Q3 2022 Finning International Inc Earnings Call
Welcome to the Finning International Inc, third quarter, 2022, investor call and webcast.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions.
Analysts who wish to join the question you May Press Star then one on their telephone keypad.
Should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Amanda Hudson Senior Vice President Investor Relations and Treasury.
Please go ahead.
Thank you operator.
Good morning, everyone and welcome to finish third quarter earnings call.
Joining me on today's call are Scott Thompson, President M. C E O, whereas last call today.
Kevin Parks E V. P. M C O O, who will succeed Scott as President and CEO C E O.
And Greg Palast check, our EVP and CFO .
Both of them all of our remarks today, we will open the lines of questions. This call is being webcast I'm getting dotcom.
We have also provided a set of slides that we will reference during our prepared remarks.
The slides are posted on the Investor Relations section of our website.
It can also be able to view the slides on our webcast page.
An audio file of this call and the accompanying presentation will be archived on our website.
Before I turn it over to Scott I want to remind everyone that some of the statements provided during this call are forward looking please refer to slides 11, and 12 for important disclosures about forward looking information as well as currency and specified financial measures, including non-GAAP financial measures.
Please note that forward looking information is subject to risks uncertainties and other factors as discussed in our annual information form under key business risks and in our MD&A under risk factors and management and forward looking information disclaimer.
Please treat this information with caution as our actual results could differ materially from current expectations.
Scott over to you.
Thank you Amanda and good morning, everyone.
It's been an honor to lead the Sydney organization over the last nine years from the beginning my approach has been to respect things break history and culture invest in people and technology and advance sustainability initiatives that will position <unk>.
For long term success in a rapidly changing world.
During the last decade, our global teams have navigated through some challenging times, including volatile business cycle, political and social uncertainty and the global pandemic.
These challenges we have surpassed our performance records in many important areas, including product support revenue profitability and earnings per share.
We continued to drive strong growth in our product support business with Q3 product support revenue up 30% year over year to a record $1 $2 billion.
We have significantly improved our cost structure and are proactively managing inflationary pressures, our Q3 SG&A as a percentage of net revenue was 16, 7% the lowest on record.
And we have significantly expanded our earnings capacity delivering record EPS of $3 over the last four quarters and return on invested capital above 18%, including a record of 23% and South America.
Together with Caterpillar, we have built a leadership position in many of the world's most technologically advanced projects and collaborations.
Recent examples include the renewal of the entire truck fleet at BHP Escondida with Caterpillar Ultra class electric drive trucks that establishes a path to progressive implementation of autonomy and zero emission trucks at the mine.
Inefficient mining deals in Western Canada, including autonomous truck deployments in the Oilsands one of the largest autonomous sites in the world.
Hs to equipment packages in the U K, where we captured 40% of the total industry opportunity for phase one of this railway project.
And partnering with our oil and gas customers in Western Canada to reduce emissions with cat dynamic gas blending engines that allow for up to 85% diesel displacement with natural gas and up to 20% hydrogen blend.
We have delivered record results in Q3, and I have great confidence in the future success of this world class team under Kevin's leadership.
Please turn to slide three.
As we announced in September Kevin Parks, who is currently EVP and CFO will assume the role of President and CEO on November 16th.
Kevin has demonstrated outstanding vision and leadership since joining Fanny more than 25 years ago. His strategic thinking customer centric mindset focus on operational excellence and leadership skills will serve fitting well in the years ahead.
His appointment is concluded a thoughtful and comprehensive succession planning process that the board has been engaged in for some time and highlights the strength and depth of finance leadership team.
We are fortunate to have exceptionally talented and versus how people working for Fannie and we will continue to develop our leaders.
Finally, this is my last quarterly call as <unk> CEO and I wanted to express my sincere gratitude to our shareholders analysts and all of you listening to our earnings calls I've greatly enjoyed your conversations and your thoughtful questions about fittings business.
I will now hand, it over to Kevin who will provide an update on our operational performance and market environment as well as share his thoughts going forward. If he takes over the CEO role.
Thank you Scott and good morning, everyone.
First I would like to thank Scott for his leadership vision and then ship.
Well the Heath's leadership, we have strengthened the capabilities across our organization building a great Foundation for continued success.
I am honored and proud to take on the leadership of feeling and I look forward to working with our expanded employees partnered with caterpillar.
