Toromont Industries Ltd. (TSX: TIH) reported financial results for
the second quarter ended June 30, 2020.
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Three months ended June 30 |
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Six months ended June 30 |
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millions, except per share amounts |
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2020 |
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2019 |
% change |
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2020 |
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2019 |
% change |
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Revenues |
$ |
849.6 |
$ |
978.3 |
(13 |
%) |
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$ |
1,565.1 |
$ |
1,678.3 |
(7 |
%) |
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Operating income |
$ |
77.1 |
$ |
111.0 |
(31 |
%) |
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$ |
132.4 |
$ |
169.8 |
(22 |
%) |
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Net earnings |
$ |
51.2 |
$ |
77.4 |
(34 |
%) |
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$ |
88.6 |
$ |
116.7 |
(24 |
%) |
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Basic earnings per share
("EPS") |
$ |
0.62 |
$ |
0.95 |
(35 |
%) |
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$ |
1.08 |
$ |
1.43 |
(25 |
%) |
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“From the start of the COVID-19 pandemic,
Toromont has continued to focus efforts on three areas:
safeguarding our employees, servicing our customers’ needs and
protecting our business for the future,” said Scott J. Medhurst,
President and Chief Executive Officer of Toromont Industries Ltd.
“As a result of reduced economic activity, caused by the response
to the COVID-19 pandemic, we experienced lower earnings and net
income in the quarter. Revenue decline lessened as the quarter
progressed while remaining below prior year levels. We appreciate
our entire team’s effort and commitment to supporting our customers
during this challenging time.”
Highlights:
Consolidated results
- Revenues decreased 13% to $849.6 million in the quarter versus
last year due to lower economic activity caused by the necessary
response to COVID-19. April experienced the lowest activity levels,
with some recovery phasing in through May and June, however still
below prior year levels. Product support and rental revenues were
lower by 15% and 31% respectively. Equipment sales were lower by
8%, reflecting lower new equipment sales across most
markets.
- Revenues decreased 7% to $1.6 billion year-to-date, after a
somewhat positive start to the year in the first quarter. Similar
trends were seen year-to-date as outlined above for the
quarter.
- Operating income(1) was 31% lower in the second quarter on the
lower revenues, reduced gross margins (mainly due to lower rental
fleet utilization and sales mix) combined with higher expenses as a
percentage of revenues due to fixed costs. Government subsidies
($0.8 million) were not significant factors.
- Operating income was 22% lower year-to-date on similar reasons
as for the quarter. Operating income margin decreased 160 basis
points (“bps”) to 8.5%.
- Backlogs(1) were $496.5 million at June 30, 2020, compared to
$551.5 million at June 30, 2019. A new record was set at
CIMCO while Equipment Group backlogs were lower.
- Net earnings decreased $26.2 million or 34% in the quarter
versus a year ago to $51.2 million or $0.62 EPS.
- For the first half of the year, net earnings decreased $28.1
million or 24% and EPS was down 25%.
Equipment Group
- Revenues were down $118.8 million or 13% to $776.7 million for
the quarter on reduced market activity. New equipment sales as well
as product support and rental activity was lower across
substantially all geographic markets and product groups.
- Revenues were down $94.9 million or 6% to $1.4 billion
year-to-date with similar trends as the quarter.
- Operating income was down $32.0 million or 31% to $72.5 million
in the quarter on lower revenues and gross profit margins.
Operating income margin(1) decreased 240 bps to 9.3% reflecting the
lower activity supporting fixed costs.
- Operating income was down $34.6 million or 21% to $127.6
million year-to-date, also on lower revenues and gross profit
margins. Operating income margin decreased 170 bps to
8.9%.
- Bookings(1) decreased $129.4 million or 30% in the quarter and
$84.9 million or 12% year-to-date. Reasonable deliveries continued
through the quarter, while reduced order levels were reported in
most market sectors. Backlogs of $268.8 million at the end of June
2020, were down $134.6 million or 33% from June 2019.
Approximately 90% of the backlog is expected to be delivered this
year.
CIMCO
- Revenues decreased $10.0 million or 12% to $72.9 million for
the quarter versus the second quarter last year. Project
construction work was slower during the quarter due to site
restrictions, however booking activity and backlogs remained solid.
- Revenues decreased $18.4 million or 12% to $130.6 million
year-to-date with similar trends as reported in the
quarter.
- Operating income was down $1.9 million or 29% to $4.6 million
for the quarter largely reflecting lower revenues and was 6.4% as a
percentage of revenues (Q2 2019 – 7.9%).
- Operating income was down $2.9 million or 37% to $4.8 million
year-to-date on the lower revenues. Operating income margin
decreased to 3.7% reflecting the lower revenues supporting fixed
costs.
- Bookings were up $6.8 million or 15% in the quarter and $49.4
million or 43% year-to-date on increased industrial activity in
Canada. Backlogs of $227.7 million were up $79.6 million or
54%, approximately 70% of which is expected to be realized as
revenue this year, subject to construction schedules.
