Finning International Inc

TSX:FTT

Q3-2025 Earnings Call

[Operator]

Thank you for standing by. This is a conference operator. Welcome to the Finning International Inc. Third Quarter 2025 Investor Call and Webcast. [Operator Instructions]

The conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to David Primrose, Executive Vice President and Chief Financial Officer. Please go ahead.

[David F. Primrose, executive]

Thank you, operator. Good morning, everyone, and welcome to Finning's third quarter earnings call. Joining me on today's call is Kevin Parkes, our President and CEO. Following our remarks, we will open the line to questions. This call is being webcast on the Investor Relations section of finning.com. We have also provided a set of slides on our website that we will reference and an audio file of this call and the accompanying slides will be archived.

Before I turn it over to Kevin, I want to remind everyone that some of the statements provided during this call are forward-looking. Please refer to Slides 9 and 10 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. In addition, unless otherwise noted, this presentation reflects the results of continuing operations only. Kevin, over to you.

[Kevin Parkes, executive]

Thank you, Dave, and good morning, everyone. Thank you for joining us today. We are really pleased with another strong quarter of results made possible by the relentless focus of our team. We are encouraged by the evolution of our business over the last few years, which, along with the diversity and positive shifts in our end markets have significantly improved product support growth and the resilience of our business. This, in turn, has driven expansion and reliability of our earnings capacity for the long term.

While we continue to comment on our quarterly results, we operate our business with the long term in mind. So my remarks today will generally take a longer-term perspective. As we've previously mentioned several times, they can often be quarter-to-quarter fluctuations across our operations, and we believe it is important to consider the long-term evolution of our business.

Starting on Slide 2. I'll highlight the execution of our strategy with a perspective spanning several quarters instead of just one. I'll then turn it over to Dave, who will provide details on the results in the quarter consistent with our past calls.

The strong momentum we have delivered continues with revenues for the last 12 months up 7%. Importantly, our product support revenue continued its steady growth trajectory up to $5.8 billion over the last 12 months with growth across all regions.

In Canada, product support revenues were up 7% on a trailing 12-month basis led by mining. In South America, product support revenues were up 6% in functional currency on a 12-month rolling basis, also led by strong mining activity levels.

In the U.K. and Ireland, despite more challenging market conditions, product support revenues were up 2% in functional currency on a trailing 12-month basis on steady power segment activity.

Maximizing product support remains our key value driver and our focus across our company. We also continue to improve our cost and capital efficiency with SG&A margin of 15% on a trailing 12-month basis and our invested capital turns remained in line with the last quarter at 2.3x.

These metrics are a result of the execution of numerous initiatives across the company over the last several quarters, such as previously announced restructuring activities that are enabling additional operating leverage and improve our earnings capacity for the long term. We continue to challenge ourselves to be more and more resilient over time, while at the same time, continuing to invest in growing our business, improving customer experience and driving loyalty.

From a sustainable growth perspective, we continue to see strong growth in our Power Systems business. Our trailing 12-month revenue from Power Systems was up 5% compared to the same period last year, with a 7% increase in product support revenue driven by solid activity levels in all regions.

Our Power Systems backlog at the end of September remained robust at nearly $1 billion, up 23% from September 2024. This reflects a diverse mix of prime power packages, oil and gas-related equipment orders and data center stand-wide packages to be delivered through 2027. Power Systems deliveries during Q3 2025, nearly doubled from Q3 2024, higher across all regions as we continue to build equipment population in our territories.

In Canada, we continue to see healthy demand in gas compression and oil and gas segments with a long-term potential for data center development in Alberta. In South America, Power Systems activities are steady, supported by data center growth in Chile and oil and gas activity in Argentina. And in the U.K. and Ireland, our Power Systems continues to be a strong revenue contributor amidst a slower construction market with higher activity levels in data center applications and industrial and marine applications.

In the near term, we expect steady and dynamic growth in mining activity levels in South America and Canada. We're excited about a very constructive long-term outlook for mining driven by the demand for minerals. We're encouraged by the growing number of medium-term mine expansion opportunities. And as I previously said, every mine plant is unique, and we do not control the near-term dynamics and timing of decisions and remain committed to partnering and working closely with our customers to meet their goals.

