Finning reports Q3 2016 results
Tweet
Share
E-mailVANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 11/03/16 -- Finning International Inc. (TSX: FTT) ("Finning" or the "Company") reported third quarter 2016 results today. All monetary amounts are in Canadian dollars unless otherwise stated.
HIGHLIGHTS
-- Significant progress in the UK & Ireland to lower the cost structure and
improve capital efficiency resulted in an EBIT(1) margin of 3.8%.
-- Operational improvements and cost reductions enabled Canada to maintain
profitability in a difficult economic environment.
-- South America achieved significant improvement in Adjusted ROIC(1)(2)(3)
driven by sustained profitability and reduced invested capital.
-- Strong free cash flow(3) of $163 million in Q3 and $257 million year-to-
date reflected improved management of working capital.
"The sustainable improvements and cost reductions we have made across our organization contributed to a solid third quarter. I am particularly pleased with our increased profitability in these times of competitive and challenging market conditions. Our ongoing commitment to managing the factors we control is also reflected in our continued focus on safety, optimizing our supply chain, improving service delivery and earning customer loyalty, which is at an all-time high since we began the journey to transform our business and deliver greater customer value," said Scott Thomson, president and CEO of Finning International. "Going forward, we will continue to position Finning to deliver significantly improved results when demand normalizes. We remain focused on managing working capital more effectively and continuously optimizing our supply chain to generate positive free cash flow through the cycle. The substantial free cash flow we are generating this year will further strengthen our balance sheet and provide capital allocation flexibility."
Q3 2016 FINANCIAL SUMMARY
------------------------------------
Q3 2015
(restated)
$ millions, except per share amounts Q3 2016 (4) % change
----------------------------------------------------------------------------
Revenue 1,333 1,517 (12)
----------------------------------------------------------------------------
EBIT 73 63 14
----------------------------------------------------------------------------
EBIT margin 5.4% 4.2%
----------------------------------------------------------------------------
EBITDA(1)(3) 119 125 (5)
EBITDA margin 8.9% 8.2%
----------------------------------------------------------------------------
Net income 36 33 11
Basic EPS 0.22 0.19 13
----------------------------------------------------------------------------
Free cash flow 163 140 16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q3 2016 EBIT and EBITDA by Operation South UK & Finning
$ millions, except per share amounts Canada America Ireland Total(i)
----------------------------------------------------------------------------
EBIT 37 40 10 73
----------------------------------------------------------------------------
EBIT margin 5.9% 8.7% 3.8% 5.4%
----------------------------------------------------------------------------
EBITDA 61 55 17 119
----------------------------------------------------------------------------
EBITDA margin 9.8% 11.9% 6.5% 8.9%
----------------------------------------------------------------------------
(i) Consolidated results include corporate and other operations, mostly corporate head office
Included in Q3 2015 results are the following significant items that management does not consider indicative of operational and financial trends either by nature or amount. These significant items are summarized below and described in more detail on page 3 of the Company's Q3 2016 Management's Discussion and Analysis ("MD&A").
----------------------------------------------------------------------------
Q3 2015 EBIT and EBITDA by
Operation
$ millions, except per South UK & Finning
share amounts Canada America Ireland Total(i) EPS
----------------------------------------------------------------------------
EBIT / EPS 34 32 7 63 0.19
Severance costs 11 10 4 25 0.11
Restructuring costs - lease
impairment 6 - - 6 0.03
Saskatchewan dealership
acquisition costs - - - 3 0.01
----------------------------------------------------------------------------
Adjusted EBIT(2)(3) /
Adjusted EPS(2)(3) 51 42 11 97 0.34
----------------------------------------------------------------------------
Adjusted EBITDA(2)(3) 85 62 19 159
-------------------------------------------------------------------
EBIT margin 4.5% 6.4% 2.7% 4.2%
-------------------------------------------------------------------
Adjusted EBIT margin(2)(3) 6.9% 8.3% 4.1% 6.4%
-------------------------------------------------------------------
Adjusted EBITDA
margin(2)(3) 11.5% 12.1% 7.2% 10.5%
-------------------------------------------------------------------
(i) Consolidated results include corporate and other operations, mostly
corporate head office
-- In Q3 2016, revenues were down 12% primarily due to lower product
support revenues in Canada and South America, as well as lower new
equipment sales in Canada. Product support declined by 13%, driven
mostly by lower parts sales in the non-mining sectors in Canada and
lower parts and service revenues in South America's mining industry. New
equipment sales decreased by 9% due to timing of equipment deliveries in
the oil sands, as well as weaker market activity in Alberta and
Saskatchewan. This was partly offset by higher new equipment sales in
the UK & Ireland and South America. Order backlog(3) of about $0.5
billion at the end of Q3 2016 remained unchanged from Q2 2016.