Great support for our customers and strong returns for our shareholders.
So can I ask you to turn to slide four.
Yeah.
We are very pleased with the exceptionally strong performance in the third quarter.
Our employees continue to work cycling classes.
With our customers in a challenging would encourage you to environment.
We entered the quarter with good inventory levels, and we're able to realize on continued momentum in our end markets to meet growing customer demand.
We are demonstrating consistently strong execution of our strategic plan.
Actively managing our supply chain and improving our earnings capacity.
We expect demand conditions to remain healthy across most of our end markets supported by constructive commodity prices Cigna.
Significant backlog of large projects across all of our regions and high quality machine utilization rates.
Our customers are making commitments into 'twenty, two 'twenty, three and beyond and we continue to win strategically important business and a tight supply environment.
It is a legal opinion equipment backlog, reaching $2 5 billion in September .
We expect to deliver the majority of these orders in 2023.
We continue to execute our product support growth strategy, which is closely aligned with caterpillar.
We are very pleased with the growth trajectory and our significant momentum we are seeing and I felt school business levels.
This includes great success in the construction space across all regions.
Outlook for product support remains robust.
We have been successful in recruiting technicians, while being thoughtful in hiring to build capacity right that triple on that well.
While driving improvements in labor productivity and service quality.
While demand conditions remain healthy we are mindful of the impact of inflation and higher interest rates on our customers, particularly in the construction sector.
Despite the high inflationary environment, we are demonstrating operating leverage by reinforcing our mid cycle operating cost model.
And capital discipline.
This has enabled us to achieve breakthrough earnings at a significantly higher return on invested capital, especially in South America.
Looking ahead, there are a number of reasons, we felt confident little finished the year strongly and continue that momentum into 2023.
Firstly, we built significantly high quality backlog that supports our new equipment sales throughout next year.
Second our aftermarket execution has been gaining momentum and we have further opportunities to drive aftermarket share gains, especially in consumption.
In addition, we are taking those learnings on the construction site and apply them to the mining sector with some early indications of success.
Thirdly supportive commodity prices improved capital budgets, which will have an increased investments in growth with our customers.
But we expect at <unk>, continuing in both Canada, and Chile for 2023 and beyond.
And finally, as we continue to operate with a mid cycle disciplined cost and capital structure I'm comfortable we'll just continue to just demonstrate improved performance through all stages of the economic cycle.
I'll turn it over to Greg.
Thank you Kevin.
I'll provide more details on our performance in the third quarter and talk about our regional highlights and outlook.
Our consolidated third quarter results are summarized on slide five.
Net revenue of $2 1 billion was up 20% from Q3 2021, the strong momentum in business activity across all regions, which exceeded our expectations in the quarter.
Successful execution of our product support growth strategy supply chain management and cost discipline drove record profitability and earnings in the third quarter.
EBIT as a percent of net revenue was 12% in both Canada, and South America, and 6% in the UK and Ireland.
P. S of 97 was up 59% Q3 of 2021.
We can build a strong backlog for next year, driven by mining wins and the notable increase in power systems orders.
Slide six shows changes in our net revenue by line of business compared to Q3 2021 as well as some details on our equipment backlog.
New equipment sales were up 8% driven by mining deliveries in Canada construction deliveries in the U K, including HST.
Demand for rental and used equipment was robust in the third quarter rental utilization rates were high reflecting continued tight supply environment.
Product support revenue was up 30% driven by strong market activity and execution of our product support growth strategy, including supplier cost pass through.
Consolidated equipment backlog was $2 5 billion at September 30th.
That's up 16% from June 30th and 56% from September 30 of 2021.
Order intake was up 25% in Q2.
Mining orders are now comprised over 40% of the backlog compared to less than 30% a year ago.
We're also seeing increased demand for our power systems business in all regions, particularly in Canada, but also of note in Chile, We're very pleased to receive our first order for new large scale data center in Chile, the long term global customer.
Please turn to slide seven.
We continued to deliver strong year over year growth and profitability.
Gross profit was up 25% with an increase in gross profit margin driven primarily by higher proportion of product support and the revenue mix.
SG&A increased by 13% due to workforce additions and higher variable cost of support revenue growth and service levels.
SG&A as a percent of net revenue decreased by 110 basis points to 16, 7%, our lowest percentage on record, reflecting proactive cost management and productivity gains.
