Toromont Industries Ltd
TSX:TIH
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
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 |
111.19
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.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Good morning. Today is February 11, 2021. Welcome to the Toromont Fourth Quarter and Full Year 2020 Results Conference Call. Please be advised that this call is being recorded. Your host for today will be Mr. Michael McMillan. Please go ahead, Mr. McMillan?
Great. Thank you, Marie. Good morning, everyone. Thank you for joining us this morning to discuss the results of Toromont Industries for the fourth quarter and full year of 2020. Also on the call with me today is Scott Medhurst, President and Chief Executive Officer.As noted in the press release issued yesterday, we will be referring to a package posted on our website, and we encourage listeners to download it and follow along. At this time, and as noted on Slide 2 of our presentation, I would like to advise listeners that this presentation may contain forward-looking statements and information that are subject to certain risks, uncertainties and assumptions that may lead to actual results or events differing materially from those expected. For a complete discussion of these factors, refer to our press release from yesterday, which is available on our website.As is our practice, we will focus on key highlights for the quarter. Scott will begin with a few general remarks, followed by comments on our overall results, after which I will provide some highlights on our divisional results and financial position. After our prepared remarks, of course, we'll be more than happy to answer questions. Over to you, Scott?
Thank you, Mike, and good morning, everyone. Before I begin, I would ask that you move to Slide 3 of the package. We are pleased the gradual sequential improvement continued in Q4. However, the operating environment is still quite fluid. Our customers remain understandably cautious in this environment. And as a result, overall business activity were below 2019 levels.From the start of the pandemic, our teams have shown their commitment and high performance during a year of many unique challenges and opportunities. Through it all, we have been proud and honored to produce essential service and support to our customers, who, in turn, provided essential services to general market and economy.While we did this, we also maintained our focus on the safety of our employees and the protection of the business for the future, all while facilitating the move of our Québec and Atlantic businesses on to the common ERP system.With one common platform, we are now able to align our operations at the ground level and continue to leverage best practices, go-to-market approaches and efficiencies across our territory. While early days, we are already seeing the benefit that comes with increased visibility and enhanced alignment. We continue to exercise our disciplined focus on our balance sheet, keeping inventory turns tight, improving collection of AR and DSO on our fleet uploads.Our liquidity and overall financial position remains strong. As we commented in Q3, expense reduction is a priority, but we remain very careful not to adversely impact our ability to meet future market demands. We saw sequential improvement in most markets in the third quarter from the sharp declines seen early this year. And we saw sequential improvement again in the fourth quarter, although activity and returns are still below last year's levels. Despite strong order levels in Q4, there remains uncertainty in the marketplace, and we expect cautious tone to persist in 2021.Turning now to our financial results highlighted on Slide 4. Backlogs were $558 million at year-end, up 40% from 2019. CIMCO backlogs were 51% higher than 2019, on strong industrial booking activity in early 2020. Equipment group backlogs were higher with good order increases in most market segments. Equipment Group Q4 bookings were up 34% over Q4 2019. Overall revenues increased 3% in the quarter versus last year -- or decreased 3% in the quarter versus last year, which was an improvement from the declines experience of 13% in Q2 and 5% in Q3. However, revenues were still below that of 2019. Year-to-date revenue was down 5%. Operating income was 1% lower in the fourth quarter from the lower revenues, largely offset by lower expenses.Certain expenses, such as freight and delivery were lower reflecting the activity levels, while expenses, such as travel and entertainment were lower due to restrictions stemming from the pandemic. We have and continue to incur some additional costs to protect our employees and customers, such as additional safety supplies, benefits extension costs, work from home practices, facility and field sanitization procedures.Additionally, based on our lower revenue in the quarter, we estimate we will receive approximately $4.7 million under the Canadian Emergency Wage Subsidy program. These subsidies were helpful in allowing us to focus on protecting our skilled labor and salary positions as best possible, managing with a balanced approach in the short-term as well as not taking our eye off the long-term needs.Net earnings decreased 2% in the quarter versus a year ago and was down 11% for the full year, reflecting the sharper impact of the pandemic earlier this year.Moving to Slide 5. Given the challenging environment, we've included a look at the sequential quarter performance starting in Q2. While we have seen improvement in most line items through the year, this is somewhat reflective of the normal seasonality. Year-over-year declines have reduced as economic activity gradually phased in quarter-over-quarter. Revenues improved, however, our new equipment sales remained relatively low, where rentals used equipment and product support showed some improvement. Rental fleet utilization improved, which translates into higher-margin operating income and earnings.As we mentioned in Q3, product support activity is a function of customer activity and continued to improve as customers were able to increase machine use as site restrictions eased.Mike, I'll turn it over to you for some more detailed comments on the group results.