-- Gross profit declined by 13%, reflecting lower revenues. Gross profit
margin of about 28% was relatively unchanged from Q3 2015. The Company
continued to face pricing pressures in all markets as customers remained
focused on cost reductions in a lower commodity environment.
-- EBIT of $73 million was below Adjusted EBIT in Q3 2015, primarily due to
lower EBIT in Canada. In addition, strong share price appreciation in
the quarter increased the Company's long-term incentive plan costs by
about $7 million compared to Q3 2015.
-- EBITDA and EBIT margins of 8.9% and 5.4%, respectively, were below the
Adjusted margins in Q3 2015, but improved from the Adjusted margins
sequentially throughout 2016 as the Company began to realize cost
savings from operational improvements and restructuring actions taken
across all three regions.
-- EPS of $0.22 per share was below Adjusted EPS of $0.34 per share in Q3
2015 due to lower revenues and earnings from Canada and South America,
higher long-term incentive plan costs of $0.03 per share driven by
strong share price appreciation, and higher effective income tax rate
(29% in Q3 2016 vs 19% in Q3 2015). However, Q3 2016 EPS has improved
sequentially from Q1 2016 EPS of $0.09 (Adjusted EPS of $0.19) and Q2
2016 EPS of $0.03 (Adjusted EPS of $0.20).
-- Free cash flow was $163 million, with strong cash generated by all
operations. Year-to-date free cash flow of $257 million was up
significantly from ($22) million use of cash in the same period of 2015,
driven mostly by improved management of working capital, including lower
equipment inventory purchases.
-- The Company's balance sheet is strong with net debt to Adjusted EBITDA
ratio(2)(3) of 2.1 and net debt to invested capital ratio(3) of 35.0% at
the end of Q3 2016.
Q3 2016 INVESTED CAPITAL
---------------------------------
Q3 2016 Q2 2016 Q4 2015
----------------------------------------------------------------------------
Invested capital(3)($ millions)
Consolidated 2,917 3,041 3,240
Canada 1,650 1,695 1,760
South America (U.S. dollars) 778 824 811
UK & Ireland (U.K. pound sterling) 148 153 157
----------------------------------------------------------------------------
Invested capital turnover(3)(4)(times) 1.85 1.78 1.78
----------------------------------------------------------------------------
Adjusted ROIC (%)
Consolidated 9.2 9.4 10.9
Canada 8.7 9.3 10.6
South America 15.6 14.2 14.0
UK & Ireland 3.4 3.3 9.0
----------------------------------------------------------------------------
-- Excluding the impact of foreign currency translation, invested capital
decreased by about $215 million from Q4 2015. This was driven by
continued efforts to reduce surplus inventory and rental assets in
Canada to align with market demand, as well as improved management of
working capital, including inventory purchases, across the organization.
-- Consolidated Adjusted ROIC of 9.2% declined slightly from Q2 2016 due to
lower earnings in Canada. Adjusted ROIC in South America improved
significantly driven by steady profitability and lower invested capital.
Q3 2016 HIGHLIGHTS BY OPERATION
Canada
-- Revenues declined by 17%, reflecting difficult market conditions and
lower customer activity across all sectors in Western Canada. New
equipment sales were down 25% due to timing of equipment deliveries in
the oil sands and reduced activity in the power systems and construction
markets in Alberta and Saskatchewan. Product support revenues were down
11% driven primarily by lower parts sales in the non-mining sectors. In
addition, the component rebuild activity in the oil sands slowed
significantly following the wildfires as producers were focused on
recovering lost production output and reducing equipment downtime.
