Instructions] Your next question comes from Roman Pshenychnyi with National Bank.

[Roman Pshenychnyi, analyst]

It's Roman here on for National Bank Financial. I was wondering if you can maybe provide a bit more color on the efficiencies behind the Bradford Reman plant and maybe what the longer-term strategic opportunities would be there?

[John Doolittle, executive]

Roman, sorry, I missed the first part of that.

[Roman Pshenychnyi, analyst]

My apologies. Could you maybe give the prospect for the Bradford Reman plant and the potential opportunity for efficiencies there?

[Michael Stanley McMillan, executive]

The Bradford facility for efficiencies I think if that's your question. So I think a couple of things. It's early days there. I think ultimately what we're looking at is it's a great facility in terms of the design, the flow, the efficiency. And so I think over time as we look at that facility versus where we were before, we're currently in 3 locations, each performing great operations. But I think if you naturally look at a state-of-the-art facility with more contemporary cleaning facilities, product flow, and within 1 building and so forth; you can imagine we're going to be able to see some efficiencies come out of that not to mention the occupancy and the overall maintenance and support costs that we would have for facilities over time. And so ultimately we're going to see -- I would say in context, I mean product support is a large part of our business, it runs over 40% and so you have to keep that in mind. This is 1 facility within the network. But certainly it's a great business model for us that we plan to develop further.

[Roman Pshenychnyi, analyst]

That's very helpful. And just 1 more question more related to CIMCO. Just wondering what are the fundamental drivers of the more recent strength we've seen this quarter especially and what is driving that from a thematic point of view?

[John Doolittle, executive]

There's good activity levels in the market in this segment. I think the team has done a really good job. We've implemented a new project management system, which has increased the discipline within the organization and managing each of the projects. It's a new technology that Mike mentioned, which is greenhouse gas friendly. And so I think kind of those 3 things go into the blender and CIMCO has been doing a very good job over the last few quarters.

[Michael Stanley McMillan, executive]

And I think if you look at for example in that particular space, we've made a commitment for natural refrigerants moving away from synthetics. We have some great -- we have a Thermal Force One product that we are working with the market on and I think a number of other things that support both recreational and industrial and you think of things like cold food storage, grocery and food processing. A lot of colleges, universities and so forth also are looking at ways to optimize and move towards nonsynthetics and more efficient thermal heating and cooling plants. And so I would say all those things come together in terms of we have a strong offer there. We have a great team in place and we've done some work also in the U.S. We have a strong management team in that particular market and developing our presence. So I think those are good factors that lead us forward.

[Operator]

There are no further questions at this time. I will now turn the call over to management for closing remarks.

[John Doolittle, executive]

Okay. Well, thank you very much, Joelle, and thank you for hosting us. And appreciate everybody joining the call this morning and for lots of great questions. So that concludes our call. Please be safe. Have a great day, everyone. Thank you.

[Michael Stanley McMillan, executive]

Thanks again.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.