Turning to construction. In Canada, we are seeing some signs of improvement in construction and certainly an encouraging narrative from the new government. In the U.K. and Ireland, the angle of construction remains subdued, and we are seeing some green shoots in quoting activity.

As I said previously, our business does not follow a straight line quarter-to-quarter, and we will continue to focus on the aspects of our business that are in our control, delivering value for our customers and operating with a sustainable growth mindset and greater resilience over time.

And with that, I will hand it back to Dave, who will provide more detail on our results in the quarter as well as provide more color on the medium to long-term outlook. Over to you, Dave.

[David F. Primrose, executive]

Thank you, Kevin. I'll now turn to Slide 3. Our Q3 revenue of $2.8 billion was up 14% compared to Q3 2024, higher across all regions. In aggregate, all lines of business were also higher. Q3 EBIT of $240 million was up 25% from Q3 '24 adjusted EBIT, reflecting strong revenue growth and cost control.

EPS of $1.17 was up 33% from Q3 '24 adjusted EPS, driven by higher earnings and the benefit of share repurchases.

Our balance sheet remained healthy and our working capital velocity continued to improve from last year. We saw our invested capital turns reached 2.31x, and we maintained our working capital to sales ratio of 26.4% in line with last quarter with an improvement from Q3 '24 of 260 basis points.

Consolidated adjusted return on invested capital improved 130 basis points from Q3 '24 to 19.3%, primarily driven by higher invested capital turns. Net debt to adjusted EBITDA remained within our target range at 1.7x. Our Q3 free cash flow usage of $56 million reflected higher inventory to support increased activity levels.

We are pleased with another quarter of diligent and consistent execution on all 3 of our strategic pillars marked by steady product support growth, resilient cost discipline and capital management as well as solid results in used rental and power.

On Slide 4, we show changes in our revenue by line of business compared to Q3 '24 and the composition of our equipment backlog by market sector. New equipment sales were up 12%, higher across all regions led by mining and power systems in South America. Used equipment sales were up 122%, driven by sales of rental equipment with purchase options in the mining sector in Canada and the sale of a large package of mining trucks in South America.

Product support revenue was up 9%, driven by strong mining activity in both Canada and South America. Our equipment backlog remained robust at $2.9 billion at the end of September, up 26% from September '24 and down just 5% from June '25 due to equipment delivery slightly outpacing order intake.

Given that we delivered a quarterly record of over $1 billion in new equipment, our current backlog continues to provide confidence for our business in terms of activity levels and future product support opportunities. Order intake was particularly strong in Canada this quarter, up 140% from Q3 '24, driven by all market segments. We secured multiple large orders for key mining customers as well as in the power systems sector related to gas compression.

Turning to our EBIT performance on Slide 5. Gross profit margin was down 170 basis points, primarily driven by lower product support margins and a higher proportion of used equipment in the revenue mix. SG&A margin was down 290 basis points to 13.4%, reflecting strong cost control and savings from previously announced restructuring initiatives, along with operating leverage on higher revenues.

Looking ahead, we will continue to seek opportunities to further improve efficiency, reduce overheads and build more resilience into our operating model to drive higher earnings capacity. Q3 EBIT margin was 9.7% in South America, 8.7% in Canada and 6.5% in the U.K. and Ireland.

Moving to our South American results and outlook, which are summarized on Slide 6. In functional currency, new equipment sales were up 23% from Q3 '24 driven by mining and included multiple data center project deliveries in Chile, partly offset by slower construction activities. Used equipment sales were up 267%, driven by the sale of a large package of mining equipment in Chile, which we do not expect to repeat.

Product support revenue was up 5%, driven by strong demand from mining customers in Chile. EBIT margin was down 120 basis points from Q3 '24 adjusted EBIT margin, reflecting lower product support margins and a higher proportion of lower margin used mining equipment sales. SG&A was down 2%, reflecting strong cost control.

In Chile, our outlook for the longer term remains positive, underpinned by growing global demand for copper, strong copper prices and customer confidence to invest in brownfield and greenfield projects. We are seeing a broad-based level of quoting, tender and award activity for mining equipment, product support and technology solutions. While activity levels and outlook are positive, we continue to expect some challenges in the labor environment as the demand for skilled labor remains high.

In the Chilean construction sector, we continue to see healthy demand from large contractors supporting mining operations, and we expect infrastructure construction activity to remain steady. In the Power Systems sector, activity remains strong in the industrial and data center markets.

