Heavy equipment dealer Finning International Inc. has surprised investors by announcing its sales for next year will grow at only half the pace anticipated by analysts.
The disappointing guidance from the Vancouver-based company casts a shadow over expectations for the commodity sector. Finning is considered a bellwether because the excavators, dump trucks and bulldozers it sells are vital to mining companies, so its revenue moves in tandem with the fortunes of the resource industry.
Finning said Thursday its sales are on course to grow 26 per cent this year, but will expand only 5 per cent in 2012. Investors reacted by sending its stock price plunging 5.4 per cent on the Toronto Stock Exchange, its steepest decline in two-and-a-half months.
“The stock market doesn't like it when it's expecting 10 per cent top-line growth and management guides to 5 [per cent]” said Yuri Lynk, an analyst at Canaccord Genuity. “You can assume that that's not positive for [earnings per share]forecasts, which is what drives the stock price.”
Finning is the world's largest dealer of earthmoving equipment made by Caterpillar Inc. About half of the company's revenue comes from customers in Canada, particularly in the Alberta oil sands. It also supplies and repairs machinery for projects in South America, the U.K. and Ireland.
Despite the stock market reaction, the company remained upbeat about its prospects. “We are not seeing a slowdown in our business,” Mike Waites, Finning's president and chief executive officer, told investors and analysts at a presentation in Toronto. “But we are ready to move if we need to.”
The revenue forecast was far from being the first cloud across the global commodity industry this year. BHP Billiton Ltd., the world's biggest mining company, said in August that while it remained positive about the longer-term outlook for commodities demand, it saw “challenges” and “uncertainty” related to high levels of government debt, and slowing growth in China and India.
Some observers said that Finning's disappointing guidance underlines the risks that are growing around the natural resource sector.
“You've got good visibility into 2012,” Mr. Lynk said. “The problem is: Is there going to be further investment beyond the 2012 spend? Are companies going to feel confident to make another round of investments in this market? That's the question.”
Mauk Breukels, Finning's head of investor relations, said the company's business remains strong and the supply of machines remains “tight” relative to demand.
Finning can forecast sales several years ahead because of the long lead times required to deliver large mining equipment. Orders today for the biggest Caterpillar products sold by Finning won't be delivered until 2013.
The company said on Thursday that it has a sizable backlog and that it's confident in its projections for the next three years. It anticipates 10-per-cent growth in both 2013 and 2014.
“A lot of companies are noting that there are uncertainties out there, but they're still expecting growth,” said Stephen Boland, an analyst at Odlum Brown in Vancouver. He rates Finning shares “hold.”
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