We've made significant progress in improving our productivity across people facilities and supply chain areas by delivering on plans, we set out at our 2021 Investor day.
Cleaning and deployment of the Triple our model warehouse and back office consolidation and procurement spend management.
In addition successful execution of our cost of sales initiatives also played a key role. So while you may see more clearly the improvements in SG&A through that line item is that an equal number of initiatives focused on improving cost of goods sold and is helping to drive our strong operating leverage as well.
When we look back at our adjusted Q3 2019 results. Our Q3 2022 net revenue was about $300 million, 16% higher mostly due to higher product support in our SG&A increased by only $20 million or 6%. Despite the highly inflationary environment.
This has helped us double our EPS and improve return on invested capital by 610 basis points from pre pandemic levels.
Slide eight summarizes our Canadian results and outlook.
Net revenue increased by 33% from Q3 2021 with higher revenue across all sectors and lines of business driven by strong market conditions in Western Canada.
Product support revenue was up 32% on higher spending in mining strong demand in construction successful execution of our product support growth strategy.
New equipment sales were up by 52% driven primarily by deliveries in the oil sands.
EBIT as a percentage of net revenue was 11, 7% up 130 basis points from Q3 of last year, driven by improved operating leverage from productivity initiatives.
Our outlook for the Canadian business is positive and as equipment backlog increased by approximately 25% from June 30th reflecting broad based strength in order intake.
We expect commodity prices to remain constructive and improved capital budgets to drive investment in renewal of aging fleets and product support opportunities in the mining sector.
This quarter's backlog included two significant mining orders for delivery in 2023.
In construction and power systems public and private sector investment in infrastructure and energy should continue to support robust activity.
Our order intake was up 25% in construction and triple and power systems compared to Q2 of 2022.
Please turn to slide nine for our results in South America.
Net revenue increased by 5% in functional currency for Q3, 2021% as growth in product support was partially offset by lower new equipment sales.
Product support revenue was up 24% in functional currency largely driven by strong demand in Chilean mining after.
After slowing growth in product support revenue in Q2 due to supply constraints, we were able to catch up during Q3.
New equipment sales were down 23% in functional currency from Q3 2021.
Construction activity has slowed and backed by higher equipment prices are weaker.
Chilean peso and higher interest rates, prompting some customers to postpone purchase decisions.
Lower mining equipment sales compared to Q3 2021 were due to supply constraints impacting the timing of backlog deliveries significant deliveries to Chilean mining customers in Q3 of last year.
South America's EBIT as a percentage of net revenue was 12, 3% up 310 basis points from Q3 of 2021, driven by the shift in revenue mix to product support improved cost structure and the favorable impact favorable impact of the Chilean peso devaluation.
Going forward, we expect significant mining deliveries in Chile from a recent wins with BHP in telco as well as committed committed Mitch medium term investments and fleet replacements across mining customer base.
We also expect to see continued strong demand for mining products support technology solutions, including autonomy.
South America's equipment backlog increased by approximately 25% in functional currency from June 30.
Driven by strong order intake in mining, including 790 electric drive trucks for delivery to BHP Escondida in 2020, Threep as part of the agreement, we announced with BHP and Caterpillar in late August .
Over the next 10 years, we will replace Bhp's entire haul truck fleet at the Escondida mine, where the industry's largest.
Fleets currently comprised of over 160 haul trucks with new Caterpillar 788 AC electric drive haul trucks.
The new electric drive trucks will feature technology to deliver significant improvements in material moving capacity efficiency reliability and safety.
The agreements the lobby H P to accelerate implementation of its autonomy plants.
Transitioning the fleet to include technology that enables autonomous operation.
In addition, the agreement sets forth the past for BHP to meet its decarbonate decarbonization goals through the progressive implementation of zero emission trucks.
Currently we have less than 20% of the total BHP order in backlog for 2023 delivery.
He will also provide technical support to the new fleet through our integrated knowledge centric and then just the gospel.
Our long term outlook for copper mining in Chile remains constructive we expect Chile will remain an attractive place to invest is electrification trends drive global growth in demand for copper.
We continue to monitor the constitutional reform process closely. We're also actively monitoring the process for approval to proposed.
Revised mining royalty framework, we are encouraged by the moderation that was recently announced by the Chilean government.
