Finning International (TSX:FTT) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
View the webcast at https://event.choruscall.com/mediaframe/webcast.html?webcastid=nrX9cfDG
Summary
Finning International delivered its strongest Q1 adjusted EPS of $1.02, with a 6% increase in global product support and a 13% rise in Canada.
The company’s mining business, particularly in Canada, saw a significant increase in truck population, contributing to long-term product support opportunities.
Revenue for Q1 was $2.5 billion, with strong growth in product support and a 32% year-over-year increase in backlog, driven by mining and power segments in Canada.
Finning International is opening new branches in Canada and investing in inventory to support growth, while maintaining a disciplined approach to cost and capital.
The company reported a 2% rise in Q1 revenue year-over-year, driven by higher product support, despite lower equipment sales in South America.
Finning International’s net debt to adjusted EBITDA ratio was 1.6 times, and the company announced a 7.4% dividend increase, marking 25 consecutive years of dividend growth.
The company is optimistic about future growth in mining and power sectors, particularly in Canada and Argentina, despite some moderation in Chile.
Management highlighted strategic market share gains in construction equipment sales, particularly in Canada.
Full Transcript
David Primrose (Executive Vice President and Chief Financial Officer)
Thank you Operator. Good morning everyone and welcome to Finning’s first quarter earnings call. Joining me on today’s call is Kevin Parks, our President and CEO. Following our remarks, we will open the line to questions. This call is being webcast on the Investor relations section of Finning.com we have also provided a set of slides on our website that we will reference and an audio file of this call and the accompanying slides will be archived. Before I turn it over to Kevin, I want to remind everyone that some of the statements provided during this call are forward looking. Please Refer to slides 10 and 11 for important disclosures about forward looking information as well as currency and specified financial measures, including non-GAAP financial measures. Please note that forward looking information is subject to risks, uncertainties and other factors as discussed in our annual information form under Key Business Risks and in our MDA under Risk Factors and Management and Forward Looking Information. Disclaimer Please treat this information with caution as our actual results could differ materially from current expectations. In addition, unless otherwise noted, this presentation reflects the results of continuing operations only. Kevin, over to you.
Kevin Parks (President and CEO)
Thank you Dave and good morning everyone. Thank you for joining us and thank you to our teams, our customers and Caterpillar for your hard work, support and partnership. Let me start with the headline Finning is Executing. We delivered our strongest Q1 adjusted EPS of $1.02. Year over year, product support grew for the eighth consecutive quarter and we maintained our disciplined approach to cost and capital allocation. Most importantly, we continue to build the installed base and backlog in our operating regions, driving long term product support opportunities and value. Helping our customers solve their toughest challenges and increase the performance from their investments is the foundation of what we do, which in turn helps build population, improve utilization and increase product support opportunities. As with the last quarter, my prepared remarks will concentrate on the long term. I’ll then turn the call over to Dave who will provide details on our results in the quarter. Please turn to slide 2 Momentum from 2025 carried into Q1 Revenue was $2.5 billion driven by strong product support growth, up 6% globally and 13% in Canada. Our mining business is a real strength. Over the past two years we increased the Canadian large mining truck population by 25%. These assets operate in high intensity applications and create decades of product support opportunities. Mining in Chile moderated as expected, driven by a few of our large mining customers who are recalibrating their mining plans and equipment requirements. We are excited about mining in Argentina. Last week I attended a very important mining conference in the San Juan province and we are pleased to see investment starting to flow. Backlog was up 32% year over year up in all segments, most notably more than doubling in mining and power and energy In Canada. Sequentially, backlog is up 20% from December 31, 2025, up in all regions driven by Canada mining. I want to highlight our power and energy business backlog ended in the quarter at $1.2 billion across. Prime Power, oil and gas and data center standby solutions similar to mining engines deployed within our operating regions create a long term population and product support opportunity with customers where our penetration is high even in standby applications. It is also pleasing to see construction backlog building in all regions with South America and the UK and Ireland both up more than 50% since the end of the year. Construction performance remains solid across all regions despite the lack of any shovel ready major projects. We are controlling what we can by expanding coverage and taking share. Rental discipline remains a real priority. We are investing in our capabilities and capacity to support our growth. We will open two new branches in Canada this month alone and continue to make thoughtful investments in our inventory. Despite these targeted investments and higher LTIP expense On a trailing twelve month basis, our SGA margin declined 60 basis points, evidence in our progress in optimizing our cost structure. Invested capital turns held at 2.3% as we continue to see further opportunity to optimize both cost and capital intensity. Maintaining a lower fixed cost base and turning our larger invested capital base with more velocity will support more resilient earnings and return on invested capital in the future. Turning to slide three, here we are illustrating the growth in ultra class and large mining trucks across our Western Canada and and South American regions since 2021. As I commented earlier, a growing truck population is critical as a base for future product support revenue. You can see from the chart that truck population has consistently grown year over year, suggesting that that growth is influenced by a broader set of factors beyond mining production volumes and commodity prices. As customers evolve their brownfield operations, mining operations can move further away from the processing facilities. This, combined in some cases with lower ore grades, can lead to opportunities for increased equipment requirements. We are also seeing greenfield operations and contractors add to their fleet population. As you can see on the slide, since 2021, mining truck population in our Western Canada and South America regions has increased 35% and during the same period our total product support revenue has increased by 59%, demonstrating the importance of equipment population as a key driver for product. Of course, we remain committed to supporting our customers to lower their cost per tonne through increased truck utilization. Optimizing repair and maintenance and deploying technology are essential to helping our customers solve this difficult challenge. A good example of this and partnering with our customers is the upcoming trial with Codelco in Chile for the innovative CAT Dynamic Energy Transfer System. This system transfers electricity directly to the trucks while they’re in motion and is designed to enhance efficiencies while managing energy demands. This trial will involve 798 trucks and is expected to start in Q2 2026. To close and to reinforce my remarks, we are building population, helping our customers increase utilization and lowering costs, and penetrating the aftermarket more than ever while remaining disciplined on cost and capital. This is how we compare value over the long term. With that, I’ll hand the call back over to Dave.
