Toromont Industries Ltd
TSX:TIH
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
109.5
134.85
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Toromont Industries Ltd
You don't have any saved screeners yet
Good morning. Today is November 6, 2018. Welcome to the Toromont Industries Announcement of their Third Quarter 2018 Results Conference Call. Your host for today will be Mr. Paul R. Jewer. Please go ahead, Mr. Jewer.
Thank you, Tara, and good morning, everyone. [Foreign Language] Thank you for joining us today to discuss the results of Toromont Industries Limited for the third quarter of 2018. Also on the call with me is Scott Medhurst, President and Chief Executive Officer.Before we continue, I'd like to advise listeners that this presentation may contain forward-looking statements and information that are subject to certain risks, uncertainties and assumptions. For a complete discussion of the factors, risks and uncertainties that may lead to actual results or events differing materially from those expected, refer to Toromont's press release from yesterday, which is available on our website.We assume you've had an opportunity to review our press release from yesterday and as such we'll focus on key highlights. Scott will begin with an update on the integration and a few general remarks and comments on our outlook. After which, I'll review the operating group results and financial position. Then we'll be more than happy to answer your questions. Scott?
Thank you, Paul, and good morning, everyone. On October 27, marked the 1-year anniversary of the acquisition of our Maritimes and Quebec operations. Our Caterpillar geographic territory is now contiguous and covers Manitoba, Nunavut, Ontario, Québec, Nova Scotia, New Brunswick, PEI and Newfoundland and Labrador. Our entire team has much to be proud of over the last 12 months as the effort and contributions have been significant. We thank our people for their contributions and incredible discipline, ensuring the businesses continued to grow, while staying focused on strong safety practices, serving our clients and aligning our strategies, all with the major business integration at the forefront. This integration process continues with alignment of common practices and goals, which is a key to our collective team's success. Would like to highlight a few of the key elements of the transformation over the past year. Branding was integral, and we now completed the rollout of our brands across Québec and the Maritimes for all of our Toromont CAT, Toromont Material Handling and Battlefield the CAT Rental Store. Leadership appointments took root and the teams were engaged almost immediately. The new business structures, which emphasized the decentralized branch model, has been unveiled and is in the early stages of transition. Integrating Toromont business philosophies that include enterprise alignment, empowerment and accountability remains ongoing and critical to our overall success.Operationally, we've advanced on significant integration of divisions and segments. In no particular order, we have aligned people and reporting structures for our power systems, mining, material handling, heavy rents and used equipment divisions, all have more robust go-to-market strategies. Additionally, we have consolidated our marketing department with a heightened focus on actively promoting the Toromont brand along with our sales operations group. Over at Battlefield, we've made great progress rolling out the complete rental service model that includes a broader product line, which will help meet the customer needs over a 12-month period. This integration also includes customer-centric interface solutions. Rental services footprint expanded in Québec and Ontario with new outlets and assumption of facilities from the heavy equipment side of the business in Québec. Many of the expanded operations are at various stages of progress.The Battlefield QM team is embracing the strategy and changes with an understanding this is a journey focused on sustainability for the longer term. Fortunately for us, we've been down this road before and understand that patience is foundational throughout the process. As Paul has referenced a few times, we're planting an orchard, not [ indiscernible ]an apt analogy to building our rental business. Building the rental services business means expense is front-end loaded through significant capital investment. It also means [ adding and ] diversifying the fleets, adding to the sales force to sell our value proposition and investing heavily in necessary infrastructure to support the broader lines such as trucks and adding technicians. This orderly transition means disposition will be lower as the fleets need to age. It will take time to integrate a proper model, which is, as I noted, will not provide the desired rate of returns in the early stages of the strategy. Our heavy and power rental teams are going through similar return challenges as we expand and diversify those fleets and invest for long-term sustainable returns. Nonetheless, we are onto the next phase of the integration and this one excites me. Understanding the importance of product support, we've begun working on our product support shared services structure across the Toromont enterprise. Responsibilities have been delegated with the goal of improving productivity and efficiencies through common operational excellence practices, and again, the teams are locked in on the vision. The division of our corporate product support team