In Argentina, we continue to take a low-risk approach and closely monitor the government's new rules and policies. At the same time, we are positioning our business to capture opportunities, particularly in the oil and gas and mining sectors. The recent midterm election results and reduction of currency controls as an element of optimism for improving activity levels.

Now turning to Canada on Slide 7. New equipment sales were up slightly relative to Q3 '24 with strong activity in Power Systems, primarily oil and gas related, offset by timing of mining deliveries. Used equipment sales were up 105% driven by the conversion of mining equipment with rental purchase options.

Product support revenue was up 13%, driven by strong demand from mining customers. EBIT margin was up 180 basis points from Q3 '24 adjusted EBIT margin, primarily driven by lower SG&A margin. Adjusted return on invested capital improved 170 basis points year-over-year, driven by higher invested capital turns as we focused on working capital velocity through operational improvements.

Our outlook for Western Canada is mixed but improving. We are encouraged by recent announcements regarding the potential to accelerate resource development and infrastructure project activity but we remain cautious with respect to the exact timing and magnitude. Construction sector activity in general is moderate.

We expect steady activity levels in our mining business as customers renew, maintain and rebuild aging fleet. In the Power Systems sector, activity remains steady in the oil and gas market with longer-term potential in the data center market. And finally, we remain focused on managing costs and working capital levels.

Please turn to Slide 8 for our results in the U.K. and Ireland. In functional currency, new equipment sales were up 11% compared to Q3 '24, mainly driven by higher construction sales. Product support revenue was down 3% due to lower machine utilization and construction, offset by steady power systems activity in electric power and marine markets. EBIT margin was up 20 basis points from Q3 '24 adjusted EBIT margin, primarily driven by higher new equipment margins and strong cost control.

Adjusted return on invested capital improved 870 basis points year-over-year driven by the optimization of pension assets as part of our invested capital reduction initiatives outlined during our 2023 Investor Day, coupled with higher trailing 12 months adjusted EBIT margin.

In terms of outlook, we expect demand for new construction equipment in the U.K. and Ireland to remain soft, in line with lower projected GDP growth. We continue to expect a growing contribution from Power Systems, driven by our strategic execution and healthy demand for both primary and backup power generation, particularly in the data center market. Our product support business is expected to remain stable.

Before turning it back to Kevin, I would like to provide a quick update on our union negotiations and capital expenditures. We are very pleased to report the conclusion of negotiations with several of our labor unions. These successful negotiations derisk our near-term operations and allow us to continue to focus on growing product support revenues and hiring technicians to meet customer demand.

From a capital expenditure perspective, we expect to see the impact of these negotiations reflected in Q4 2025. We will also continue to invest strategically in our core dealership to support future sustainable growth opportunities.

I'll now turn it back to Kevin for some closing remarks.

[Kevin Parkes, executive]

Thank you, Dave. We are really pleased with the continued execution by our teams in all regions, and we continue to build a more resilient and sustainable business that can produce strong returns over the long term.

Our equipment backlog has now been sustained above $2 billion since the end of 2021, a testament to our strong sales performance and a positive signal for future product support opportunities. We have also generated strong returns with an adjusted ROIC within our target range of 18% to 25% since 2022 in all quarters but 1.

In addition, to put this quarter's earnings in perspective, the $1.17 EPS is more than our adjusted earnings per share for all of 2020 or is more than half of our full year 2021 adjusted earnings per share. This clearly demonstrates the transformed earnings capacity of our business.

We remain very confident and committed to growing our business through 2026 by executing our strategy of maximizing product support, driving full cycle resilience, a sustainably growing population in our end markets by building our used equipment, rental and power capabilities.

We are excited by Caterpillar's Investor Day last week, especially the strong focus on growth and the competitive advantage of the dealer network. We are enthused by the growth opportunities in our regions in power, energy, mining and construction.

I'd like to thank everybody for joining the call today. And with that, operator, I'll turn it back to you for questions.

[Operator]

[Operator Instructions]

Today's first question comes from Sabahat Khan with RBC.

[Sabahat Khan, analyst]

I appreciate the color on the outlook. Just wanted to see if you can directionally share some thoughts on some of the larger puts and takes as we head into 2026. Obviously, knowing you guys don't provide guidance, but just there's a lot of moving pieces across oil and gas, construction outlook in Canada, the mining cycle. Can you just give us some big picture parameters or directional puts and takes as we think about how sort of we follow a strong earnings growth here in '25?