We expect the timing of investment decisions related to Greenfield and Newfield expansion projects will remain uncertain to the new proposal is finalized.
Construction activity in Chile is expected to remain soft due to rising interest rates and the weakening peso.
However, mining contractors remain busy and we continue to see significant quoting and order intake activity from this customer segment.
I'm now turning to the UK and Ireland on Slide 10.
New equipment sales were up 19% in functional currency from Q3, 2021, driven by H S. Two deliveries and strong demand in the construction sector.
Product support revenue was up 38% and functional currency, reflecting robust construction machine utilization as well as the contribution from hydro.
We are pleased with EBIT performance in the UK and Ireland EBIT as a percentage of net revenue was up 60 basis points to six 2%, reflecting structural profitability improvements and the positive financial impact from the acquisition of hydropower.
Given softening macroeconomic conditions in the U K, we expect construction activity to moderate in 2023.
However demand for our power systems business in the UK and Ireland is expected to remain robust, especially in the datacenter market.
We will continue delivering equipment to you just to have a strong backlog of power system projects for delivery into 2023.
Specced high machine utilization hours and the addition of heidrick equipped to continue driving solid product support activity.
Yeah.
Our balance sheet remains healthy with net debt to adjusted EBITDA at one eight times at the end of September .
We generated significant free cash flow in September and expect strong free cash flow in Q4 2022.
However, due to potential shifts in supply and delivery schedules free cash flow may not be positive for the full year.
We continued to demonstrate strong execution and expansion of our earnings capacity in the third quarter, we expect significant mining new equipment deliveries in Chile, and Canada in the fourth quarter, we have built a high quality backlog for next year.
We're closely monitoring leading indicators and proactively managing risks as we continue to deliver our equipment backlog and execute our product support growth strategy and operate with cost and capital discipline, we expect to finish the year strongly continue that momentum into 2023.
Operator, I'll now turn the call back to you for questions.
Thank you.
We now begin the question answer session.
Analysts who wish to join the question queue May Press Star then one on your telephone keypad.
<unk> share of tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys.
Withdraw your question. Please press Star then two.
We will pause for a moment of callers join the queue.
The first question comes from Yuri Lynk with Canaccord Genuity.
Please go ahead.
Thank you and first I'd like to wish Scott all the best in his new role and congratulate them for a job well done at fitting.
Hey, Thanks very much appreciate it.
No problem.
No one wants to take this one but just on product support.
Very strong in Canada, and the U S, Canada, and South America in the quarter.
It even increase sequentially, which is not the typical seasonal pattern. We see is there anything was any demand pulled forward in the quarter or.
Is this would you view this as a sustainable level to kind of reset our models going forward from from here.
Okay.
Yeah. Thanks, it's Greg.
Really pleased with the level of product support activity, obviously within the quarter. There was an element of actual.
Pushback from Q2, so and as we highlighted last quarter, there is quite a bit of inventory on boats in Chile.
And actually we saw about a 30 day increase or 30 day improvement in time on ship string him. The 90 90 days within the quarter. So that helped have some more inventory arrive and we were able to catch up some of the demand that was in Q2 that we fulfilled in Q3, so that was helpful.
And then Canada is it very broad based.
Demand across each sector and so it was actually.
<unk> previously had been construction above mining in terms of growth rates and they were roughly on parity for the quarter. So we're seeing really good demand coming from the mining sector and so it's a combination of having supply, which I think we've managed quite well and seeing some improvements there was in the quarter, but also just demand being a little higher than we expected and you highlight.
A little more than you would see in a typical Q3, so pleased with that so I think some of it's strategy some of that supply but demand is just continues to be strong and of course, we're looking at the leading indicators, but that looks to be the continued trend at the moment.
Okay that additional color is helpful.
Second question just given.
Given that the size of the backlog here.
Can you help us at all with the cadence of conversion of revenue in 2023, and just confirm I think I heard that the bulk of it will be delivered next year.
Yeah, it's a pretty solid backlog, we're pleased with that of course, we're going to be very busy in Q4, delivering as much as we can bring as much through the workshops and into customers' hands as we can and then through 2023, it's pretty balanced most of the backlog that we added from last quarter was for the second half BHP would be included in that but a couple of.
Another.
Canadian mining orders, so it's pretty balanced.