and the 2 pan-regional groups will allow one team to focus heavily on service and leveraging of our strengthened Reman portfolio, while the other focuses on parts and logistics, including a full evaluation of supply chain efficiency. On the people's side, we've been focused on the integration of consistent and combined safety training and practices. We rolled out several management trainee courses focused on business fundamentals that represent core Toromont operating principles. And last, but not least, I'm very pleased with the hiring and training of technicians so far. This continues to be of the utmost importance. Most importantly, the team has driven significant growth through all the various businesses, demonstrating early-stage advancement in the market. That being said, we have considerable work to complete to unlock the significant value of the largest acquisition in our history. We remain pleased with the integration and the transition progress and with the earnings accretion over the relatively short time line since the transaction's closing.The team has embraced the sharing of black practices including key operational and financial disciplines to further strengthen our position as a world-class dealership. Overall, team delivered solid results in the third quarter, and most important, on a year-to-date basis, demonstrating longer-term achievements through solid execution, while facilitating a massive integration.Revenues increased 54% in the quarter and 66% year-to-date with Toromont QM contributing $322 million in the quarter and $913 million year-to-date. Net earnings grew 39% in the quarter and 43% year-to-date. On a year-over-year comparable basis, the legacy business's bottom line grew 7% in the quarter and 18% year-to-date. In the Equipment Group, effective execution was required to realizing the significant potential of the acquisition. Infrastructure projects and broader construction activity continued to present opportunities and the long-term outlook remains positive across most territories.The parts and service business continues to provide a measure of stability and opportunity for further growth. Our shops remain busy, and we continue to hire technicians in anticipation of the increase in demand.In the mining space, we have experienced good growth in the product support side so far. Production continues at existing mine sites, which is good for future product support business and incremental equipment sales to support the growth and expansion. Over at CIMCO, the revenue base continued to grow, reflecting our strong presence and solid reputation as a leader in key recreational industrial markets that we serve. Our results have been challenged by problems encountered on one U.S.-based project. We believe, that the processes have been addressed and the team is refocused on executing the growth strategy in the U.S. Across our organization, tariffs implemented this year have not had material or direct impact on our business.Overall, the diversity of our markets and the new and significantly expanded territory, a strong management group and a solid financial underpinning provide substantial opportunities for continued success.I'll now turn the call over to Paul to take you through highlights of the financial results. Paul?
Thanks, Scott. Let's look at the operating results in more detail, starting with the Equipment Group. The total revenue contributions from Toromont QM, as Scott mentioned earlier, represented a 20% increase for the quarter and 19% year-to-date from revenues generated under the former ownership. For the legacy businesses, total revenues decreased 2% in the quarter, but were up 5% year-to-date. New equipment sales of the legacy businesses were down 12% in the quarter, but up 5% year-to-date. Construction sales in the quarter were up year-to-date with good activity levels in the GTA Manitoba, offsetting some softness in Northern and Southwestern Ontario and Newfoundland. Mining sales were lower in both periods against the tough prior year comparator, which included a large mining package. Power system sales decreased from record levels last year, mainly on lower demand for electric and prime power generator sets. Agricultural sales were down in the quarter, but up year-to-date.Used equipment availability remain challenged due to the influx of U.S. buyers and were down 2% in the quarter and 12% year-to-date. In total, equipment sales were down 10% in the quarter, but up 1% year-to-date at the legacy business. Conversely, at Toromont QM, total equipment sales were up 32% in the quarter and 28% year-to-date from those recorded last year at the predecessor organization, driven by strong new equipment sales.Rental revenues in the legacy businesses increased 14% in both the quarter and year-to-date. All areas of the rental businesses reported good growth with power rentals continuing along a record-setting pace.At Toromont QM, rental revenues increased 14% in the quarter and 16% year-to-date, approximately 2/3 of which were generated from the light equipment fleet and lift trucks. At the end of September 2018, our net investment in the rental fleet was $527 million. During the quarter, we invested an additional $27 million in our rental fleets, net of dispositions, which, on a year-to-date basis, was $54 million higher than a year ago.Product support revenues at the legacy businesses increased 2% in the quarter and 8% year-to-date with growth in both parts and service. At Toromont QM, product support revenues were up 12% in