FINNING INTERNATIONAL INC. $22 - Toronto symbol FTT

FINNING INTERNATIONAL INC. $22 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.0 million; Market cap: $3.8 billion; Price-to-sales ratio: 0.9; Dividend yield: 2.2%; SI Rating: Above Average) sells, rents and repairs heavy equipment, such as tractors, bulldozers and trucks, made by Caterpillar Inc. Finning’s major customers are in the mining, forest-products and construction industries in western Canada, the U.K. and South America. In the three months ended June 30, 2010, Finning earned $36.0 million, or $0.21 a share. That’s down 36.3%, from $56.5 million, or $0.33 a share, a year earlier. However, the latest quarterly earnings included a $0.06-a-share charge for costs to install a new computer system and buy back notes. Without these charges, Finning would have earned $0.27 a share in the latest quarter. Revenue fell 2.0%, to $1.07 billion from $1.1 billion. Lower sales of new and used equipment offset a 10% rise in sales of support services. Finning now gets nearly half of its revenue from services. That cuts its risk. The company is taking advantage of the slow economy to expand overseas. It recently paid $8.65 million for Caterpillar dealerships in Northern Ireland and the Republic of Ireland. Finning is now the main Caterpillar dealer in these regions. Despite the lower earnings, Finning continues to pay down debt. On June 30, 2010, its long-term debt was $890.0 million, down 9.3% from $991.7 million at the end of 2009. Finning’s debt is now a moderate 23% of its market cap. As well, it holds cash of $209.0 million, or $1.22 a share. The stock fell to $10 in March 2009, but has more than doubled to its current $22. It trades at 22.7 times Finning’s likely 2010 earnings of $0.97 a share. Finning International is a buy.

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