[Kevin Parkes, executive]

Yes. Thanks, Sabahat. Yes. I don't think it remains consistent with a lot of the messages that we've given for the last few quarters here. We're really constructive on the long-term trends for our business, particularly around oil and gas and mineral growth. So the way we think about our business is mine the minerals and the oil and gas. We will play a big part in building the infrastructure. And obviously, the emerging and incremental side of our business is providing even more power resiliency as not just to data centers, but to prime power also.

So super constructive on the long-term trends. As a business, we talk about this a lot. And I would say that our medium-term encouragement continues to grow. So if I think about another couple of years, if I think about our backlog being sustained for a number of years now.

Power backlog is being sustained at $1 billion, whilst we're still delivering a good amount of projects in any given quarter. We've been delivering a truck a week roughly in Canada and South America, one truck each a week. So that gives us a lot of optimism in that kind of medium-term area.

And we are seeing some encouragement, I would say, in construction. Chile is well. Obviously, interest rates dropping in Argentina and a good election result for the current administration, should help us there with construction activity. And really pleased kind of the construction backlog is up 70% year-over-year and 30% sequentially, which says that we're entering into this kind of ordering for next year.

So in U.K. and Canada, we do have these ordering and selling cycles, right? So if I think about U.K. backlog is up 10% versus this time last year in Canada, it's up 70% versus this time last year. And so that gives us a lot of optimism for the flow-through of that product into the construction season in those 2 countries as we look forward.

You mentioned puts and takes Sabahat, I don't think there's a lot of talk. I think ultimately, our -- when we're producing strong results like we are, it is challenging. There's a lot of work goes on from the teams. That's why I'm always quick to thank them and congratulate them on these calls. And every day, it can be challenging. There's a lot of dynamics at play. A lot of cost and capital discipline with customers across all segments.

We don't control the spend decisions of our customers, but we're very committed to staying close to them so we can support them when they do. But if you think about delayed permits, delayed contract awards or and execution challenges, which can be labor, supply, there's a lot of play on a day-to-day basis. And so we're committed to executing well here and now. But we have alternative encouragement for the medium term, and I would say, super constructive on the long term.

[Sabahat Khan, analyst]

I appreciate the color. And maybe if I could dig a little bit into the Power Systems side. And I think you guys have been talking about Power Systems in the U.K. and Ireland region for probably 5-plus years now. But I think this quarter, there's a -- feels like a bit of a notable focus on that market across all 3 regions. Can you maybe just talk about the U.K. and Ireland seems like it's been doing well on the Power Systems side. Maybe just talk about the emerging opportunities in Canada and in Chile as it relates to Power Systems and the runway ahead there.

[Kevin Parkes, executive]

I think you nailed it, Saba. I think that we've been building Power Systems, our Power Systems business for a number of years, which in the U.K. is primarily electric power generation, and the majority of it is to support data center growth over the last 10 years, and we've developed a really precise capability, which we're now exporting to the other 2 regions. But I would describe the U.K. market as quite mature.

We're exporting that capability. I would say that Chile is developing. And if you think about our South American business, Saba, and you think about the opportunity for data center builds where in a region which has largely been considered mining in the past, it's really -- we're really optimistic and encouraged by that.

And I would describe Canada as emerging as it relates to electric power generation with lots of opportunities for data center builds in the future. But if you think about the -- it's not just about electric power generation. In fact, Caterpillar last week have renamed the segment Power and Energy.

So I'd urge you to think about LNG development, particularly in Canada, but also in Argentina. So if you look at the power backlog year-over-year in Canada, it's up 170% and the majority of that, if not all of that, relates to gas compression and oil and gas development, which is super encouraging for 2 reasons. One, it means we still got more to go at in the emerging data center piece, but also that oil and gas power generation is used 24/7. So the product support opportunities are plentiful. So -- and we're also looking at -- the third element is the power reliability. So whether it's providing backup power or supplementary power to remote communities in all of our regions or backup power or resilience to major infrastructure like airports, that's also a growing part of our business. So we're very encouraged about all aspects of that business.