both the quarter and year-to-date. Gross profit margins increased 170 basis points in the quarter and 120 basis points year-to-date, buoyed by higher product support margins and a favorable sales mix of product support revenues in total. The margin gap at Toromont QM had a dilutive impact in the quarter and year-to-date. Selling and administrative expenses increased mainly due to the expenses related to the acquired operations and certain integration-related costs. Excluding these, the expense ratio was 70 basis points higher in the quarter and 10 basis points higher year-to-date.Operating income increased $34 million in the quarter and $89 million year-to-date. Toromont QM contributed $25 million in the quarter and $55 million year-to-date, net of integration-related costs. At the legacy businesses, operating income increased 16% in the quarter and 23% year-to-date, which translates to an increase in operating margin of 230 basis points in the quarter and 190 basis points year-to-date.Bookings at the legacy businesses were up 19% in the quarter, with strong power and agricultural orders offsetting lower mining and construction orders. For the year, however, legacy bookings were relatively unchanged. Over at Toromont QM, ordering activity was good across most market segments and accounted for $101 million of the orders in the quarter and $429 million year-to-date. Backlogs increased to $336 million including $142 million at Toromont QM. We expect about 2/3 of these orders to be delivered in the fourth quarter.Let's turn now to CIMCO, where revenues increased 4% in the quarter and were up 13% year-to-date. In Canada, package revenues were up 2% in the quarter with strong sales in Québec and Western Canada, offsetting softer sales in Ontario and Atlantic and Québec. Year-to-date, all regions, except Atlantic Canada, reported growth and consequently led to a 25% increase over last year. In the U.S., package revenues were relatively unchanged in the quarter, [ up about ] 10% year-to-date. In both Canada and the U.S., sales in the 2 industrial markets were up in both periods, while recreational markets were down. Product support revenues increased 10% in the quarter in Canada and 3% year-to-date. In the U.S., these were up 3% in the quarter and relatively unchanged year-to-date.Margins decreased 380 basis points in the quarter and 450 basis points year-to-date, largely attributable to the problems encountered on the one U.S. project that Scott highlighted, which resulted in a charge of $2 million in the quarter and $3 million year-to-date.Selling and administrative expenses were relatively unchanged in both the quarter and year-to-date, but down 50 basis points and 200 basis points, respectively, as a percentage of revenue. Operating income decreased 32% in the quarter and 20% year-to-date. Bookings were down 64% in the quarter and 29% year-to-date versus the records set last year. In Canada, bookings were down 66% in the quarter and 23% year-to-date with lower industrial and recreational orders. In the U.S., bookings were down 60% in the quarter and 47% year-to-date. While industrial activity increased and returned to more historical levels in the U.S., recreational activity was significantly higher.Backlogs of $126 million were down $50 million from the record set last year, but still significantly higher than the previous 5-year average. We expect about half of this backlog to be delivered in the fourth quarter. On a consolidated basis, basic earnings per share increased $0.21 in the quarter to $0.84 and were up $0.57 for the year to $2.06. On a comparable basis year-over-year, this translates to a 5% increase in the quarter and 17% for the year.At September 30, our overall financial position remains strong. In the quarter, we repaid the remaining $100 million drawn on the $250 million credit facility and ended with cash of $217 million. Our net debt to total capitalization ratio has decreased every quarter since closing the deal and now sits at 25% versus 40% at the end of 2017.To reiterate what Scott said earlier, we are pleased with the traction seen over this past year and are even more encouraged by the level of enthusiasm that we're seeing through our budget process that is currently underway. We truly believe in the opportunities, which lie ahead, and again, caution you to not place undue reliance on any single quarter as a basis of modeling your expectations. That concludes our prepared remarks, and we'll be pleased to take your questions. Tara?
[Operator Instructions] We will now take our first question from Cheril Radbourne from TD Securities.
Starting with the Equipment Group. Just wondered how you would compare market conditions in the legacy territory versus the Hewitt territory? And has the strong growth that you've seen in the Hewitt territory created any challenges in terms of the integration process?
First of all, the market activity has been very strong and solid throughout our territory. Québec has been stronger if we compare to the balance. Actually Québec is about 18%. And we've pleased with the growth and the advancement in the market. So that's been a very positive story in our Québec market and the Maritimes. I don't think -- in terms of the integration, there's a lot of moving parts and that's why we're really pleased with our performance so far because we have a massive integration going on and, I think, we should applaud the efforts and the contributions of our folks and what they've accomplished so far on a year-to-date basis.
