Toromont Industries operates in a cyclical industry. This makes the company vulnerable to economic downturns, but it’s a leader in its market and that helps offset the cyclical risk.
Meanwhile, governments in Canada and elsewhere continue to invest in new public works projects such as roads, mass transit systems and hospitals. Those investments are fueling strong orders for the firm’s heavy construction equipment as well as demand for its maintenance and repair services.
The firm’s balance sheet remains robust and this stock continues to be a solid long-term pick for us. It’s returned an S&P-beating 108.0% over the last 5 years too.
Yet the stock trades at a reasonable 21.3 times the company’s forward earnings forecast.
TOROMONT INDUSTRIES LTD. (Toronto symbol TIH; www.toromont.com) distributes a broad range of Caterpillar and other branded industrial equipment (such as bulldozers, backhoe loaders and drills) in eastern Canada and the Eastern Seaboard of the U.S. The company also makes refrigeration systems through its CIMCO business.
The firm operates through two business segments:
The Equipment Group (91% of revenue) is the exclusive Caterpillar dealer of Caterpillar heavy equipment, such as bulldozers, backhoes and excavators, for eastern Canada. The company is also the MaK engine dealer for the Eastern Seaboard of the U.S., from Maine to Virginia.
Performance in the Equipment Group is driven by activity in several industries: road building and other infrastructure-related activities; mining; residential and commercial construction; power generation; aggregates; waste management; steel; and forestry.
CIMCO (9%) is a market leader in the design, engineering, fabrication, installation and after-sale support of refrigeration systems in industrial and recreational markets.
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Results of CIMCO are influenced by conditions in the primary market segments it serves: beverage and food processing; cold storage; food distribution; mining; and recreational ice rinks.
In total, Toromont employs over 7,000 people in more than 160 locations across Canada and the U.S.
In the second quarter of 2024, Toromont’s overall revenue rose 15.7%, to $1.36 billion from $1.18 billion a year earlier. Revenue at the Equipment Group improved 15.5% on strong demand for new and used equipment. CIMCO’s revenue also rose 18.6% as deliveries improved after recent delays. Overall earnings gained 1.9%, to $1.64 a share (or a total of $135.4 million) from $1.62 a share (or $133.3 million). That’s mainly due to higher interest income on its investments.
Growth Stocks: New acquisition should reinforce Toromont Industries’ dominant position
Toromont recently acquired Tri-City Equipment Rentals. That firm rents heavy equipment across Southwestern Ontario.
The purchase is part of Toromont’s plan to expand its rental operations. In the three months ended June 30, 2024, rentals accounted for 9% of the equipment division’s total revenue.
Toromont has not yet said how much it paid for Tri-City. However, it can easily afford to make acquisitions. As of June 30, 2024, it held cash of $1.04 billion, while its long-term debt of $647.8 million is a low 6% of its market cap.
The company’s outlook remains bright, thanks to its strong brands and dominant position in niche markets. Toromont’s parts and service business is also a significant contributor to its overall profitability, and its recurring revenue serves to stabilize results through economic downturns.
The company will probably earn $6.24 a share in 2024, and the stock trades at 21.3 times that forecast. That’s a reasonable multiple in light of rising government spending on infrastructure projects. The $1.92 dividend yields 1.4%.
Recommendation in The Successful Investor: Toromont Industries Ltd. is a buy.