Thanks, Scott. Let's dig a little deeper on our operating results, starting with the Equipment Group found on Slide 6. Revenues were down 4% in the quarter versus a year ago and 5% for the year on reduced economic activity. Equipment sales, product support and rental activity were lower across most geographic markets and product groups. As Scott noted, we did see some improvement -- improved activity during the quarter, but the cautious tone we have experienced in prior quarters was evident in Q4 and activity remained below last year levels.During Q4, new equipment revenues were down 8%, while used was up 12%, demonstrating a mix that reflects the cautious tone we have emphasized through the year. Construction sales improved in the fourth quarter, up 8%, bringing the full year increase to 1%. Sales into mining markets were down 28% in the quarter and 26% for the year, and power was down 30% in the quarter and 8% for the year. Power sales were good throughout the year, however, faced a tough comparable with a large project in 2019 that did not repeat.Material handling and AgWest sales were both lower in the quarter and year, reflective of lower general economic activity. Rental revenues were down 12% in the quarter and 14% in the year, respectively, reflecting lower activity versus 2019.The RPO fleet was intentionally tightened up at $35.1 million versus $47.3 million a year prior. Product support revenues declined 1% in the quarter and 5% for the year, again, reflecting sequential improvement as restrictions eased. In Q4, lower revenues in power and mining segments were partially offset by increases in construction and agriculture. Gross profit margins were slightly lower in the quarter, down 10 basis points as rental margins improved, but were partly offset by slight reductions in equipment margins attributable to mix and a higher product support ratio of revenue.For the year, gross margins decreased 70 basis points, reflecting unfavorable sales mix with a higher proportion of smaller equipment models, lower rental fleet utilization during the year and a higher mix of parts versus service in the product support side.Selling and administrative expenses decreased 7% in the quarter and 6% for the year, reflecting lower activity levels and cost containment initiatives that began the phase-in since Q2. Expenses were lower in areas such as compensation where various initiatives were employed, including senior management pay reductions, workshare programs and the use of governmental subsidies, in addition to the reductions in the discretionary spending, of course, such as travel and training. Let's turn now to CIMCO on slide 7. Revenues were up 3% in the quarter, primarily driven by stronger package sales, where product support was consistent with 2019. For the year, revenues were down 7% as pandemic-related site restrictions initially slowed activity in both construction and product support. Package revenues were up 6% in the quarter, but were down 9% for the year. For the quarter, Canadian package sales were up in both Industrial and Recreational segments, where in the U.S., Recreational sales were up, while Industrial sales were lower relative to Q4 of 2019.On a full year basis, both markets experienced lower midyear activities, as noted in prior conference calls, which impacted overall sales adversely on a year-to-date basis. It is also notable that in the U.S., Recreational sales were slightly above last year due to the completion of projects booked in the prior year.Product support revenues were at the same level as last year for the quarter, but were 3% lower than 2019 for the year. Site restrictions, particularly in the Recreational segment, resulted in the lower full year results. Gross profit margins were lower in the quarter, but improved for the year, due mainly to higher mix of product support and improved execution. Operating income was higher in the quarter, however, was lower for the year, largely reflecting gross profit drivers and expense control.Selling and administrative expenses were down 13% in the quarter and 3% for the year, reflecting cost containment strategies and reduced compensation costs. Some additional costs are being incurred to ensure staffing is in place to support the substantial backlog of orders, while other expenses such as travel and discretionary spending were lower. Backlogs were up 51% to $184 million, well positioned for the year ahead.On Slide 8, I'd like to touch on a few key financial highlights. Management of our working capital, as one would expect, continues to be a focus area as we position the company for the future. Accounts receivable aging is monitored daily and continues to trend well with DSO