And in terms of the rental business, obviously, that's one of the key opportunities as you integrate the acquisition. Of your net rental additions year-to-date, can you comment on how much of that has gone into Toromont QM? And are you still tracking to about $140 million of net adds for the year?
Yes, about half of it went into Toromont QM, Cherilyn, and $140 million continues to be our expectation for the total year.
I'll put a little more color on that, Cherilyn. We're behind in our rental fleet uploads. We had to ship product with the retail demand. And so we're rebuilding -- or not rebuilding, we're building a new business of rental services in our QM. We're excited about that and that has certainly some front-end loaded costs associated with this, because we're having to age those fleets as well. So we're not being able to capitalize on disposition throughout our enterprise because of some of these availability challenges. But -- so we're a little bit behind, these products will come in. And so that's what's going on in the rental services market.
And in terms of availability from CAT, what are you seeing as we look forward? I think CAT indicated on their call that their production levels are starting to catch up with retail demand?
Yes, we're going to see those products coming in, it's just timing.
We will now take our next question from Jacob Bout from CIBC.
I had a question on the legacy results. So specifically, the construction side of things with equipment sales being down. How does that square with the strong results in the backlog build that you've seen with your construction clients? And is this really just a timing issue?
Well, year-to-date -- on a year-to-date basis, the legacy's construction activity on sales has been very good. We're pleased with that. You go through some ups and downs through these quarters. So I think we should focus on the year-to-date and that's been a very active market and the revenues in the construction segment on new have been solid.
The other factor that you have to take into account, Jacob, is if you're looking at -- you're referring to the backlog build with construction clients, then obviously, there's a bit of a deferral between activities at the end customers for us and translation to an opportunity for us to serve.
So very optimistic?
I think it's positive. I think it's positive.
We're dealing with -- Cherilyn had asked a question earlier about market conditions. And one thing I'd add to Scott's comments is Ontario has been performing at a high level for quite some time, right? So we're just seeing maturity in the marketplace. I think with Québec, we've seen a bit of resurgence with infrastructure products finally getting kicked off over the course of past a year or a 2. So our timing is ideal. And we're quite excited to have the opportunity to serve this large contiguous territory.
Maybe turning to CIMCO, how much you would read into the backlogs and the bookings being down so sharply? Is there anything structural going on?
Well, I think, we've been coming off records for a few years. And again, if you look at it from a 5-year historical, it's right in line above a bit. So that basically tells the story there. We're pleased with the growth again. I mean, you look at it from year-to-date and you look at it -- our growth strategy from '14 to '17, there's been significant growth over that period of time with improved margin. We hit a wall here with a large project in the U.S. that we're, obviously, not pleased with as a team and it's being addressed aggressively.
Last question just on QM rental. The mix of light to heavy rentals, you're saying, I think, was 2/3 and 1/3, is this the right target mix? And maybe talk a bit about the profitability of those 2 segments or subsegments.
Yes. So we're not where we want to be. As I said, this is going to be a -- we're on a journey, we are building a new business here for the rental services. And so when we look at our -- when I quantify the light and the heavy, in there the utilization has been very strong on a year-to-date. I mean, our timing utilization on the heavy was at 70% in the quarter. So we've got to upload those fleets. So we're on a journey there to do that. And as I said, there's costs associated with building this new rental services business. It does take some time. And then the other part of it, Jacob, is we're not disposing of the assets like we would normally do. I mean, on the heavy side, we're down $4 million in disposition, because we're having to hold onto those products until we can upload, and we're down over $3.5 million in the rental services business. So that's fairly impactful on our profitability. It also has an impact, because then your rental repairs start to go up a bit as well. So we're not in our sweet spot in terms of the model and how we'd like to execute, but we'll get there.
We will now take our next question from Michael Doumet from Scotia Bank.
Scot and Paul, so first is a question on the Toromont QM. Obviously, a lot of integration work being done there. I mean, personally, I was expecting a little bit more strength this quarter given prior comments on historical strength in the second half. Is the seasonality now somewhat diminished with the integration? Or were there one-time costs or weakness in the quarter that muted that margin performance?