[Operator]

And our next question comes from Cherilyn Radbourne with TD Cowen.

[Cherilyn Radbourne, analyst]

I also wanted to touch on the data center opportunity. And just ask to what extent Finning is providing backup power versus perhaps prime power increasingly? And can you comment on the relative product support opportunity for one versus the other? And is the lag time similar for the product support annuity to ramp up as it is when you deliver a new machine? Or is it a bit faster for those engines?

[Kevin Parkes, executive]

Okay. Yes. Thank you, Cherilyn. It's different by market, as I just mentioned. Almost all of the power generation in the U.K. business, not all of it, but almost all of it is for data centers. Like I said, in Canada, it's almost all conventional oil and gas with some power generation, more like 80-20, and then in Chile, it's almost all data centers in Chile, but almost all oil and gas in Argentina.

So different in each area and the development of those businesses are at different levels of maturity. Caterpillar had their Investor Day likely, they've got a really good section on this, and they have a slide in there that estimates that the difference between the 24/7 application and the backlog generator is 40x, if I remember correctly, around 40x incremental product support. And so we're blessed to have that mix of power and energy opportunities amongst our regions. And so yes, it works out differently.

In terms of the lag, in terms of 24/7, it would be very similar to a mining truck in terms of the -- how that product support opportunity develops over time. And so you should think about it the same way.

[David F. Primrose, executive]

One thing I'll just add there. Most of the data center to date has been back up, but they're very sophisticated customers with very sophisticated testing requirements, and we often equate one of those gen sets to like a medium-sized wheel loader as far as the product support opportunity goes. So there certainly is opportunity there because of the sophistication.

[Cherilyn Radbourne, analyst]

Okay. That's helpful. And then on the improving backdrop in Argentina, I was hoping for a bit more color on the conversations you're having with mining companies that have potential projects in the country and just the timing of when you think we could see some positive investment decisions.

[Kevin Parkes, executive]

Yes, sure. So I was actually there 6 weeks ago in the San Juan region with the mining team from Chile. I'm actually sitting in Chile today. We have our Board down here this week. And yes, I visited the San Juan region. I visited our capabilities and our rebuild facilities out there. And I also had the opportunity to meet with Vicuna and went to their offices. They have an office complex in the city.

And so great discussion there and lots of optimism. And of course, that I was there, I think it was a week or 10 days before the midterm elections, which went, I guess, favorably for this initiative or this opportunity. And so I would say that there was a ton of optimism when I was there anyway, and I think that will have been helped by the midterm election results.

In terms of timing, we believe that we'll start to see enablement works probably in the middle of next year. So I would expect investment decisions on enablement pretty soon. But obviously, the actual mine development is going to take a number of years. I would say that we have seen encouragement as well the miners in the region. And one thing to look at is how they're applying for the stabilization [indiscernible] scheme, which is available in the region. So you can look at who's applied for that and how far they are down the track in terms of their investment decisions. But I would also say that the general mining activity that is already existing in Argentina is very healthy and is buoyed by the recent political environment.

[Operator]

And our next question comes from Yuri Lynk to Canaccord.

[Yuri Lynk, analyst]

I'll switch back to some power systems questions here. Maybe just on the -- it's about $1 billion backlog, can you give us a flavor for how much of that is data center specific?

[Kevin Parkes, executive]

Yes. As I mentioned previously, Yuri, if I look at the Power backlog across the 3 regions, overall, Power Systems backlog is 23% year-over-year, down slightly quarter-over-quarter because of some good deliveries in the U.K. and Chile. But if you look at it in terms of the overall backlog, most of the backlog in Canada relates to oil and gas development.

In the U.K., all of the backlog, almost all of it will relate to data centers. And I would say about half of that $1 billion backlog roughly is in the U.K., 1/3 of it is in Canada and about 10%, 15% is in South America. So I would say that, like I said, in Canada, almost all of it is oil and gas in South America. It's almost -- it's a mixture, I would say, 50-50 of data centers and oil and gas in Argentina. And in the U.K., it's almost all data center.

[Yuri Lynk, analyst]

Okay. I can get to the number with that. When we think about Ireland, there's been some reports of electricity shortfalls causing some delays on new data center development. Does that present a threat to the business and there's less data, potentially less data centers? Or is it an opportunity to come in with prime power solutions?