Financial Position
- Toromont’s share price of $67.37 at the end of June 2020,
translated to a market capitalization(1) of $5.5 billion and a
total enterprise value(1) of $5.7 billion.
- The Company maintained its very strong financial position.
Leverage as represented by the net debt to total capitalization(1)
ratio was 12% as at the end June 2020, compared to 15% at December
2019, and 26% at June 2019.
- The Board of Directors announced a quarterly dividend of 31
cents per common share, payable on October 2, 2020 to shareholders
of record on September 8, 2020. The quarterly dividend was
previously increased 14.8% to 31 cents per share effective with the
dividend paid April 2, 2020.
- The Company’s return on opening shareholders’ equity(1) was
18.7% at June 30, 2020, on a trailing twelve-month basis,
compared to 21.4% at December 2019, and 22.3% at June 2019.
Trailing twelve month pre‑tax return on capital employed(1) was
20.2% at the end of June 2020, compared to 22.9% at December 2019,
and 22.5% at June 2019.
The Board of Directors of the Company also
announced today that, subject to annual shareholder approval, Mr.
Robert Ogilvie, Chair, and Mr. Wayne Hill have agreed to
continue to serve on the Board until 2023. The extension of their
services will balance the Board renewal process with their depth of
knowledge and experience, ensuring a smooth transition of roles
with new
directors. “We
are proud of our team’s ability to navigate through this pandemic
and support our customers through the provision of essential
services,” continued Mr. Medhurst. “Our Critical Incident Executive
Response Team was activated at an early stage and continues to meet
regularly to focus on developing trends and pronouncements,
assessing best course of action and responding appropriately. The
management and leadership teams continue to monitor the situation
closely and are taking responsible measures to manage and protect
the interests of our people and customers while managing the
long-term health of the business. The diversity of our geographical
landscape and markets served, extensive product and service
offerings and financial strength together with a disciplined
operating culture, position us well to weather this situation for
the long term.”
Financial and Operating
Results
All comparative figures in this press release
are for the three and six months ended June 30, 2020 compared to
the three and six months ended June 30, 2019. All financial
information presented in this press release has been prepared in
accordance with International Financial Reporting Standards
("IFRS") and are reported in Canadian dollars. This press release
contains only selected financial and operational highlights and
should be read in conjunction with Toromont's unaudited interim
condensed consolidated financial statements and related notes and
Management's Discussion and Analysis ("MD&A"), as at and for
the three and six months ended June 30, 2020, which are available
on SEDAR at www.sedar.com and on the Company's website at
www.toromont.com. Additional information is contained in the
Company’s filings with Canadian securities regulators, including
the 2019 Annual Report and 2020 Annual Information Form, also
available and SEDAR and the Company’s website.
Quarterly Conference Call and Webcast
Interested parties are invited to join the quarterly conference
call with investment analysts, in listen‑only mode, on Wednesday,
July 29, 2020 at 8:00 a.m. (ET). The call may be accessed by
telephone at 1‑800‑806‑5484 (toll free) or 416-340-2217 (Toronto
area). A replay of the conference call will be available until
Wednesday, August 5, 2020 by calling 1-800-408-3053 or 905-694-9451
and quoting passcode 9549393#. Both the live webcast and the replay
of the call can also be accessed at www.toromont.com.
Presentation materials to accompany the call
will be available on our investor page on our website.
Advisory
Information in this press release that is not a
historical fact is "forward-looking information". Words such as
"plans", "intends", "outlook", "expects", "anticipates",
"estimates", "believes", "likely", "should", "could", "will", "may"
and similar expressions are intended to identify statements
containing forward-looking information. Forward-looking information
in this press release reflects current estimates, beliefs, and
assumptions, which are based on Toromont’s perception of historical
trends, current conditions and expected future developments, as
well as other factors management believes are appropriate in the
circumstances. Toromont’s estimates, beliefs and assumptions are
inherently subject to significant business, economic, competitive
and other uncertainties and contingencies regarding future events
and as such, are subject to change. Toromont can give no assurance
that such estimates, beliefs and assumptions will prove to be
correct. This press release also contains forward-looking
statements about the recently acquired businesses.
Numerous risks and uncertainties could cause the
actual results to differ materially from the estimates, beliefs and
assumptions expressed or implied in the forward-looking statements,
including, but not limited to: business cycles, including general
economic conditions in the countries and regions in which Toromont
operates; commodity price changes, including changes in the price
of precious and base metals; potential risks and uncertainties
relating to the novel COVID-19 global pandemic, including an
economic downturn, reduction or disruption in supply or demand for
our products and services, or adverse impacts on our workforce,
capital resources, or share trading price or liquidity, and
increased regulation of or restrictions placed on our businesses;
changes in foreign exchange rates, including the Cdn$/US$ exchange
rate; the termination of distribution or original equipment
manufacturer agreements; equipment product acceptance and
availability of supply; increased competition; credit of third
parties; additional costs associated with warranties and
maintenance contracts; changes in interest rates; the availability
of financing; potential environmental liabilities of the acquired
businesses and changes to environmental regulation; failure to
attract and retain key employees; damage to the reputation of
Caterpillar, product quality and product safety risks which could
expose Toromont to product liability claims and negative publicity;
new, or changes to current, federal and provincial laws, rules and
regulations including changes in infrastructure spending; any
requirement of Toromont to make contributions to the registered
funded defined benefit pension plans, postemployment benefits plan
or the multi-employer pension plan obligations in which it
participates and acquired in excess of those currently
contemplated; and increased insurance premiums. Readers are
cautioned that the foregoing list of factors is not exhaustive.