What I would say is, seasonality is seasonality. And the nature of the seasons in Québec and the Maritimes aren't radically different than they are across all of our businesses. So over the long haul, I would expect seasonality to be reasonably consistent. Neutralized a little bit by the fact that we need to build up the rental fleet to service 12 months of the year as opposed to being more of a seasonal business that we had inherited. And we do that with allied products that are designed to run in the winter as well. So that's certainly a factor to take into consideration. Having said that, anything can vary as it comes into a quarter-over-quarter basis. I don't think we're dealing with substantial cost of integration at this point in time. As you look into the third quarter, I have the table that we have in the front of the press release, that's meant to provide visibility, transparency to the continuity, providing comparable balances. Most of the line that's there for integration and interest costs is interest costs in the third quarter. It would only be a relatively minor portion that we're dealing with. But having said that, all that we're tracking in terms of integration costs are those direct costs related to personnel changes or other minor matters that we're dealing with. Obviously, there's a level of effort and mild disruption that goes along with a complete integration of the businesses. And we're quite pleased with how that's gone so far.
Okay, that's great color. Sorry, go ahead, Scott.
Just to demonstrate our -- we're lumpy right now. And then you see it -- when you look at the legacy on a year-over-year, there was a major mining deal that took place last year in the third quarter. So that creates some lumpiness in the comps. So we're still pleased with the performance in the legacy.
Okay. And just maybe flipping to rental on QM. And you commented the rental was expected to provide a large contribution to the margin improvement story there. But again, after your prior comments, I think, you've made them again this quarter that the improvement should be gradual in nature. I think, you also mentioned costs associated with building the rental business and that you're not effectively -- you're not at the sweet spot in terms of monetization. Just -- I mean, like, if we think 1 or 2 or 3 years -- and I know you guys don't want to provide guidance, but I just want to make sure that we at least have some reasonable expectations and set some right goalposts in terms of the improvement in that business and when you should be at your sweet spot?
The analogy that I've used before is, in building the rental business, planting an orchard, not a wheat field, right? And that's a simplistic way, but an apt analogy, I believe, of what we're doing here. The rental services business is a full cycle business, right? So that means that you got to have the right equipment, you're going to be maintaining it for a right period of time, depreciating it property and selling it at the right time. And when it comes into that full profitability of that cycle, it's in the ultimate disposition of that rental fleet that you actually generate part of the profitability. So when I think about that, and I think about our cycles of duration, we're really on a -- if you're starting from scratch, which we're not quite starting from scratch, but if you were, then you'd be talking about a 3- to 4-year voyage basically before things are kind of in a steady-state environment. And that assumes that you've been able to build the business over that time frame. So we've got quite a cycle of opportunity. When we look at our rental services business, the revenues that we've generated out of the legacy side of Battlefield, which is what we talk about in terms of rental services, would be between 2.5 and 3x, those that have been generated on QM. So we think the market is much more comparable than that measure.
And the rental book beyond just the rental services, we're also -- there's a similar story going on there with the heavy rental and the power rental. We're having to rebuild or upload these fleets and we've been slower because we've been moving units over to retail. So similar story in there. So it's impacting our disposition in those areas as well.
We will now take our next question from Derek Spronck from RBC.
Just on the SG&A costs as a percent of revenue trending a little bit higher on a year-over-year basis. Does that come down in 2019? Or likely to remain more elevated as you continue to build out your rental business?
We're currently going through our budgeting process now, Derek. So I'm not in a position to be able to forecast those properly. I mean, obviously, we're focused on bottom line growth at this point in time. We've seen -- as we complete with this integration, we've seen some transference in people from -- we're up people in total at the acquired businesses, but some transference in salaries, which will be SG&A into technicians where we've increased our technician base. So that could alleviate it a little bit, but I don't have any strong expectations one way or the other.
Okay, and have you come to any decision on the -- consolidating the ERP systems?
No, not at this point in time. As we said at the outset, we've been pretty clear that we'd be taking a good 1.5 year to assess this, and we're on track with that. So we've looked at a number of different options. We're certainly fine-tuning it down. And as is our normal process, we'll take a slow and steady approach to this, a very methodical approach to it, and implement it over time frame so as to derisk that exercise.
