Topic: Mining Stocks

Earnings, dividend both up for this heavy-duty Canadian stock

A strong customer base inside and outside Canada helps this stock flourish when demand for commodities is up.

Mining and construction clients in both Canada and South America helped earnings jump in the latest quarter. The company continues to benefit from a restructuring plan and upgrades to its computer systems and e-commerce operations. In the meantime, the stock trades at a reasonable 17 times projected earnings and recently raised its dividend for the fifth time in six years.

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FINNING INTERNATIONAL INC. (Toronto symbol FTT; sells and services Caterpillar-brand heavy equipment in Canada, South America and the U.K. Its main customers are in the oil, mining, forest-products and construction industries.

In the three months ended June 30, 2018, Finning’s revenue rose 9.2%, to $1.73 billion from $1.58 billion a year earlier. That beat the consensus forecast of $1.6 billion.

Over 80% of the higher revenue came from Finning’s Canadian operations, which continue to see strong demand from construction and mining clients. Revenue from South America also rose 6.8%, as stronger demand in Chile offset weaker sales in Argentina. The U.K. division saw its revenue fall 2.5%, due to delays in delivering certain construction equipment.

Finning also continues to benefit from its 2014 restructuring plan, which has cut $200 million from its annual costs. The plan mainly included job cuts and closing some facilities.

Earnings in the quarter soared 47.3%, to $81 million from $55 million a year earlier. Due to more shares outstanding, per-share earnings gained 45.5%, to $0.48 from $0.33. That also topped the consensus estimate of $0.44.

Mining Stocks: Online sales could grow to 40% of total revenue in 2019

Finning’s equipment backlog was $1.5 billion as of June 30, 2018, up 15% from the end of 2017.

The company will spend between $150 million and $200 million in 2018 on its operations.

That includes new investments in a computerized system that will help automate its equipment ordering and warehouse management activities. In the next year or so, Finning aims to cut its selling and administrative costs to 18% of its revenue from 19.9% in the latest quarter.

The company also continues to expand its e-commerce operations. That makes it easier for customers to order replacement parts and other equipment. Online sales could grow to 40% of its total revenue in 2019. Studying that data should also help Finning better anticipate its customers’ needs and avoid product shortages.

The company’s balance sheet is sound. Its long-term debt of $1.3 billion (as of June 30, 2018) is a reasonable 25% of its market cap. It also held cash of $300.00 million, or $1.78 a share.

Finning also recently increased its quarterly dividend by 5.3%. Finning has paid dividends continuously since 1970, and has raised its dividend in five of the past six years. Starting with the June 2018 payment, investors receive $0.20 a share instead of $0.19. The new annual rate of $0.80 yields 2.6%.

The company’s shares trade at a reasonable 17.2 times the $1.79 a share that the company will likely earn in 2018.

Recommendation in The Successful Investor: Finning is a buy.

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