It's mature in the one hand, but most of the AD that you saw between this and the last quarter will be for the second half so.
It's as good as backlog as we've obviously ever had but clearly to start a year separately. Please.
And I'll just add to that that we are being very very disciplined about how we.
<unk> of that backlog through the system and making sure that we're not adding to a cost in terms of technician capability, making sure we're using.
Contractors as well to help us manage that.
The execution of that backlog so.
We expect that as Greg said to be a consistent flow through the course of next year.
Okay. Thanks.
Sure.
The next question comes from Jacob bout with CIBC. Please go ahead.
Good morning.
Maybe I'll just start off and congratulate Kerr.
Kevin on his new appointment as CEO in vessel box.
Temperance here Scott.
Hi, Thank you maybe just sturdy starting off you talk about.
What's your first priorities are in areas of focus.
Yes sure. Thank.
Thank you for your kind comments that my immediate priorities successions of gifts that say that suggest us all feel very blessed and happy to be.
Tycho this is really important to own and thanks Scott.
<unk> for that.
Succession process.
My immediate priorities are to help the organization through that success succession.
It is a gift.
We should welcome into embraced the stability that it gives us.
But we will still need to manage to our employees.
Lots of questions and concerns so I'm spending a lot of time talking and.
To all stakeholders.
The transition and what's on their mind.
And then really switch switch back into execution. So we put a strong Q4 to deliver and we need to make sure we're effectively putting all of our resources in the right way.
To execute on that.
Home delivery, but also to continue to support our customers through what is a challenging but encouraging.
Environment right now.
We need to double down on the aftermarket.
Sure opportunities as I mentioned in my remarks.
Extremely happy with the progress we've made in construction equipment.
And we are seeing very early signs of.
Some of those initial.
Initiatives really starting to take hold in the mining sector as well so it's not just strong mining.
Typically that's driving that is it.
A new focus on a new approach there.
And then maintaining the mid cycle operating model cost and capital discipline.
We hope we are very pleased with our performance and our results it would be easy to get carried away with that.
It's still for our employees at times to manage through this challenging environment, we should all be happy with the activity levels.
Find ways to manage through that without with Bosch, maintaining that cost and capital discipline through the cycle. So and then finally of course for that.
<unk> breaks free cash flow generation, so very important that we.
We sell through this inventory in the appropriate way toluene, and we generate that free cash flow as we move through the end of this year and Internet Chi.
Yeah. So we're really pleased I mean, obviously the first datacenter is always an important one and it's where the customer dealt with for a long time with a great relationship. So we're pleased and then they it is their first as well, but they're looking at multiple phases. So theres been some small scale datacenter business. The team's work done but this is kind of stepping into.
But we're really encouraged and pleased to win that sort of business.
Delivered over 70 projects over the last few years, where gigawatts of capacity.
And is there opportunity in Canada to be doing the same thing now.
But there definitely is activity.
Kind of bigger telecom companies.
It wouldnt be as high a percent, obviously as the U K or the potential in Chile.
Thank you.
Thanks Jacob.
The next question comes from Michael <unk> with Scotiabank.
Please go ahead.
Obviously price increases have been more double digits.
This year so.
Obviously, it's a really supportive market right now.
Touching loyalty incentives our allies is a case for that as well.
A little bit of color there for a better understanding.
And as Kevin highlighted we're using some contractors in places where we would've previously added full time employees that would be an example of.
Trying to manage the cycle more proactively.
But across the across the business, we're constantly looking for ways that we can variable lives more costs I think we've been fairly successful in that that includes some of the compensation incentives.
To add capacity and so in that model in theory, you would want to have triple shifts at the peak of the market and single shift at the bottom as an example.
And so we're really trying to put that in place. So that we can be more variable through the cycle and at.
That's great.
The macro situation in Canada versus the U K Chile.
Yeah, So from a Canada perspective, I mean, it's pretty broad based I mean, you've got two large scale pipelines are headed down the homestretch, you've got a lot of infrastructure projects that were sanctioned at the beginning of Covid that are.
Partially the way through and then just given how well commodities are performing each of the governments are kind of in a surprise surplus position with elections coming up in the next couple of years. So we're looking at another set of infrastructure. So it's it's pretty broad based.
Including more oilfield service activity, which brings in construction for a component as well so.