Excluding the estimated negative impact on revenues from the wildfires,
Q3 product support was down by about 8% from Q2 mostly due to lower
activity in the oil sands in July and August. In September, mining
product support activity returned to normal levels and is expected to
remain steady for the balance of the year.
-- EBIT of $37 million was $14 million below Adjusted EBIT in Q3 2015
mostly due to a decrease in gross profit from lower revenues and
continued pressure on margins in a very competitive pricing environment.
Excluding severance, SG&A costs were down 11% from Q3 2015 reflecting
cost savings from improved operating efficiencies and restructuring
actions.
-- EBIT margin of 5.9% was below Adjusted EBIT margin of 6.9% in Q3 2015
and 6.3% in Q2 2016. However, excluding the benefit of higher equity
earnings from the Pipeline Machinery International in Q2 2016, Q3 2016
profitability was up slightly from Q2 despite a slowdown in product
support revenues.
South America
-- Revenues declined by 9% (also down 9% in functional currency - U.S.
dollars), mostly due to reduced product support revenues in mining,
reflecting a continued low copper price environment. While product
support revenues were down 12% in functional currency compared to Q3
2015, they were relatively similar to Q2 and Q1 2016 as product support
activity in mining appears to have stabilized at lower levels. New
equipment sales were up 3% in functional currency, driven by improved
construction activity in Argentina.
-- South American operations maintained solid profitability levels despite
a shift in revenue mix from product support to lower margin new
equipment sales and continued competitive pricing pressures. EBIT margin
was 8.7%, up from Adjusted EBIT margin of 8.3% in Q3 2015, driven by
improved operating efficiencies in the service business and tight
control of SG&A costs.
-- Q3 Adjusted ROIC improved to 15.6% from 14.0% at the end of 2015
reflecting sustained profitability and reduced invested capital in a
weak market environment.
United Kingdom & Ireland
-- Revenues decreased by 5%, but were up 13% in functional currency - U.K.
Pound Sterling. Strong new equipment sales (up 26% in functional
currency) were driven by higher activity in the general construction
sectors as well as improved demand from data centre and capacity markets
in power systems. Product support revenues declined by 9% in functional
currency, due to lower activity in mining, steel, marine, and oil & gas
sectors.
-- EBIT of $10 million and EBIT margin of 3.8% were slightly below Adjusted
EBIT and Adjusted EBIT margin in Q3 2015, reflecting a shift in revenue
mix from product support to new equipment sales and lower product
support margins. UK & Ireland began to realize cost savings from
restructuring initiatives, resulting in reduced fixed SG&A costs, and is
returning to historic profitability levels. Q3 EBIT margin showed
significant improvement from the last three quarters, reflecting
successful execution of the turnaround plan. Management remains on track
to transform the UK's business model and deliver a sustainable
improvement in operating performance.
CORPORATE AND BUSINESS DEVELOPMENTS
Dividend
The Board of Directors has approved a quarterly dividend of $0.1825 per share, payable on December 1, 2016 to shareholders of record on November 17, 2016. This dividend will be considered an eligible dividend for Canadian income tax purposes.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
---------------------------------------
---------------------------------------
$ millions, except per share amounts Three months ended Sep 30
---------------------------------------
---------------------------------------
2015
(restated)
2016 (4) % change
---------------------------------------
New equipment 427 468 (9)
Used equipment 72 77 (6)
Equipment rental 61 85 (29)
Product support 770 883 (13)
Other 3 4 nm
----------------------------------------------------------------------------
Total revenue 1,333 1,517 (12)
----------------------------------------------------------------------------
Gross profit 369 422 (13)
Gross profit margin 27.7% 27.9%
SG&A (295) (351) 16
SG&A as a percentage of revenue (22.2)% (23.2)%
Equity earnings (loss) of joint
venture and associate (1) 1
Other expenses 0 (9)
----------------------------------------------------------------------------
EBIT 73 63 14
EBIT margin 5.4% 4.2%
Adjusted EBIT 73 97 (26)
Adjusted EBIT margin 5.4% 6.4%
----------------------------------------------------------------------------
Net income 36 33 11
Basic EPS 0.22 0.19 13
Adjusted basic EPS 0.22 0.34 (36)
----------------------------------------------------------------------------
EBITDA 119 125 (5)
