FINNING INTERNATIONAL INC. $24 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 172.4 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.6; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.finning.com) is the world’s largest dealer of tractors, bulldozers and trucks made by Caterpillar Inc. (New York symbol CAT). It also sells heavy equipment made by other firms. Finning’s clients are mainly in the mining, forest products and construction industries.
Weaker commodity prices have hurt sales of new equipment and support services in Western Canada. In response, Finning plans to cut 500 jobs, or 9% of its Canadian workforce. The company didn’t say how much it would pay in severance and other costs or how much it expects to save.
In the three months ended December 31, 2014, Finning’s earnings per share rose 14.8%, to $0.62 from $0.54 a year earlier. Without one-time items, mainly positive changes related to new tax laws in Argentina, the company earned $0.55 a share. Overall revenue was flat at $1.8 billion.
Revenue gained 8.2% in Canada (which supplies 52% of the total), as higher demand for spare parts and some new gear offset lower equipment rentals. Revenue from South America (33%) fell 12.1% due to a slowdown in mining activity. However, revenue from the U.K. (15%) rose 6.9% on strong sales of electrical power systems.
Finning’s strong balance sheet will help it cope with slumping commodity prices. Its long-term debt of $1.4 billion is a manageable 34% of its market cap, and it holds cash of $450.7 million, or $2.61 a share.
The company’s earnings will probably decline to $1.79 a share in 2015 from $1.96 in 2014. The stock trades at a reasonable 13.4 times that forecast. The $0.71 dividend yields 3.0%.
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