And are you finding the other construction customers or maybe in other regions are going more to maybe product support or they're taking a bit of a pause just kind of.
In Chile, and there's no doubt, we're seeing a slowdown in construction activity that given inflation.
Devaluing currency so.
In the U K, we've done a lot of work on this you know we use the UK as a kind.
Business into what's happening in.
In Europe , I would say that in the second quarter.
Environment order intake has been better in Q3 than it was in Q2 in the U K. So we saw some decisions being shifted slightly in the year typically orders will be placed in the first two quarters and the UK.
But I'm relatively inquiries with the order intake during Q3.
I'm personally involved in some of the conversations.
There is a still a tight supply environment, which customers have been very mindful of on a high inflationary environment so equipment.
And next year, we'll will cost more than equipment. This year. So customers are thinking about that as they manage through this bear that supply decisions.
Welcome to that their own clients. So that so you know it.
I think theres some encouragement there, but the process will take sometimes called to play out.
It's still a solid activity levels and good order intake, but for some of the bigger.
QB two is ramping up the first production.
We're getting ready, we're continuing to deliver units to codelco and getting ready for BHP. So we're pretty busy.
In our customer conversations reinforce the long term outlook for copper in Chile is still very robust.
Thanks, Good morning, I wanted to come back to one of your one of the earlier questions from Yuri but.
Just trying to see if you can give us or help us understand.
Where you saw the most outperformance in Q3 versus your.
Prior guidance.
Everyone on the call here appreciates that.
Yeah sure. So I mean, it was a solid quarter.
Demand in each region was higher than we thought.
We thought there might be a little bit of softening given that and then it's all three regions at the same time and some of the upsides.
Keep costs slow and reinvest to compound and.
All of that came together in the quarter I would say, there's probably a little bit of FX help uniquely in each region a little bit. So you get all those things together it.
Yeah. Okay. Thanks, that's good color okay.
Look it's a bit of a first class problem here, but is the range to low or should we expect ROIC theaters.
Again, driving product support keeping costs.
Well in check.
We continue to see that look positive and we could still see room for improvement I would say that that the lever that really devin is around.
The bulk of our Pos is shifting from Miami down to south.
South America, and Theres been some specific challenges, which Greg mentioned have improved in Q2, which helped.
But we still think there's a crowded and noisy tunes.
Some of that is related to the fact that we we inventory, though as sports iqos to Miss some of it is just a unique challenges around the geography, which need.
Imply chain capabilities working on that which they all.
And nothing was surprised that so I would say it certainly isn't peak from my from my perspective.
Got it okay. So just before I turn it over just wanted to say good luck to both Scott and yourself, Kevin on the new roles.
Thanks for that David.
The next question comes from Brian <unk> with Raymond James.
Yes.
Just on product support obviously, we were seeing continued strength here could you provide some color maybe on rebuilds and how that has trended of late.
Are you seeing a shift in how customers view rebuilds.
Particularly in South America.
Yeah. So.
For sure.
We've had a completely different approach to rebuilds in the last two years.
Coming out of the pandemic.
The product support, especially across all three regions.
We've already surpassed the annual rebuilds.
Telephone four for last year, which was up considerably on a year before.
I think the economics, and we've repositioned the economics around rebuilds to be more compelling.
We've increased the capacity of it to that Aramco capacity.
<unk> customers to look at them differently, and then nishu alkali that the tight supply chain environment.
So that's also been a tailwind I guess in terms of driving rebuilds, we've certainly seen that in South America, particularly from an equipment perspective in South America less so from a mining rebuild perspective, you know the margin rebuild.
<unk> is different in Canada than it is in South America.
But we do see a lot of ancillary product rebuilds in South America, but less less all around.
The <unk> casino to the general <unk>.
The deliveries of mining equivalents in South America, some of that relates to.
That visibility to the pace of the.
Of the energy transition so electrification is.
And nice to see SG&A trending below.
17% of revenue could you just talk a bit about the warehouse consolidation in Western Canada and are we now seeing the full benefits and results.
Oh.
We're not seeing the warehouse consolidation is as transformational.
And the direction of travel.
Goal is as compelling which suggests that we always knew this was going to be difficult as we.
Consolidated five warehouses and in Edmonton into the wall.
That is going well I would suggest it's a quarter or maybe two behind where we thought we would like it to be but we've seen we've seen gradual improvements.