[Kevin Parkes, executive]

Yes. Like I said, we described the business, Yuri, I would say, obviously, we're very in the long-term constructive on data centers everywhere. In the medium term, there is -- the backlog build is encouraging. In the near term, there's all sorts of dynamics at play, such as the ones that you've just mentioned. And the team are working hard to work with customers to do that. I don't think it changes the medium-term encouragement or the long-term trend.

I think many -- whether it's energy requirement or space or where these things are built, how big they are with the new computing requirements. There's a lot of questions and calibration going on in this space, and you saw some of that in the market at the end of last week. For me, it's a near-term dynamic that will get figured out, and it doesn't change the medium and long-term trends.

[Yuri Lynk, analyst]

Okay. Last quick one maybe for Dave. Just on the free cash flow outlook for 2025. Should we expect the normal seasonal cash generation out of working capital in the fourth quarter? Anything special to call out there as we think about the full year free cash flow?

[David F. Primrose, executive]

Yes, we do feel Q4 is an inflection point. And we are expecting that strong finish. So we are very focused on that. Most of the build has been supporting increased activity, but we feel like we've got most of that in place. Like I say. We do feel it's -- we're in that inflection point now.

[Operator]

And our next question comes from Devin Dodge of BMO Capital Markets.

[Devin Dodge, analyst]

So very good SG&A costs in the quarter. This has been a big focus. So congrats on the continued progress there. Just operating leverage was one of the drivers, but do you see the SG&A performance in Q3 as being sustainable? Or were there other factors that helped in the quarter that may not or may be more transient?

[Kevin Parkes, executive]

Short answer is yes, Devin, it's absolutely sustainable. I think we have more opportunities in Canada to find even more efficiencies. Tim has been in place for 9 months, 10 months now. I'm not going to suggest how far we are through the plan and the execution there, but I will say that there's more to do. And so I would say there's opportunity remains in Canada.

Equally, we know we have some cost in the business in South America that as a result of the rapid growth and some of the operational execution challenges of operating in a difficult environment in a very difficult part of the world. So we believe as the business settles down and the team continue to improve, particularly in areas like supply chain, there'll be opportunities to improve in that area.

One of the things we have the Board here this week, one of the things they'll see is our warehouses to Friday, the warehouses in Antofagasta, they'll see the investment in AutoStore, which you saw on a plan when you traveled with us a few years ago. And we're taking that to the big warehouse, that big new warehouse in Edmonton as well before the end of the year. So there's those sort of things we're working on. I would say that we're very focused on investing in the growth opportunities. And so not all of that continues to come out of the business. So I don't know whether there's another step down there or whether it's sustain and reinvest in the right areas.

[David F. Primrose, executive]

What I would just add there, Devin, is it's really probably 3 things. I mean, the very strong cost control across all the regions, the benefit of the actions that have been taken over the last really couple of years. And then the other one, in the quarter, we did have a very strong new and used equipment, which is a very low SG&A business. So that helped us as well. But like Kevin said, we believe there's more, and we're going to keep building that resiliency in the business.

[Devin Dodge, analyst]

Okay. Makes sense. And then second question product support gross margins for flight as being lower year-over-year in Canada and in South America. Just trying to get a sense if you feel that is largely due to mix? Or were there some inefficiencies in the operations just due to the strong growth in that line of business?

[Kevin Parkes, executive]

I wouldn't -- I mean, I would say it's a mix of those things. There's definitely a mix shift towards large mining is obviously a very competitive area of our business. So there is some mix in there. But I would say that markets are very dynamic. And so as our commercial approach. We want to grow our business. We're very focused on long-term population growth and then executing on those product support opportunities.

So we've been very dynamic, shall we say, in our approach there. And I think you can see that's working. To your previous question, we are looking at the ways that we offset that with cost and capital efficiencies and we have to make sure we have the inventory and the capabilities and the capacity to grow too. So the timing of the, I guess, proactive approach to growing product support and the offsets in terms of the efficiency within the business are not always in sync.

And I think that's what you're seeing, particularly in South America right now, but we're happy with the way the businesses are performing. ROIC and profitability is within the other 2 regions, but so is product support growth. So we think it's the right approach. It's working and we'll continue to be really proactive in terms of how we win product support business.

[Operator]

Next question comes from Maxim Sytchev with National Bank Capital Markets.