And there's no issues running both at the same time concurrently, I mean?
No. We're -- Toromont has very much a best to bring philosophy versus a single ERP philosophy and our CIO would be able to articulate it much better than us, certainly a strong individual and highly respected in the cap world. On our businesses that we had prior to the acquisition, we would run multiple platforms for each one of businesses units. So CIMCO ran on SAP, for example, as does Toromont QM now. And Toromont legacy, Toromont CAT legacy ran on a platform called DBS and Battlefield on systematics and a number of other platforms that we have and we bring all those together with our back-end tools.
Okay, great. And I have just one more quick one for myself and I'll turn it over. The deferred revenues in contract liabilities, there's a little bit of a difference in magnitude between QM and your legacy business, QM being -- having around $67 million and the legacy business $8.5 million. Are you looking to normalize that? Or why is there a difference between the 2, legacy and QM, on the deferred revenue side?
I don't have the specifics. There's nothing material that's going on there. There's no difference in terms of business approach that we're dealing with. It's just vagaries of business levels as it relates into sales with residual value guarantees and some other elements that would be impacted by deferred revenues.
Would QM, historically, then provide a greater residual value guarantees as part of their sales process relative to what you've done on a legacy basis or...?
No. And the other thing that impacts us as well. So no, they would not, I'm afraid. So they would have been a little bit tighter actually on that front. And the other thing that impacts this is also CSAs, contract service agreements.
We will now take our next question from Devin Dodge from BMO Nesbitt Burns.
All right. So just to start with your rental business, it seems that time utilization has been a key driver of results recently. Just wondering if you could provide some context for where time utilization sits currently compared to maybe the range over the last 5 to 10 years? And if there's room for -- or anymore headroom for this to shift higher?
Well, what are you monitoring, like, we've got some utilization on time here as high as 70% in the quarter, actually our heavy went up to 76% in the quarter and power is very high as well. So when you look at it over a year-over-year basis, we're up and when you look at it -- I look at it more -- so when you get into those high ranges, it means you need to increase your fleet size, which we do and wanted to do. So that's where we focus on. And that what you have to look at also is the market continues to trend with rental.
Yes, for sure. And I guess, if utilization is still elevated -- or it has been elevated for a while here, when does this start to impact rental rates positively?
We're -- it's very -- it's still competitive and that's not going to change. I mean, it's very competitive market. So what you have to look at is what's your value proposition. Where are you positioned in the market to deliver the rentals on time, good product, focused on safety of the product. So that's what we're trying to do with our -- and how we interface. We've put a lot of emphasis and investment on how we interface with the customers. So that's where our focal point is.
Okay, understood. Just a, maybe, question for Paul here, just on the working capital. I believe Toromont has benefited from some favorable terms or transition terms from suppliers this year. How long do you expect these term to be in place? And is there a point when this becomes a headwind and terms go back to kind of normal levels?
The change isn't eminent, so expected to continue well into next year and then start to fade out.
We will now take our next question from Ben Cherniavsky with Raymond James.
I would just like to ask you to elaborate on something that you mentioned in the MD&A with respect to CIMCO, where you say that the -- obviously, there -- you highlight some of the margin pressures and project issues, but then go on to say that you've improved the processes and addressed them and that CIMCO is refocused with its growth strategy in U.S. Can you just elaborate a little bit more on what that revised growth strategy is? And what processes have been changed to improve the performance there?
So what we've zeroed in on as a team here is how we structure the deals when you get into certain types of work from estimating to our crosschecks, to our interface with contractors, how we're monitoring the processes, and then just the execution of the site. And so those are the variables that we've been very focused on. Again, Ben, it hasn't been a good story on that one project. And what we feel, we've had some good lessons learned there to move forward.
And in terms of ... yes, in terms of the overall growth strategy?
Yes, I mean, it just -- really is just to refocus to make sure that we've got our process in place, because we have been executing a nice growth story in there particularly since 2014. And so we just went in and just did a overview of our strategy, making sure we looked at the different types of projects and make sure we're comfortable on all fronts and on assessments.
But still to really capitalize on the size of that opportunity in the U.S.?
Yes.