So as the Soma.
First of all here. So we're confident we're on the right track, but more to do so I wouldn't suggest for a minute we're seeing the full benefits of that right now.
In fact, we're still seeing some some pressures.
In that space, but like I say, we have to just keep looking at the continued improvements in customers and employees told me that they're seeing improvements and we're all in it together in terms of delivery in this transformation, which will be a huge for Canada.
Okay I appreciate the color that's it for me.
Once again any analysts to ask a question press Star then one on your telephone keypad.
The next question comes from Maxim <unk> with National Bank financial.
Please go ahead.
Hi, good morning.
Scott, Obviously, you all the best and Kevin Welcome.
Quick question in terms of if it would be possible to quantify the construction headwind.
Any color there.
Yeah, It's a situation where you know the machine utilization hours are still very high some of the order intake is Scott alright, Kevin just went through.
Yeah, it's a bit of a different seasonal pattern, but you know there is still a good cadence of order intake. So.
I wouldn't say, we could give a percentage of how much of it would be but ultimately I think you wouldn't see as much growth in the new equipment side next year, but probably in a position with the backlog and then mining where that's more than made up for it in the mining space and just be mindful Max that we are.
There's been some really heavy deliveries in <unk> two in the U K.
It won't repeat but the.
If I look at the top five.
That order intake or their aspirin or that you.
The margin profile is not dissimilar to what it was this year.
Okay. That's.
That's helpful. Thank you and then in terms of I had a question in terms of the pricing dynamic I mean, you said that you still push through kind of mid year increases.
Curious, if there's any pushback from clients, especially as.
Yen depreciated.
I think we had a really thoughtful approach to price increases and.
Around us and we were we moved quickly.
Inflation on other aspects of our business.
I would say that.
To a large extent customers have been understanding of that.
We've seen similar moves from a competitive perspective in the marketplace I Wouldnt suggest that we've seen.
Steve approach because of that.
Evaluation of tool.
I think that we're still in a very inflationary environment across all of our markets.
Markets and people appreciate that and as long as you do it transparently and responsibly.
I mean, we obviously every conversation Mark sends me is okay. So except prices are increasing but how do we become more efficient how do we get more bang for our book.
And that's where we focus our teams on.
Mike price might go from 100 to 110.
He spend less and that's super critical for long term success of all of our customers.
Right. Okay, and then one last question just in terms of kind of thinking a bit more about the midterm.
Directionality, I mean like what needs to happen, obviously I think investors are pleased with $3 EPS kind of on an LTM basis like do you mind, maybe discussing all of the puts and takes to kind of push it to the next level, where we can still happen from like maybe a revenue perspective macro just just maybe some thoughts on this front. Thank you.
Yes.
New orders for within this last quarter, where for the second half of next year. So we're pleased with that dynamic.
There will be mid year price increases that are for the full year next year.
And as long as we had continue to have strong momentum in terms of commodity prices and customers with them.
<unk>.
With increasing capital budgets, we think we continue to you know.
To add momentum we're pleased over the last four quarters to get above $3 level and we think we will continue to add to that is as the market stays supportive.
Yes, Mike So I would just add to that.
We see them all he expanding as we move into the energy transition and caterpillar I've spoken to that as well.
And as you transition, whether it be new equipment or power generation.
But most importantly, we have market share opportunities across so many aspects of our business that we are we're continuing to pursue and have very focused strategies around pursuing that whether that be in.
New equipment population.
In the aftermarket space.
And you know we all seen this trend in this greater uptake taking rebuilds, particularly in the construction space. So we expect that to continue as we move forward. So.
We're certainly committed to.
Our product support strategy and the growth trajectory that we've had.
Previously highlighted and we see that continuing.
I mean mid cycle cost and capital discipline.
For our employees, it's tough right now.
But we're working hard with them to do it to.
People in all of our resources to make sure we.
We deliver for our customers.
But we build a sustainable business model, because nobody wants and what he wants to talk about the tariff cycle. The trough would come later I am pleased that that's the case.
Alright, Okay. That's super helpful. Thank you so much.
Thanks Max.
This concludes the question answer session I would like to turn the conference back over to Matt to Hudson for any closing remarks.
That concludes our call. Thank you for your participation and have a safe day.
This concludes the conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
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