[Maxim Sytchev, analyst]

Kevin, you mentioned Caterpillar Investor Day. And I was wondering, there was a couple of discussions around the kind of the large corporate clients and how there is a closer relationship between the OEM and the dealer network. Do you mind maybe talking about the benefits of that sort of strengthening go-to-market strategy and how that could potentially benefit you guys?

[Kevin Parkes, executive]

Yes. I think the benefit comes from the strength of the combination. As they talked about, we believe Caterpillar are the best business partner, and they believe that the dealer network is a competitive advantage. So the combination of those two things, we think, is pretty compelling. Of course, you've got many customers that work across dealer territories.

So it makes sense for them to be more involved into have a stronger relationship with corporate accounts. But we do that in partnership, and we work together, and we provide local support and local expertise and capacity to support that -- the global perspective or overreach from Caterpillar. So we think the combination of the 2 is really important. And it's not just global customers. Some of our biggest customers here in Santiago, they want to speak to Caterpillar. They want Caterpillar at the table.

It's an important part of the partnership. And we consider the customers to be our customers, ours in terms of everybody's customers. And yes, we just think the combination of the two and ultimately, both of us being closer to the customer, the closer we can get there, we think that's a pretty compelling proposition.

[Maxim Sytchev, analyst]

Yes, absolutely. And then maybe just a quick one for David, if I may. Can you please quantify the impact of the upcoming union negotiations that typically shows up in the cash flow statement. Is -- can you provide any range that should be -- we should be one off?

[David F. Primrose, executive]

Yes. So we were very pleased first on the unions, we did, in the quarter, have a lot of success here. We settled with our U.K. and Ireland Union with our Alberta Northwest Territory Union and also with some unions here in South America, including the largest one in Chile. So it's the ones here in Chile that will show up in Q4. We are still no change in our guidance that we gave earlier this year, and we will provide an update early next year on the 2026 guidance.

[Operator]

And our next question today comes from Steve Hansen at Raymond James.

[Steven Hansen, analyst]

Look, outstanding performance in product support growth across the Board. In Canada specifically, Kevin, curious if it's really a step change in activity at your large customers? Or is it more incremental new customers? Or is it increased wallet share at the large customers? Just trying to get a sense for how things have shifted. Double-digit growth is -- feels like light years ahead of where we were 1.5 years ago. So just trying to understand the sort of the complexion of that change in growth.

[Kevin Parkes, executive]

Yes. I think, Steve, the way we think about it and the way I'd encourage you guys to think about it is population, utilization and penetration, okay? So if you think about the Canadian product support, we've been growing the population, specifically in the oil sands. We added, as I said previously, not quite, but nearly a truck a week for the last 2 years, and we see that trend continuing, and you can see it continuing because it's in our backlog. And so that population continues to grow.

The difference between this year and last year is that the utilization is higher, and you can see that through some of our major customers' public releases over the last couple of weeks in terms of their production figures. And we've also talked a couple of times around the extended haul distances, particularly in the oil sands, but the same can be said for ore grade decline in Chile as well. So utilization is increasing.

And then your last part of your question around market share. And I do think our penetration is improving. We are more proactive with our labor offerings. Tim has been very, very, very clear that he expects to win more labor in Canada, and he'll no longer tolerate just selling parts. And so what we're seeing there is an increase in scope of works as well. So for example, I was in -- I spent the day on the floor 10 days ago in Fort McMurray, really encouraged to see the activity levels in our major branch there in Fort McKay, but not only to see the activity levels, but to see the scope of work.

So in some cases, we would have done elements of a rebuild and other elements are either done by the customer or maybe they even have a third party for some of the -- for example, welding. Maybe we didn't do all the welding and I was super encouraged to see us doing the 100% scope of one of the truck rebuilds that are there. And so I think it's a mix of all those 3 things. There's just a bigger population. The utilization is heavier, and I think we're getting better at our jobs. So we're penetrating a lot more.

[David F. Primrose, executive]

And Steve, I'll just add. I think we've been consistent just that we are extremely focused on supporting our customers and quarter-to-quarter, it's not linear, but to the extent that we're always ready then to provide that support. So we're feeling good about that constructive long-term view. Again, as Kevin said, our population continues to grow. We've got very strong backlog of mining trucks for next year as well. And when that product support opportunity is there, we are ready.