Any of the above mentioned risks and
uncertainties could cause or contribute to actual results that are
materially different from those expressed or implied in the
forward-looking information and statements included in this press
release. For a further description of certain risks and
uncertainties and other factors that could cause or contribute to
actual results that are materially different, see the risks and
uncertainties set out in the "Risks and Risk Management" and
"Outlook" sections of Toromont’s most recent annual Management
Discussion and Analysis, as filed with Canadian securities
regulators at www.sedar.com or at our website www.toromont.com.
Other factors, risks and uncertainties not presently known to
Toromont or that Toromont currently believes are not material could
also cause actual results or events to differ materially from those
expressed or implied by statements containing forward-looking
information.
Readers are cautioned not to place undue
reliance on statements containing forward-looking information,
which reflect Toromont’s expectations only as of the date of this
press release, and not to use such information for anything other
than their intended purpose. Toromont disclaims any obligation to
update or revise any forward-looking information, whether as a
result of new information, future events or otherwise, except as
required by law.
About Toromont
Toromont Industries Ltd. operates through two
business segments: the Equipment Group and CIMCO. The Equipment
Group includes one of the larger Caterpillar dealerships by revenue
and geographic territory - spanning the Canadian provinces of
Newfoundland & Labrador, Nova Scotia, New Brunswick, Prince
Edward Island, Québec, Ontario and Manitoba, in addition to most of
the territory of Nunavut. The Group includes industry leading
rental operations, a complementary material handling business and
an agricultural equipment business. CIMCO is a market leader in the
design, engineering, fabrication and installation of industrial and
recreational refrigeration systems. Both segments offer
comprehensive product support capabilities. This press release and
more information about Toromont Industries Ltd. can be found at
www.toromont.com.
For more information contact:
Michael S. McMillanExecutive Vice President and
Chief Financial OfficerToromont Industries Ltd.Tel: (416)
514-4790
FOOTNOTES
1 These financial metrics do
not have a standardized meaning under International Financial
Reporting Standards (IFRS), which are also referred to herein as
Generally Accepted Accounting Principles (GAAP), and may not be
comparable to similar measures used by other issuers. These
measurements are presented for information purposes only. The
Company’s Management’s Discussion and Analysis (MD&A) includes
additional information regarding these financial metrics, including
definitions and a reconciliation to the most directly comparable
GAAP measures, under the headings “Additional GAAP Measures”,
“Non-GAAP Measures” and “Key Performance Indicators.”
TOROMONT INDUSTRIES
LTD. |
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INTERIM
CONDENSED CONSOLIDATED INCOME STATEMENTS |
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(Unaudited) |
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Three months ended June 30 |
Six months ended June 30 |
($ thousands, except share amounts) |
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2020 |
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2019 |
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2020 |
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2019 |
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Revenues |
$ |
849,597 |
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$ |
978,320 |
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$ |
1,565,056 |
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$ |
1,678,294 |
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Cost of
goods sold |
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655,810 |
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741,412 |
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1,200,411 |
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1,270,725 |
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Gross profit |
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193,787 |
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236,908 |
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364,645 |
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407,569 |
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Selling
and administrative expenses |
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116,653 |
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125,880 |
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232,270 |
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237,758 |
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Operating
income |
|
77,134 |
|
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111,028 |
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132,375 |
|
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169,811 |
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Interest expense |
|
7,890 |
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|
6,988 |
|
|
14,821 |
|
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13,907 |
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Interest and investment income |
|
(1,564 |
) |
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(2,208 |
) |
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(4,289 |
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(4,780 |
) |
Income before income
taxes |
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70,808 |
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106,248 |
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121,843 |
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160,684 |
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Income
taxes |
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19,598 |
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28,850 |
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33,237 |
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44,025 |
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Net earnings |
$ |
51,210 |
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$ |
77,398 |
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$ |
88,606 |
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$ |
116,659 |
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Earnings per
share |
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Basic |
$ |
0.62 |
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$ |
0.95 |
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$ |
1.08 |
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$ |
1.43 |
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Diluted |
$ |
0.62 |
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$ |
0.94 |
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$ |
1.07 |
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$ |
1.42 |
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Weighted average
number of shares outstanding |
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Basic |
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82,024,236 |
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81,510,292 |
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82,019,838 |
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81,418,746 |
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Diluted |
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82,468,858 |
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82,183,776 |
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82,483,651 |
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82,080,362 |
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