Toromont Industries (TSX: TIH) is a diversified industrial company specializing in equipment distribution, power systems, and thermal management solutions. It operates through two business segments: The Equipment Group and CIMCO. The Equipment Group comprises equipment sales, rental operations, material-handling services, and power generation enclosure manufacturing, while CIMCO provides specialized thermal management solutions.
The company delivered an impressive third-quarter performance, reporting results after the market closed on Monday and comfortably surpassing analysts’ expectations. Revenue reached $1.65 billion, well above the estimated $1.52 billion, while adjusted EPS (earnings per share) of $2.33 exceeded analysts’ forecast of $2.10. A substantial increase in its backlog from $1.3 billion to $2.9 billion also strengthened investor confidence, sending the stock up 8.5% yesterday. Despite this rally, shares remain approximately 14% below their June highs. Against this backdrop, let’s examine Toromont’s third-quarter performance, growth prospects, and valuation to determine whether the recent pullback presents an attractive buying opportunity.
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Toromont’s third-quarter performance
Toromont reported a 25.6% year-over-year revenue increase to $1.65 billion, supported by strong contributions from both the Equipment Group and CIMCO segments. The Equipment Group delivered 26% revenue growth, driven by higher power systems sales, increased mining and construction equipment deliveries, and growth in product support activities. Meanwhile, CIMCO’s revenue advanced 23%, reflecting higher package revenue and increased product support activity.
The company’s gross margin expanded by 240 basis points to 29.1%, mainly driven by improved margins in The Equipment Group, partially offset by weaker margins in CIMCO. Higher equipment and rental margins supported The Equipment Group’s performance, although lower product support margins and an unfavourable sales mix moderated the gains. In contrast, CIMCO faced margin pressure from lower package and product support margins and an unfavourable sales mix.
Reflecting strong revenue growth and improved gross margins, operating income surged 46% to $279.3 million. However, higher expenses partially offset these gains. Meanwhile, net income reached $192.1 million, while fully diluted EPS (earnings per share) increased 35% year over year to $2.33.
Toromont also delivered healthy cash generation, with cash from operating activities rising 37% year over year to $274 million. Furthermore, it ended the quarter with $1.17 billion in cash and cash equivalents, providing considerable financial flexibility to pursue future growth opportunities. Its balance sheet also strengthened, as its net debt-to-total capitalization ratio improved to -12% from -19% at the beginning of this year. The improvement reflects strong operating cash inflow that exceeded cash used for working capital and capital expenditures. Overall, its strong cash position and improving balance sheet leave the company well positioned to finance its expansion plans.
Toromont’s growth prospects
Toromont’s bookings increased 50% year over year to $891.6 million during the quarter, driven by a strong 59% increase in The Equipment Group, which more than offset a 13% decline in CIMCO. The Equipment Group recorded bookings of $824.6 million, supported by significant growth in mining and construction orders, which surged 294% and 13%, respectively.
In contrast, CIMCO’s bookings fell 13% to $67.1 million, mainly because recreational bookings dropped 41%. However, a 19% increase in industrial bookings partially cushioned the decline.
Toromont closed the quarter with a record backlog of $2.9 billion, more than doubling from $1.3 billion in the same period last year. This significant increase highlights strong demand for its equipment and solutions, provides greater revenue visibility, and supports future growth. Backed by robust order intake, a growing backlog, and favourable demand across its key end markets, the company appears well positioned to maintain its growth momentum in the coming quarters.
Investors’ takeaway
Toromont has built an impressive track record of creating shareholder value, delivering total returns of approximately 502% over the past decade, equivalent to an annualized return of 19.7%. The company also has a long history of rewarding investors with consistent dividends, having paid dividends since its 1968 listing on the Toronto Stock Exchange. It currently offers a quarterly payout of $0.56 per share, translating into a forward dividend yield of 1.1%.
From a valuation perspective, Toromont trades at next-12-month price-to-sales and price-to-earnings multiples of 2.5 and 21.5, respectively, which appear reasonable given its growth outlook. Considering its strong third-quarter results, substantial order backlog, healthy growth prospects, and consistent dividend payments, I believe Toromont is an attractive buying opportunity for long-term investors.
