Toromont Industries remains a buy. This manufacturing company’s stock has raised its dividends for 26 years in a row. This attracts income-seeking investors. The company’s growing earnings should lead to gains. The shares remain a buy for long-term price gains and rising dividends.
Since we published our October 10, 2014, issue, the shares of manufacturing stock Toromont Industries (TSX─TIH) have jumped by 18 per cent. They remain a buy for further long-term price gains as well as decent and rising dividends.
Toromont operates two businesses: one is the Equipment Group, which consists of “one of the largest Caterpillar dealerships by revenue and geographic territory, industry-leading rental operations and a growing agricultural dealership in Manitoba”. The second is CIMCO, which “is a market leader in the design, engineering, fabrication and installation of industrial and recreational refrigeration systems”. Both businesses generate significant revenue and earnings from product support. Toromont has more than 100 locations across Canada and the U.S.
In 2014, Toromont earned $133 million, or $1.71 a share. This was up by 7.5 per cent from $123 million, or $1.59 a share, the year before. President and chief executive officer Scott Medhurst said: “Our Equipment Group demonstrated continued strength in product support, rent and equipment sales, especially in construction markets. CIMCO experienced weaker market conditions in Central Canada; however, continued growth in product support is encouraging.”
The Equipment Group overcame CIMCO
In 2014, the Equipment Group’s revenue rose by $86.1 million, to $1.449 billion. This more than offset CIMCO’s $19.1 million drop in revenue, to $212 million. Total revenue went up by 4.2 per cent to $1.660 billion (numbers are rounded). Sales in Canada totaled $1.610 billion; sales in the U.S. came in at $49.2 million and international sales were $1.3 million.
Toromont sales growth of 4.2 per cent outpaced the 3.9 per cent growth in operating costs, to $1.479 billion. Sales growth also beat the 3.4 per cent rise in income taxes, to $47.6 million. With sales up more than costs, the per share earnings of this Canadian manufacturing company’s stock rose.
The better 2014 earnings are confirmed by a four per cent rise in the cash flow, to $186.1 million. This easily exceeded net capital investment of $77.1 million, acquisitions of $8.6 million and dividend payments of $44.7 million. Toromont used $4.4 million of its excess cash flow to repay debt.
Less debt and higher cash flow improved Toromont’s balance sheet. Subtract cash of $86 million from total debt of $132 million and you come up with net debt of $46 million. Divide this by 2014 cash flow and you get a net debt-to-cash-flow ratio of only 0.2 times. This is well within our usual comfort zone of two times or less.
Toromont raised its dividend to 68 cents a share after “considering the Company’s solid financial position, cash flow and balances and positive long-term outlook”. That’s up by 13.3 per cent from 60 cents a share. That yields a decent 2.2 per cent. What’s more, Toromont’s dividend has now risen for the 26th consecutive year.
Earnings should rise this year and next
Mr. Medhurst is cautiously optimistic about Toromont’s outlook. He says: “Although our markets remain highly competitive, we expect the construction sector to be active with large infrastructure projects. Mining segments remain challenged by tight economic conditions; however, we believe there are significant opportunities in our territory over the longer terms. We were encouraged by CIMCO’s continued product support growth and look to expand penetration in U.S. markets while improving operational practices and increasing efficiencies.” This Canadian manufacturing stock is expected to earn a higher $1.84 a share this year and $1.97 a share next year.
The Investment Reporter , MPL Communications Inc.
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