EBITDA margin 8.9% 8.2%
Adjusted EBITDA 119 159 (26)
Adjusted EBITDA margin 8.9% 10.5%
Free cash flow 163 140 16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
---------------------------------------
---------------------------------------
$ millions, except per share amounts Nine months ended Sep 30
---------------------------------------
---------------------------------------
2015
(restated)
2016 (4) % change
---------------------------------------
New equipment 1,319 1,659 (21)
Used equipment 271 250 9
Equipment rental 170 224 (24)
Product support 2,366 2,593 (9)
Other 11 12 nm
----------------------------------------------------------------------------
Total revenue 4,137 4,738 (13)
----------------------------------------------------------------------------
Gross profit 1,093 1,271 (14)
Gross profit margin 26.4% 26.8%
SG&A (947) (1,022) 7
SG&A as a percentage of revenue (22.9)% (21.6)%
Equity earnings (loss) of joint
venture and associate 6 4
Other expenses (5) (9)
----------------------------------------------------------------------------
EBIT 147 244 (40)
EBIT margin 3.5% 5.2%
Adjusted EBIT 203 303 (33)
Adjusted EBIT margin 4.9% 6.4%
----------------------------------------------------------------------------
Net income 56 148 (62)
Basic EPS 0.33 0.86 (61)
Adjusted basic EPS 0.60 1.07 (44)
----------------------------------------------------------------------------
EBITDA 292 408 (28)
EBITDA margin 7.1% 8.6%
Adjusted EBITDA 348 467 (26)
Adjusted EBITDA margin 8.4% 9.9%
Free cash flow 257 (22) nm
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sep 30, 2016 Dec 31, 2015
----------------------------
Invested capital 2,917 3,240
Invested capital turnover (times) 1.85 1.78
Net debt to invested capital 35.0% 36.7%
ROIC (6.6)% (3.0)%
Adjusted ROIC 9.2% 10.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
nm -% change not meaningful
To download Finning's complete Q3 2016 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ316results.pdf
Q3 2016 INVESTOR CALL
The Company will hold an investor call on November 3 at 11:00 am Eastern Time. Dial-in numbers: 1-800-319-4610 (Canada and US), 1-416-915-3239 (Toronto area), 1-604-638-5340 (international). The call will be webcast live and subsequently archived at www.finning.com. Playback recording will be available at 1-855-669-9658 (access code 0826) until November 10, 2016.
ABOUT FINNING
Finning International Inc. (TSX: FTT) is the world's largest Caterpillar equipment dealer delivering unrivalled service to customers for over 80 years. Finning sells, rents, and provides parts and services for equipment and engines to help customers maximize productivity. Headquartered in Vancouver, B.C., the Company operates in Western Canada, Chile, Argentina, Bolivia, the United Kingdom and Ireland.
FOOTNOTES
(1) Earnings Before Finance Costs and Income Taxes (EBIT); Earnings per
Share (EPS); Earnings Before Finance Costs, Income Taxes, Depreciation
and Amortization (EBITDA); Selling, General & Administrative Expenses
(SG&A); Return on Invested Capital (ROIC).
(2) Certain 2016 and 2015 financial metrics were impacted by significant
items management does not consider indicative of operational and
financial trends either by nature or amount; these significant items
are summarized on page 2 of this news release and described on page 3
of the Company's Q3 2016 MD&A, and the financial metrics that have
been adjusted to take these items into account are referred to as
"adjusted" metrics.
(3) These financial metrics, referred to as "non-GAAP financial measures"
do not have a standardized meaning under International Financial
Reporting Standards (IFRS), which are also referred to herein as
Generally Accepted Accounting Principles (GAAP), and therefore may not
be comparable to similar measures presented by other issuers. For
additional information regarding these financial metrics, including
definitions and reconciliations from each of these non-GAAP financial
measures to their most directly comparable measure under GAAP, see the
heading "Description of Non-GAAP Financial Measures and
Reconciliations" in the Company's Q3 2016 MD&A. Management believes
that providing certain non-GAAP financial measures provides users of
the Company's consolidated financial statements with important
information regarding the operational performance and related trends
of the Company's business. By considering these measures in
combination with the comparable IFRS measures set out in this MD&A,
management believes that users are provided a better overall
understanding of the Company's business and its financial performance
during the relevant period than if they simply considered the IFRS
measures alone.
