Finning International Inc T.FTT

Alternate Symbol(s): FINGF

Industrials Industrial Distribution

Finning International Inc. is a Canada-based caterpillar dealer. The Company provides caterpillar equipment, parts, services, and performance solutions in Western Canada, Chile, Argentina, Bolivia, the United Kingdom, and Ireland. The Company’s segments include Canada, South America, UK & Ireland, and Other. It sells, rents and provides parts and services for equipment and engines to customers in various industries, including mining, construction, petroleum, forestry and a wide range of power systems applications. With its inventory of new, used, and rental equipment, it can deliver the solution to meet client’s needs. Its products include Excavators, Dozers, Skid Steers and Compact Track Loaders, Articulated Trucks, Wheel Loaders, Motor Graders, and others. It provides rental solutions for all client’s construction, landscaping and snow removal needs at daily, weekly and long-term rates. Its services include fuel solutions, rebuilds, rentals, repair services and others.

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Finning International Inc

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Post by retiredcfon Aug 21, 2024 9:44am

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Post# 36189553

TD

EBIT A SLIGHT BEAT EX ONE-TIME ITEMS; UPGRADING TO BUY ON VIEW OF RISK/RETURN

THE TD COWEN INSIGHT

We did not capture the recent share-price low, but we are upgrading the stock to BUY from Hold on our view that risk/return has skewed positively. Absent a major shift in the macro backdrop, we find it hard to see downside below the low- to mid-$30s. Conversely, we see good upside to the mid-$40s in our base-case scenario, and potential upside to the low- to mid-$50s in a more optimistic scenario.

Event

Finning reported Q2/24 results.

Impact: SLIGHTLY POSITIVE

Slight EBIT Beat: EBIT of $228mm was an ~3% beat vs. the Street/TDSI at $234mm/ $235mm if adjusted for $13mm of costs to manage FX risk in Argentina, which should not recur in H2/24. Revenue growth of ~3% was largely driven by equipment sales, particularly used, while higher-margin product support revenue was flattish, with growth in South America offset by a decline in Canada. That said, Canada was lapping a difficult prior-year comparable, and Finning expects product support to return to growth in H2/24, as the prior-year comparables get easier. Rental was weaker across all regions, which bears watching, but Finning is responding by curtailing rental capex.
Outlook Commentary: Finning continues to see 2024 as a year of moderating growth, and its outlook commentary is largely upbeat/unchanged, with greater optimism about Chile/copper. The company indicated that it is monitoring market conditions/equipment utilization, given continued softness in construction, but our sense is that Finning believes construction is bottoming across its three regions. The company now expects net PP&E/rental capex of $220mm-$270mm vs. $290mm-$340mm previously, and is finalizing plans to reduce its fixed cost base and further reduce SG&A as a percentage of revenue. The latter plans initially struck as a bit reactionary, but Finning sees incremental opportunity to rationalize its corporate/admin costs and better integrate the Canadian reman. operations with the rest of the business. The backlog grew ~10% q/q to $2.2bln, as exceptional order intake was partly offset by strong deliveries, but declined vs. $2.4bln in Q2/23, which is understandable, given normal availability for all but the largest machines/engines.
Strong Free-Cash-Flow: Finning generated $330mm of FCF, which is seasonally unusual, but consistent with a normalizing supply chain. The company expects substantial further FCF in H2/24, which should provide good optionality to continue share buybacks and/ or repay debt. We favour some debt reduction, because leverage is low, based on the current earnings run-rate, but interest expense is ~$0.23/quarter (after-tax).