David Primrose (Executive Vice President and Chief Financial Officer)
Thank you, Kevin. I’ll now turn to slide 4. Our Q1 revenue of $2.5 billion was up 2% compared to Q1 2025, primarily driven by higher product support revenue in Canada offset by lower mining equipment deliveries in South. We are pleased with our consistent execution momentum as we start 2026 where our team continues to deliver outstanding results under our strategic pillars. We are also encouraged by the overall positive business momentum across our diversified end markets with notable growth in power and energy opportunities as well as improving construction activities. Our first quarter earnings were adjusted for $16 million of severance costs in South America for headcount reductions related to changes in our organizational structure aimed at simplification and consolidation while strengthening service resiliency. Excluding the severance cost, adjusted EBIT was comparable to Q1 2025. LTIP expense, was $15 million this quarter or $0.09 per share of earnings driven by strong share price apprecia in Q1 2025 LTIP expense, was $7 million or $0.04 per share of earnings. Adjusted EPS of $1.02 was up 7% from Q1 2025 EPS, primarily reflecting lower finance cost on lower average debt level and the benefit of share repurchases. Meanwhile, our balance sheet and working capital velocity remained business and increase our shareholder returns through our 7.4% dividend increase, marking our 25th consecutive year of dividend growth. Our net debt to adjusted ebitda ratio was 1.6 times at the end of March. Our invested capital turns and adjusted return on invested capital were 2.3 times and 18.7% respectively, all within our target ranges. On slide 5, we show changes in our revenue by line of business compared to Q1 2025 and the composition of our equipment backlog by market sector. New equipment sales were down 4% primarily due to lower mining equipment deliveries in South America, partially offset by strong sales in Canada. Across all market sectors, used equipment sales were down 13% as Q1 2025 had higher conversions of rental equipment with purchase options in Canada. Product support was up 6%, primarily driven by strong mining activity in Canada. Our equipment backlog reached a new record of $3.8 billion at the end of March, up 32% from March 2025 and up 20% from December 25, reflecting order intake outpacing deliveries across all market sectors, particularly in mining and construction sectors. In mining, order intake was up approximately 70% compared to Q1 2025 led by Argentina, as Kevin mentioned earlier and also the oil sands in Canada. We currently have over 140 ultra class and large mining trucks in backlog with deliveries into 2027 and 28 demonstrating strong customer confidence in their markets and our partnership in construction order intake was up approximately 30% compared to Q1 2025, higher across all regions, reflecting early signs of increased activity level and emerging new projects in Canada. We are also pleased to see our team capturing a higher market share with a refreshed sales and marketing strategy. In the power and energy sector, our backlog is approaching $1.2 billion, primarily supported by data center orders in the UK and Ireland as well as gas compression equipment orders in Canada. Overall, our current backlog continues to provide confidence for our business in terms of activity levels and future product support opportunities. We expect to deliver the majority of our backlog in 2026. Turning to our EBIT performance on slide 6, gross profit margin was comparable to Q1 2025SG and a margin was up 20 basis points to 16%, primarily reflecting higher people costs to support business growth along with $8 million higher LTIP expense, accounting for approximately 30 basis points of SG and a margin. Looking ahead, we will continue to seek opportunities to reduce overheads, improve efficiency and operating leverage and build more resilience to drive higher earnings capacity. Q1 adjusted EBIT margin was 11.1% in South America, 8.1% in Canada and 5.1% in UK and Ireland. Moving to our South American results and outlook which are Summarized on slide 7 in functional currency, new equipment sales were down 26% from Q1 2025 primarily due to lower mining deliveries. In addition, we delivered a large equipment package to a construction customer in Q1 2025 which did not repeat. Product support revenue was up 2% driven by higher construction activity and mining rebuilds in Chile. Adjusted ebit margin of 11.1% was up 50 basis points from Q1 2025 EBIT margin primarily driven by a higher mix of product support revenue, partially offset by higher SGA margin in Chile. Our outlook for longer term remains positive, underpinned by growing global demand for copper, strong copper prices, capital deployment into large scale brownfield expansions under supportive priorities from the new government and customer confidence to invest in greenfield projects, we are seeing a broad based level of quoting tender and award activity for mining equipment, product support and technology solutions. However, in the near term we expect some moderation of product support activity levels as customers adjust the line plans and existing equipment fleets. While demand for skilled labor remains high, we expect a more stabilized Labor Environment through 2028 as we have successfully concluded negotiations with all major unions as of Q1 2026. In the Chilean construction sector, we continue to see healthy demand from large contractors supporting mining operations and we expect infrastructure construction activity to remain steady. In the power and energy sector, activity remains strong in the industrial and data center markets. In Argentina, we continue to closely monitor the government’s rules and policies and are carefully positioning our business to capture growth opportunities, particularly in the oil and gas and mining sectors. We are seeing an increase in quoting activity for equipment and encouraged by …
This post was originally published here
