In the wake of the COVID-19 pandemic, governments in Canada and elsewhere continue to invest in new public works projects such as roads, mass transit systems and hospitals. Those investments are fuelling strong orders for Toromont’s heavy construction equipment as well as demand for its maintenance and repair services.
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TOROMONT INDUSTRIES, (Toronto symbol TIH) 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.
Toromont operates through two business segments: the Equipment Group and CIMCO.
The Equipment Group (91% of revenue) includes Toromont Cat, one of the world’s larger Caterpillar dealerships, Battlefield-The Cat Rental Store, an industry-leading rental operation, SITECH, providing Trimble technology products and services, and Toromont Material Handling, representing MCFA, Kalmar and other manufacturers’ products.
The company is the exclusive Caterpillar dealer for a contiguous geographical territory in Canada that covers Manitoba, Ontario, Quebec, Newfoundland, New Brunswick, Nova Scotia, Prince Edward Island and most of Nunavut. Additionally, the company is 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. Significant activities include the sale, rental and service of mobile equipment for Caterpillar and other manufacturers; sale, rental and service of engines used in a variety of applications including industrial, commercial, marine, on-highway trucks and power generation; and sale of complementary and related products, parts and service.
CIMCO (9% of revenue) is a market leader in the design, engineering, fabrication, installation and after-sale support of refrigeration systems in industrial and recreational markets.
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. CIMCO offers systems designed to optimize energy usage through proprietary products such as ECO CHILL. CIMCO has manufacturing facilities in Canada and the U.S. and sells its products and services globally.
In total, Toromont employs over 7,000 people in more than 160 locations across Canada and the U.S.
We first recommended Toromont Corporation in our second issue of our Power Growth Investor newsletter (then called Stock Pickers Digest) in July 1998 at $18.50 a share ($9.25 after a 2-for-1 split in April 2004).
The stock is now up a stellar 1,317.7% since then.
Meanwhile, in June 2018, we moved Toromont from Stock Pickers Digest to The Successful Investor, our publication for more conservative investors. The move reflected its new status as a larger-cap stock and its established dividend history.
Growth Stocks: Key acquisitions and remanufacturing deliver multiple opportunities for Toromont
In October 2017, the company completed its acquisition of privately held Hewitt Group for $1.02 billion. That firm was the authorized Caterpillar dealer for the province of Quebec, Western Labrador and the Maritimes, as well as the Caterpillar lift truck dealer for most of Ontario. Hewitt was also the MaK dealer for Quebec, the Maritimes and the Eastern seaboard of the U.S., from Maine to Virginia.
Founded in 1952, and headquartered in Pointe-Claire, Quebec, Hewitt operated from 45 branches with over 2,000 employees. The firm sold, rented and serviced the full line of Caterpillar and other products through its six operating business entities: Hewitt Equipment, Atlantic Tractors, Location Hewitt/Hewitt Rentals, Hewitt Material Handling, Montréal Hydraulique and SITECH QM.
Those new operations complemented Toromont’s existing Caterpillar branches in Ontario, Manitoba and Nunavut. As well, buying Hewitt helped Toromont profit from new mining and infrastructure projects in Quebec.
More recently, in May 2023, Toromont sold for $41.6 million its Manitoba-based AgWest Ltd., which distributes agricultural equipment including combines and tractors. The sale let Toromont better focus on its main businesses in eastern Canada.
Toromont is now constructing a remanufacturing plant (re-building used equipment back to the standards of new equipment) in Bradford West Gwillimbury, Ontario, north of Toronto. The plan will cost $70 million, with the facility expected to open in mid-2024.
Remanufacturing helps extend the life of heavy equipment. It’s also becoming more important as rising inflation and interest rates prompt clients to repair rather than buy new equipment. The plant will be Toromont’s fourth remanufacturing facility; the others are in Quebec City, Pointe-Claire, Quebec, and Thunder Bay, Ontario.
Growth Stocks: Toromont’s revenue climbs consistently over years and quarters
Thanks to the Hewitt Group purchase, Toromont’s revenue 56.5%, from $2.35 billion in 2017 to $3.68 billion in 2019. However, revenue fell 5.4% to $3.48 billion in 2020 as COVID-19 forced construction firms to delay projects and postpone orders for heavy equipment. Revenue then rebounded 11.7% to $3.89 billion in 2021. In 2022, revenue climbed 8.9%, to $4.23 billion. In 2023, revenue rose a further 9.3%, to $4.62 billion.
Earnings 63.0%, from $176.0 million, or $2.22 a share, in 2017 to $286.8 million, or $3.52 a share, in 2019. Earnings then rebounded 30.5%, to $332.7 million, or $4.03 a share, in 2021. In 2022, earnings climbed 36.5%, to $454.2 million, or $5.52 a share. In 2023, earnings rose a further 17.7%, to $534.7 million, or $6.50 a share.
Meanwhile, in the quarter ended December 31, 2023, Toromont’s revenue rose 8.7%, to $1.23 billion from $1.13 billion a year earlier. That topped the consensus forecast of $1.09 billion. Both its Equipment Group and CIMCO segments reported higher revenues as supply chain shortages eased and the company accelerated deliveries.
Earnings in the quarter fell 3.6%, to $154.1 million, or $1.87 a share, from $159.9 million, or $1.94 a share. That drop was mainly because the year-earlier quarter included a $15.4 million (after-tax) gain on the sale of a property. If you exclude one-time items, earnings in the quarter rose 7%, or $9.9 million. The company did not report an adjusted earnings per share figure.
Toromont’s balance sheet remains strong: it ended the quarter with cash of $1.04 billion, while its long-term debt of $647.8 million is a low 6% of its market cap.
All in all, the company’s outlook is strong. Its strong brands and dominant position in niche markets gives it an edge over its competitors. And at the same time, Toromont’s parts and service business is a significant contributor to its overall profitability and its recurring revenue serves to stabilize results through economic downturns.
Toromont will probably earn $6.39 a share in 2024, and the stock trades at a reasonable 20.5 times that estimate.
As well, with the April 4, 2024 payment, the company raised your quarterly dividend by 11.6%, to $0.48 a share from $0.43. The new annual rate of $1.92 yields 1.5%. The company has paid regular dividends since it went public in 1968 and has raised the annual rate each year for the past 35 years.
Recommendation in The Successful Investor: Toromont Industries is a buy.
