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 demand for new gear in Canada and South America. That cut Finning’s earnings by 34.0% in the quarter ended September 30, 2014, to $0.33 a share from $0.50 a year ago. Without one-time items, including charges related to new tax laws in Chile and Argentina, Finning earned $0.50 a share in the latest quarter.
Overall revenue fell 6.2%, to $1.7 billion from $1.8 billion a year earlier.
Revenue declined 9.8% in Canada (which supplies 52% of the total), as lower demand for new equipment offset stronger sales of spare parts and support services. Revenue from South America (31%) fell 13.5%, due to slowing mining activity. However, revenue from the U.K. (17%) jumped 29.4% on strong sales of new construction gear.
The recent drop in commodity prices is also spurring Finning’s clients to upgrade their existing machines instead of buying new ones.
In the latest quarter, services, rentals and used equipment supplied 59.8% of its revenue, up from 56.4% a year ago. That’s good news for Finning, as it earns higher profits on services than selling new equipment.
For all of 2014, Finning’s earnings will likely fall 3.1%, to $1.88 a share. However, earnings should rise to $1.95 in 2015, and the stock trades at 12.3 times that forecast. The $0.71 dividend yields 3.0%.
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