(4) As previously disclosed, management has voluntarily changed its
presentation of certain expenses to provide reliable and more relevant
information to users of the financial statements and better align with
industry comparable companies. In addition and as previously
disclosed, management has concluded that certain cost recoveries are
better reflected as revenues. Certain line items have been restated in
the comparative 2015 periods but the impact of restatement is not
significant. For more information on the impact to financial
statements, please refer to note 1 of the Company's interim condensed
consolidated financial statements.
FORWARD-LOOKING DISCLAIMER
This report contains statements about the Company's business outlook, objectives, plans, strategic priorities and other statements that are not historical facts. A statement Finning makes is forward-looking when it uses what the Company knows and expects today to make a statement about the future. Forward-looking statements may include words such as aim, anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive, target, and will. Forward-looking statements in this report include, but are not limited to, statements with respect to: delivery of improved results when demand normalizes; free cash flow; order backlog; results of operational improvements and restructuring actions; product support activity for the balance of the year; product support activity in mining in South America; cost savings from restructuring initiatives in the UK and Ireland operations; and transformation of the business model in the UK and Ireland operations to deliver a sustainable improvement in operating performance. All such forward-looking statements are made pursuant to the 'safe harbour' provisions of applicable Canadian securities laws.
Unless otherwise indicated by us, forward-looking statements in this report reflect Finning's expectations at November 2, 2016. Except as may be required by Canadian securities laws, Finning does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from the expectations expressed in or implied by such forward-looking statements and that Finning's business outlook, objectives, plans, strategic priorities and other statements that are not historical facts may not be achieved. As a result, Finning cannot guarantee that any forward-looking statement will materialize. Factors that could cause actual results or events to differ materially from those expressed in or implied by these forward-looking statements include: general economic and market conditions; foreign exchange rates; commodity prices; the level of customer confidence and spending, and the demand for, and prices of, Finning's products and services; Finning's dependence on the continued market acceptance of its products and timely supply of parts and equipment; Finning's ability to continue to improve productivity and operational efficiencies while continuing to maintain customer service; Finning's ability to manage cost pressures as growth in revenue occurs; Finning's ability to reduce costs in response to slowing activity levels; Finning's ability to attract sufficient skilled labour resources as market conditions, business strategy or technologies change; Finning's ability to negotiate and renew collective bargaining agreements with satisfactory terms for Finning's employees and the Company; the intensity of competitive activity; Finning's ability to raise the capital needed to implement its business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock market volatility; changes in political and economic environments for operations; the integrity, reliability and availability of, and benefits from, information technology and the data processed by that technology. Forward-looking statements are provided in this report for the purpose of giving information about management's current expectations and plans and allowing investors and others to get a better understanding of Finning's operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.
Forward-looking statements made in this report are based on a number of assumptions that Finning believed were reasonable on the day the Company made the forward-looking statements. Some of the assumptions, risks, and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this report are discussed in Section 4 of the Company's current AIF and in the annual MD&A for the financial risks.
Finning cautions readers that the risks described in the MD&A and the AIF are not the only ones that could impact the Company. Additional risks and uncertainties not currently known to the Company or that are currently deemed to be immaterial may also have a material adverse effect on Finning's business, financial condition, or results of operations.
Except as otherwise indicated, forward-looking statements do not reflect the potential impact of any non-recurring or other unusual items or of any dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date of this report. The financial impact of these transactions and non-recurring and other unusual items can be complex and depends on the facts particular to each of them. Finning therefore cannot describe the expected impact in a meaningful way or in the same way Finning presents known risks affecting its business.
Contacts: Finning International Inc. Mauk Breukels Vice President, Investor Relations and Corporate Affairs (604) 331-4934 [email protected] www.finning.com
Source: Finning International Inc.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- SanDisk and Micron surge as Apple confirms memory price pass-through
- Hyperscale Data launches $300M at-the-market stock offering
- Miyu Yamashita Secures 2026 Meijer LPGA Classic for Simply Give Title as Tournament Raises $1.5 Million to Fight Hunger
Create E-mail Alert Related Categories
Press ReleasesRelated Entities
Dividend, Earnings, Definitive AgreementSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