That kind of remains the code you need to crack there, right? How you get that market opportunity? What -- is there any change in how you address the market to capture that opportunity? Or is it just continued or sort of go and hit singles and doubles as you bid on projects?
Yes, that's exactly it. What we had to do here is just make sure that our points were in check, because we have had significant growth since '14 and that's what we zeroed in on the last couple of quarters.
Let me add to Scott's comments a little bit, right? So when we breakdown and as we analyze our performance in the U.S., this year is weighed down by a project we're not particularly happy or proud of that in that circumstance. On the balance, execution has been good. When we look over a longer term, so when you look at past 5 years or even 10 years, our product support business in the U.S. has been very steady and very healthy. So we've been doing well on that front. It's challenging, as we've said multiple times to get tax. But one of the areas where we are retooling our strategy is on that front. And I'm not going to get into too many details right there. The other element is we've had some volatility in terms of margin performance. And I think one of the things that we realize is, I think, we have to assess where it is that we add the most value and focus and target our efforts into those areas where we add most value.
Okay, that's helpful. On the margins and gross margins in particular, you had -- they've been up in the last few quarters pretty much since you acquired Québec this quarter, I think, in particular, was a decent increase. I realize there's, obviously, some mix issues on the equipment side that were in your favor this quarter. But on the other hand, sounds like CIMCO was probably a drag. So can you elaborate a little bit on what's driving that margin increase? Is it simply mix? Or are there variables within the mix that are also a factor?
When we look at the product support, we're pleased with the product support group and that's, obviously, favorable. We have worked hard on our value proposition on some of the new sales as well, which is -- but -- we're favorable there on the mix.
And again, things could bounce around from a quarter-to-quarter basis.
That was a just mix issue? Or are other margins in any of those categories improving?
There's no issue. I mean, we're pleased with the performance and...
Okay, it's a mix factor, but are margins within any of the categories changing?
Nothing, nothing dramatic in that.
Like the service profitability isn't particularly different or anything like that? Or margins on new sale aren't changing?
No.
Not systematically, no.
Okay. And just finally, a quick one. Could you comment, is availability -- did it cost you anything in market share anywhere in the CAT dealership this quarter or recently?
Well, where it's really impacting us, Ben, is we're not -- we're shifting product into the retail that we were going to -- we had planned to dedicate to the fleets. So that's where the real impact has been. And we've opened up, which was powerful the visibility across our enterprise or our inventory. So there's some push and pull in there across the territory. And we're going to do better in our planning process this quarter, obviously, we didn't close this deal till October last year. So now we're into our normal planning process on pipeline forecasting.
Okay. Sorry, it wasn't clear. So is that costing you -- is availability costing you market share?
I would say, it's hurt us in a few deals. But again, we've been able -- the teams worked well shifting iron out of the -- from the fleets into the retail side.
The biggest area that I would say that -- and I would say, the biggest area where it's had adverse impact, as Scott said, we haven't had the opportunity for the uploads as we indicated in the report, we've been retaining rental fleets for longer. Rental fleets are a good source of use for us. So it's has probably hurt us on the use side more than anything else.
Yes, disposition is down.
We'll take our next question from Maxim Sytchev from National Bank Financial.
I was wondering if you don't mind just commenting on the product support in the legacy business. It looks like there was a bit of a deceleration relative to the prior quarters. And maybe how we should think about this bucket on a going-forward basis?
You're going to get lumpiness in there with rebuild activity. About Q2, we had some favorable business, although product support is still strong with -- levels are still strong and in legacy, I think, we're up 22% on the whip. So still good.
And visibility right now on rebuild, how should we think about this? I guess this...
What we've seen -- yes, from what we've seen so far, it continues to improve.
And is that...
We've really strengthened our resources of [indiscernible], right? So, Scott mentioned in his comments, part of the restructuring that we did was to take our product support group, basically, and strengthen 2 pillars of product support. One of them focused on the service side and really focused on now the portfolio of Reman assets that we have available to us with 4 very solid locations. So that certainly provides us with opportunities to manage this more effectively than either one of the 2 predecessor organizations could have done.
But that's early stage. We're just starting that process and assessment.
Okay. So right now you have the ability to shift like excess capacity between the 4 locations, right?
Shift excess capacity and to focus areas of expertise in single locations, right? So obviously, that provides efficiencies.
