The acquisition of a major competitor and stronger demand for its sales support services led to a 27.6% jump in earnings for this company during the most-recent quarter.
The stock has gained over 35% since the company announced that purchase, which geographically complements existing operations and expands its reach.
Shares trade at 15.8 times the company’s 2020 earnings forecast.
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TOROMONT INDUSTRIES LTD. (Toronto symbol TIH; www.toromont.com) distributes a broad range of industrial equipment (such as bulldozers, backhoe loaders and drills), including Caterpillar machinery, in eastern Canada and the Eastern Seaboard of the U.S. It also makes refrigeration systems through its CIMCO business.
Selling new and used equipment accounted for 43% of Toromont’s 2018 revenue, followed by product support (40%), rental equipment (11%) and refrigeration equipment (6%). Markets outside of Canada supply just 3% of its revenue.
In October 2017, Toromont completed its acquisition of privately held Hewitt Group. That firm is the exclusive distributor of Caterpillar equipment in Quebec and Atlantic Canada. The new operations nicely complement Toromont’s existing Caterpillar branches in Ontario, Manitoba and Nunavut. As well, Hewitt helps the company profit from new mining and infrastructure projects in Quebec.
The $1.02 billion price consisted of $917.7 million in cash plus 2.25 million Toromont shares.
Thanks mainly to that acquisition, Toromont’s revenue soared jumped 119.0%, from $1.60 billion in 2014 to $3.50 billion in 2018. Overall earnings jumped 89.2%, from $133.2 million to $252.0 million; due to the shares issued to Hewitt’s owners, earnings per share rose at a slower rate of 79.5%, from $1.71 to $3.07.
In the quarter ended March 31, 2019, Toromont’s total revenue rose 3.4%, to $700.0 million from $676.8 million a year earlier. Revenue at the equipment business improved 3.4%, while CIMCO’s revenue gained 3.5%. At both businesses, stronger demand for support services offset weaker equipment sales as many construction clients slowed their activities during the winter months.
Growth Stocks: Earnings up sharply despite seasonal weakness
Earnings in the quarter jumped 27.6%, to $39.3 million from $30.8 million; earnings per share rose 26.3%, to $0.48 from $0.38. If you disregard a gain related to the reorganization of its employees’ pension plan, the company earned $0.44 a share in the latest quarter.
Toromont borrowed most of the cash it needed to buy Hewitt. That increased its long-term debt from $150.0 million (as of June 30, 2017) to $644.8 million (as of March 31, 2019). Despite that jump, Toromont’s debt is still a low 13% of its market cap. It also holds cash of $184.2 million.
Savings from the purchase should help expand Toromont’s projected earnings, from $3.49 a share in 2019 to $3.91 in 2020. That growth should lead to further dividend increases; the current rate of $1.08 now yields 1.8%. The stock trades at a moderate 15.8 times the 2020 forecast.
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