slightly below prior periods. Inventory levels continue to be adjusted in light of market activity, however, certainly below prior year levels. Accounts payable reflects volume, the timing of purchasing and lower extended terms balances.We maintained our strong financial position throughout the year, ending with cash on hand of approximately $591 million and unutilized lines of credit of about $720 million. Our returns reflect income levels due mainly to lower activity levels resulting from the pandemic, but remains strong.Our key metrics benefit from our operating model and the decisive actions taken by our team to adapt to the business environment, customer needs and manage capital investment efficiently. The Board also approved the regular quarterly dividend of $0.31 per share, consistent with the prior quarter.On Slide 9, we conclude to some key takeaways as we look forward to 2021. As one would expect, we continue to focus on our 3 key priorities: protecting our employees, serving our customers and protecting our business for the future. The pandemic continues to evolve, and we continue to proactively monitor developments closely and refine our business practices appropriately. We are well positioned to effectively respond to both customer requirements and market opportunities, leveraging our disciplined operating model, culture and strong financial position. It has been an incredibly unique and challenging year, and we appreciate our entire team's exceptional effort and commitment to support our customers during this time and the year ahead. Thanks also to our valued customers, supply partners and shareholders for their continued support. That concludes our prepared remarks, and we will be pleased to take questions. Marie, over to you to set up the first call, please.
[Operator Instructions] The first question is from Yuri Lynk from Canaccord Genuity.
Nice quarter. Was surprised a little bit by the double-digit decline in mining product support. The headlines kind of suggest that, that's a pretty robust market in your territory. So maybe just a bit more color on whether that's a reflection of difficulty getting on on-site or customer-specific issues? Yes, just interested in your thoughts there?
Yes. So we saw the service components of it come off a bit. But I think you got to be careful in there, product support will be lumpy, particularly in mining when you do these comparatives, particularly you get into some rebuild work. And we did see continued throughout the year. I mean customers were -- when we had those shutdowns here earlier in the year, we had 21 mines in shutdown. So they focused on their production. And so we're monitoring things closely there in terms of demand signals for major reworking things, but you got to be careful on the quarter-over-quarter comps.
Yes, I think you also mentioned, Yuri, if you -- in our notes and so forth, in our backlog, we did see some improved backlog activity at the end of the year as well, across the equipment group, but in mining as well, we've noted over 100% versus the prior year.
Just second one for me, I just want to switch to the balance sheet. Obviously, extremely healthy. Can you just outline capital allocation priorities as we move forward here? And if you could, within that, give me some color on CapEx expectations, including the rental fleet for 2021?
Sure. Yes. I think it goes without saying, like our capital priorities have really not changed. First and foremost, funding operations and growth, we anticipate as activity and demand changes over the course of the year that we will be investing in working capital. And you'll note our inventory, for example, is about $180 million, below what it was last year, and we'll continue to invest to support business demand and requirements. And in addition to that, organic growth opportunities and so forth. And so the primary use, I think, will be to invest in the operations of the business. I think, obviously, debt is in a good position, but we would consider that next and then look at distributions. I think you mentioned CapEx. We did pull back on CapEx fairly strategically, I think, and surgically in 2020. And so our rentals were significantly below the year prior and the investment we're making, especially in the Québec and the Maritime markets. And so we -- of course, we don't provide guidance, but I would suggest that what we've directed before is we expect to be somewhere between what we would have been running at in the prior year '19 and where we throttled back a little bit here in 2020. So directionally, that's likely where we'll be. And as demand warrants, of course, we'll ensure that capital is available to support the business requirement.