Right. Okay, that's helpful. And then the comment, Paul, that you made around Ontario, specifically, that it's been a good run for a long time. So are you seeing a moderation of growth? Because like, I think, if we look on the infra spending side, lots of horizontal infrastructure expected to be built out, kind of, between now for the next couple of years. So I'm just wondering if you don't mind sort of requalifying that Ontario comment specifically, if it's possible.
Yes, it was a relative comment, Max, related to growth rates that we're seeing on Ontario versus growth rates that we're seeing this year in Québec, right? And Québec has had that pent up demand for quite a period of time. Obviously, the impacts of the [indiscernible] commission deferred things and the problems, in fact, when it came to releasing major projects. So you've really seeing that sort of pent up demand turn into significant acceleration contributing to our growth in revenues. In Ontario, we've seen good high-level spend levels for a long period of time. I think it's preliminary at this point in time making any comments in terms of acceleration or deceleration or anything in Ontario. The spend levels appear to be decent, and we'll see how things unfold over the coming year.
Right. So again, we should not be expecting a downward trajectory from the rise that we're sort of seeing on a year-to-date basis, not in Q3 specifically?
Well, from what we've seen so far, there's been some solid activity. But we don't speculate on what's around the corner. We just call it like we've seen so far. And so far, those markets have been active throughout the territory.
Okay, that's helpful. And last question just in terms of the margin convergence between the legacy and the QM businesses. Maybe, if you have an update in terms of the timing on that dynamic?
The -- consistent with what we've said before, we do not target an EBIT margin per se. And I know there's a lot of desire to model that in, but we are very focused on the mix of the business and the elements of operating discipline that will enable us to hopefully see better and improved profitability.
The other thing, big key part of strategy in QM is to make sure we're advancing our market presence. And we're pleased with that progress in a very active market so far.
[Operator Instructions] We will now take our next question from Yuri Lynk from Canaccord Genuity.
Scott, off the top you spoke about rental earning lower returns as you roll it out, which, obviously, a ton of sense. I think what we're all trying to figure is are we still so early in the process of that roll out that we should expect returns to decline from here, say, in 2019 before we start to see them get better? Or are we kind of in that -- well into the process now?
So we're not going to speculate because what we're doing is we've broaden the allied products. We're entering -- we're building that business in QM, in particular. So I don't want to speculate how quickly we're going to get uptick in there. So far, we've been pleased as you saw with the revenue on the retail side throughout the territory again. But we're just sticking to the fundamentals here. We've got to increase those fleet size. We've got to look at our products to be able to serve customers for a 12-month period. That -- we weren't structured right to be able to do that. So we're going to be in a better position to do so. And we need to upload these fleets. We need them to age. I mean, there's considerable difference in there on the age of the fleets when you look at legacy versus QM. With some product lines, we've got like 15-, 16-month difference. That's significant when you look at these rental models. And that demonstrates that we're having to hold on to product here to age it. We can't dispose. So we're just not in the sweet spots here that we would normally enjoy. And then the availability has impacted us a bit as well. So too hard to speculate here. We're just going to stick to the fundamentals of building rental services business and also building heavy rents and power rental business as well.
Okay. Paul, question for you, quickly. We haven't talked about capital allocation priorities in a long term, because you were deleveraging from the acquisition, but very strong balance sheet, once again here all of a sudden, so maybe just remind us of where you sit on that?
So we have significant investment opportunities in front of us. So consistent with even before the acquisition, we'll continue to invest in expanding our business opportunity and rolling out the rental footprint is certainly one of the primary focus areas. Beyond that, high on the priority list clearly is our dividend policy. We've certainly had a practice of paying a dividend, of increasing it for quite a number of years, would be hopeful that we will continue to have that opportunity to do that this year. We've been opportunistic in terms of our NCIB, although we do have some capital that we are prepared to allocate to it. So we'll see how that unfolds. And then beyond it, it's just -- we got to look at opportunities as we see them unfold.
It appears there are no further questions at this time. Mr. Jewer, I'd like to turn the conference back to you for any additional or closing remarks.
Thank you, Tara, and thanks to everyone for their participation today. [Foreign Language]
This concludes today's conference. Thank you for your participation. You may now disconnect.