FINNING INTERNATIONAL INC. $25 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 172.4 million; Market cap: $4.3 billion; Price-to-sales ratio: 0.6; Dividend yield: 2.9%; 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 from other manufacturers. Finning’s clients are mainly in the mining, forest products and construction industries. The company recently paid $230 million for Saskatchewan Caterpillar distributor Kramer Ltd. The deal that will add $275 million to Finning’s annual revenue.
To put these figures in context, Finning’s revenue fell 9.4% in the three months ended March 31, 2015, to $1.5 billion from $1.7 billion a year earlier. That’s mainly because weak prices for copper and other metals hurt mining equipment demand in Canada and South America. Part of Finning’s response to the lower sales has been to exit Uruguay, which accounts for $30 million U.S. of yearly revenue.
Earnings fell 22.1%, to $53 million, or $0.31 a share, from $68 million, or $0.39. Finning recently cut 9% of its Canadian workforce and closed a facility. If you exclude all unusual items, it earned $0.33 a share in the latest quarter.
Low commodity prices are prompting many clients to upgrade their machines instead of buying new ones. That’s good for Finning, as it earns higher profits on services than equipment sales.
The company’s 2015 earnings will likely fall 12.2%, to $1.72 a share, and the stock trades at a moderate 14.5 times that forecast. Finning also recently increased its dividend by 2.8%. The new annual rate of $0.73 a share yields 2.9%.
Finning is a buy.
