Toromont Industries Ltd. last week reported financial results for the three months ended March 31. Revenues declined 4 percent in the first quarter of 2010 to $440.7 million from $457.7 million in the year-ago period, reflecting weaker economic conditions in both the Equipment and Compression businesses and the significant increase in the Canadian dollar over the past year.
In the first quarter, Toromont completed the acquisition of Enerflex Systems Income Fund. Results from Enerflex have been consolidated from Jan. 20, the date of acquisition. The combined business of Toromont Energy Services and Enerflex are now operating under Toromont ownership as Enerflex Ltd.
Earnings in the first quarter of 2010 were $15.4 million. These earnings included an $18.6 million gain on units of Enerflex, which were held by Toromont prior to acquisition. Acquisition-related transaction costs and restructuring costs expensed in the first quarter of 2010 totalled $5.5 million, interest costs related to transaction financing increased by $3.8 million and the amortization of intangible assets acquired in the acquisition totaled $2.2 million.
“The acquisition of Enerflex is an important strategic move that creates a strong global player in the natural gas compression industry,” said Robert Ogilvie, chairman and CEO of Toromont Industries Ltd. “It will take some time for the synergies to flow through our statements and we need a recovery in the industries we serve to fully realize the benefits of the transaction. However, integration activities are well underway with actions taken to-date translating to $15 million in annualized cost savings.”
Compression Group revenues were down 1 percent in the quarter to $264.1 million compared to $266.0 million in the same period last year. The company attributed the decline to lower shop utilization, restructuring costs and acquisition-related transaction costs impacted results.
Equipment Group revenues, which include the company’s rental business Battlefield Equipment Rentals, were down 8 percent in the quarter to $176.6 million versus $191.7 million in the first quarter of 2009 on lower new machine sales and rentals. Operating income decreased 32 percent compared to last year on lower volumes and lower gross margins.
Equipment Group bookings were 74-percent higher than the first quarter of 2009 on improved activity levels in certain sectors including power systems, mining and road building. New equipment sales were 23-percent lower in the first quarter of 2010 compared to the similar period of 2009 on lower unit sales. Most market segments, most notably heavy and general construction, and mining were lower. Used equipment sales were 17-percent higher. Sales of used equipment have been a focus area during the economic downturn.
Rental revenues were down $2.8 million or 10 percent in the first quarter of 2010 compared to the prior year reflecting lower utilization and lower rental rates in a very competitive market.
The board of directors declared the regular quarterly dividend of $0.15 per common share, to be paid on July 2, to shareholders of record on June 11. The company has paid dividends every year since going public in 1968.
“We are encouraged by the increased bookings this past quarter and the general sense from our front-line people that business prospects are improving,” Ogilvie said. “Significantly, sequential backlogs had a meaningful increase for the first time since the recession began in the third quarter of 2008. We expect that it will take several quarters for rising backlogs to translate into improved earnings due to the long delivery cycle for process and compression equipment as well as for mining and power projects. We are excited about moving forward with the integration of Enerflex with Toromont Energy Systems. This will be a year of significant transition at Enerflex and we believe that Toromont is now very well positioned for growth.”
Toronto-based Toromont Industries Ltd. operates through two business segments: The Compression Group and the Equipment Group. The Compression Group is a global leader specializing in the design, engineering, fabrication, and installation of compression systems for natural gas, coal-bed methane, fuel gas and carbon dioxide in addition to process systems and industrial and recreational refrigeration systems. The Equipment Group includes one of the larger Caterpillar dealerships by revenue and geographic territory in addition to Battlefield Equipment Rentals, No. 21 on the new RER 100.