The next question is from Michael Doumet from Scotiabank.
It looks like the size of the rental fleet is smaller exiting 2020. And I'm assuming the market conditions have a lot to do with that. You mentioned the RPO. So I'm wondering if that essentially accounts for all of it. But just maybe elaborate on the rightsizing? And whether it was focused on the new territories or broad-based?
Yes. A couple of factors in there, Michael. So RPO inventory at year-end was down, I think, about 35%. That just reflects the cautious environment we're operating in throughout the year. And that impacted our RPO revenue as well. I think that was down over 40% for the quarter. So some items in there to be attentive to. But in terms of rental fleet, we were very aggressive on the -- with the integration in Québec and Atlantic Maritimes with those fleet uploads and then, of course, this environment hit. So we were very attentive to continue to work on our processes and -- that we needed to, and we think the team has really addressed that. But we also did a real good assessment of the activity levels in there. So really let that fleet settle in. It was aggressive upload in the first 2 years. So that impacted how we allocated some of the capital as well.
Yes, that makes sense. And I'm just curious, maybe given the macro conditions, whether there's a slight alteration in the rental growth strategy here, whereby maybe growing from acquisitions might now look more attractive. Any thoughts there?
Well, we -- right now, we're focused on the execution. We were very -- we remained committed to that strategy. And as Mike said, we'll recircle on that this year. We started to see some improvement quarter-over-quarter in the utilization, which we're pleased about. We're always keeping our eyes open for opportunities. But right now, we're focused on the disciplines of maximizing that utilization and the efficiency of operating that fleet. And it's starting to age a little more, but the model slowed down, obviously, in 2020, but that's okay. We're committed over the long term.
Yes. Certainly, a tough year. And maybe on the second question, construction sales and product support, that was up nicely in the quarter. Can you discuss how much that had to do with the comp or maybe whether this increased activity is a trend that we can expect into '21?
Well, just sticking to Q4, we were pleased and we saw some improvement. If you look at the industry activity levels quarter-over-quarter, it's solid. But again, we saw more activity. The industry numbers were up a bit more on the smaller-end iron, right? That larger equipment was still down in the quarter, on a comparative, but we were pleased. The team did a nice job executing on the construction side. Product support activity was better. And -- but still a lot to do with used. I think our approach on multi offers to customers paid off and our team's ability to execute in the used space, whether purchases or how the -- we built up some demo class and providing good options for our customers. So very -- we're pleased with that. We're very pleased with that backlog, both in construction and mining. The backlog improved with mining, which was -- that was nice to see. But we're not getting too far ahead of ourselves, but we're very pleased with that backlog as we enter the new year.
The next question is from Sabahat Khan from RBC Capital Market.
Just a question, I guess, on some of the -- follow up a bit on the commentary on construction and mining that you just made earlier. Directionally, it seems like there's some infra bills out there. The mining data points seem to be trending in the right direction. Are you just noticing that given that the pandemic is still alive and well? Customers are just being cautious before making commitments? Or what are some of the things you're having from those 2 end markets as you look out to the next 12 months?
Yes. I think customers were cautious, and that's -- we saw, actually, some of that activity came in December, because I think customers were reflecting on their year. And I guess, in some ways, we're satisfied, but still very disciplined on how they're handling things. We're monitoring infrastructure spend very closely, and so our customers are as well. We remain in a very fluid environment. But in Q4, we -- it was pleasing to see the activity levels and bookings and the backlog that was built. Now backlog part of it, we had some slippage on some orders with the availability. But that's okay. They're solid bookings. It's good.
Okay. And then the commentary around some of the iron going to construction being smaller. Is that just the nature of the projects? Or again, just some caution before people commit to larger equipment?
