Rental Revenues Drop While Finning Profitability Increases in 2014

Revenues increased by 2 percent for 2014 for Finning, the world’s largest Caterpillar dealer, with CDN $6.9 billion (about U.S. $5.5 billion) for the year. Product support revenue reached a new record, driven by parts sales in Canada. For the fourth quarter, revenues were essentially flat, at $1.803 billion compared to $1.796 billion a year ago. Higher revenues in Canada and the U.K. and Ireland offset lower revenues in South America.

EBIT margin of 7.9 percent in the fourth quarter reflected strong profitability in South America. Free cash flow of $385 million was driven by strong cash generation in Canada.

For the full year, Canada’s EBIT increased by 8 percent, driven by higher volumes and cost savings from supply chain and service initiatives. South America maintained profitability year over year despite a significant reduction in revenues. Free cash flow was $483 million, reducing the net debt to invested capital ratio to 31 percent. Canada’s ROIC increased to 17.1 percent from 15.9 percent as a result of capital efficiencies and higher EBIT.

“Our proactive steps to adjust our cost structure to match lower business activity in South America allowed us to maintain historical profitability levels,” said Scott Thomson, president and CEO of Finning International. “While fourth quarter earnings in Canada were not as strong as expected, due in part to lower-margin mining parts in the revenue mix and lower gross profit from rental, we are on the right path and our continued focus on advancing our operational priorities is demonstrating progress.

“Our focus on cost and capital management will be integral to managing through the current lower oil price environment in Canada. In order to maintain profitability during soft market conditions, we are taking steps to align our cost base and invested capital to reduced demand, similar to the actions we took in South America a year ago.”

Thomson added that Finning will reduce its workforce by about 500 employees, roughly 9 percent of its Canadian workforce. “While this is a difficult decision, it is a necessary step to adjust to expected business levels,” he said.

Rental revenues for Finning were 12 percent lower than in 2013, mostly because of increased competition in rental markets, as well as very strong demand in the fourth quarter of 2013.