Yes. I think -- and generally, we saw with our full-service rentals in the CTE product, those markets were strong throughout the year. I think what you're seeing, if you drive through the major cities, you saw a lot of landscape projects, things of that nature. And so that really drove our connectivity on the lower end products.
Great. And just one last one for me. I think your comment on reducing the RPO fleet and that kind of business line being down about 40%. Was that -- we think it's going to be down that much of, let's take or fleet down to that level? Or do you think maybe you are maybe a little short in the quarter and it's probably better just by way of working capital conservatism?
I think what I've showed was the cautious environment of customers. They were focused and able to utilize their fleets, and we were attentive to the capital allocation, but we want to meet customer needs. So what we saw was just some slower activity on RPOs. And -- but that's an environment that we'll focus on in as we move into the coming year.
And you would see it. You would see it as well, Sabahat, in terms of the mix and used equipment that we've commented on for most of the year since the pandemic kicked in, right? So you do see that cautious environment, Scott mentions. And the shift towards used and a little bit of a pullback on RPO, and then we'll monitor that as we go.
I mean we usually see a lot more activity on RPO conversions in the quarter, right? But those inventory levels were lower coming in.
The next question is from Bryan Fast from Raymond James.
I just wanted to get your thoughts on the material handling business. Understanding that the challenging environment may have cured plans for that side of the business. Maybe just some updated thoughts on where it sits now?
Yes. Industry numbers were down, and we were attentive to meet uploads. We didn't get aggressive. What we really didn't focus on throughout last year. I mean this is a business that we're very granular on in terms of cleaning up the fleets. And I feel the team did a very good job last year, really assessing where the utilization was. And so we did a lot of narrowing in there. We think we're in a better spot how we want to manage that rental fleet. And we really worked on our sales coverage last year. So those were the focal areas. But the industry activity was down and understandably, right.
And then maybe just on supply channels right now. Are you able to source parts quickly? Or are you seeing some delays there?
No. We were very pleased with how our partners managed both prime product and parts. I mean we're monitoring very closely as we go forward and, certainly, our planning processes. We're monitoring machine hours very closely to make sure our pipelines are attentive to those areas because we did see hours used go up on machines in the fourth quarter, which was a good signal. But again, part of that is we have more installed base on a quarter -- on a year-over-year basis. But -- so that is an area, Bryan, that we are making sure that our teams are very disciplined on, on the forecast and the pipelines.
[Operator Instructions] We have a question from Maxim Sytchev from National Bank Financial.
I think in the beginning of the pandemic, you were talking about e-commerce sort of penetration. I was wondering, if you don't mind, perhaps sharing your experience throughout the year in terms of the uptake on that channel specifically and the plans on a going-forward basis?
Yes. So we continue to really work on increasing the connectivity of our machines, and that was up again, and our point sale interface. We have to be careful with our comparisons because we do -- we have a fairly significant percentage of online with our mines. And so the mines went in the shutdown, so the data is -- you got to be careful with those data points just because of the shutdowns that we felt. So -- but overall, that is an area that particularly in the construction continue to improve, and we think that's the area of the future, we're going to continue to invest in interface with our customers on.
Okay. That's helpful. And then another brief question because, obviously, the senior management took some commendable voluntary compression from the compensation this year. What is the thought process in terms of sort of normalizing this on a going-forward basis? Again, like I don't want to be too granular, but just maybe directionally if it's possible?
Yes. So I should point out the Board did as well. So we're monitoring that closely. Some of the executive office has remained on that in the quarter. And we're just going to monitor things as we go on that front. We're in a very fluid environment, still Max. So we're continuing to just be attentive to our people on that front and just trying to do what's right.
We have no further question registered at this time. I would like to turn back the meeting over to Mr. McMillan.
Great. Thanks, Marie. Thanks, everyone, for your participation early this morning. That concludes our call. Have a great day, and please stay safe.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.