[Steven Hansen, analyst]

That's great color, guys. I appreciate that. And just a quick follow-up is just around capital allocation. Stock obviously had a nice move here. Valuation you could argue is still discounted to some of your peers, et cetera. But how do you feel about the buyback continuing at sort of a ratable pace here on the back of the big move that we've seen?

[Kevin Parkes, executive]

I just want to make a comment, Steve, and then I'll turn it over to Dave. But ultimately, we believe capital allocation is dynamic but consistency is important too. And we still -- we're very happy with the rebates, I guess. The allocation has always been dynamic. So we've given -- we continue to give that ton of thought. So Dave, if you want to.

[David F. Primrose, executive]

Yes. I mean we always are reviewing this, very active. We look at a variety of factors, as you would expect, when assessing capital allocation of the near-term cash flow, our CapEx inventory to support increased customer levels, any potential M&A. But I think what is important there is what Kevin said, we also believe it's important to be consistent. And so while it's dynamic and we review it continuously, we are also very focused on being consistent, and we've been doing that through buybacks and dividends. And again, expect to be consistent that way.

[Operator]

And our next question comes from Jonathan Goldman at Scotiabank.

[Jonathan Goldman, analyst]

So if we think back to the targets at the original Investor Day, the product support growth, I think, about 7%. Obviously, those were pulled for the market dynamics and you're lapping some of those easy comps this year. But as we look at product support over the next 3 to 5 years, how are you thinking about your ability to grow above market rates, whether that's production or customer growth plans? And how are you thinking about the second part of this is, do you have sufficient capacity to capture that growth?

[Kevin Parkes, executive]

Yes. Sure. Thanks, Jonathan. I think as Dave just said, so we don't provide guidance on product support because we don't believe it's linear because of the dynamics we see at play on a near-term basis. So we urge everybody is talking about product support over the longer term versus quarter-by-quarter.

We have -- typically, we have but it's end of year, we have weather changes. We have near-term dynamics with mine planning or specific opportunities within our mine. So it's not a straight line performance. Again, if construction activity, particularly in Canada, we see the impact of the end of the construction season and the freeze and then we see the breakup in the summer.

So we -- the reason why we removed that guidance is because we were getting drawn into talking about quarter-by-quarter product support run rate. We're really focused on growing product support over the long term, and we're really happy with our last 12 months of product support run rate sort of 8% over the last 12 months. We see -- we're confident that we can continue to grow in the future, and we continue to build capacity to continue that growth.

So -- and as Dave said, we're talking to our customers, how we grow that. So for example, we are looking to put a night shift on in that Fort McKay facility that I mentioned a few minutes ago when I was up there 2 weeks ago. We haven't had a night shift in Fort McKay for some time. And so that's super encouraging to increase the capacity we have to our listing physical infrastructure.

Our OEM where we remanufacture all the engines, which many of you have been to. We've added 20% capacity over the last 12 months, and we'll add more this year as those components come into that change out. We know for the new trucks that we've added to. So we're not going to talk about quarter-by-quarter or even our newer product support rates and just save that sort of switch the wheel, we're confident that we can continue to grow, and we're not done yet. And again, our partner at Caterpillar is helping us to continue to grow. And it's a big focus of theirs too. And so we're confident for the future.

[Jonathan Goldman, analyst]

Okay. That makes sense. And I guess the second one, I guess, more near term and cognant that you don't provide guidance. But if we're thinking about SG&A next year, I mean, fantastic performance in the quarter. But with all the things and the initiatives you have going on and with your expectations for growth, can we expect SG&A to grow below the pace of inflation next year?

[Kevin Parkes, executive]

Yes. I mean we think there's enough efficiency in our business, and I mentioned some access in South America that can offset those growth initiatives, and that's our intention. And to -- I was asked the question a few minutes ago, do you think sustainable? The answer is yes.

And that's a mixture of further efficiencies and opportunities in the company, offset by rallying and getting behind the growth opportunities we have in the business. So we believe we're in a good moment, and we don't see -- we see that being sustained at the rate that we are today.

[Operator]

That concludes the question-and-answer session. I'd like to turn the conference back over to Mr. Primrose for any closing remarks.

[David F. Primrose, executive]

Thank you, operator, and that concludes our call for today. I want to thank everyone for your participation, and I hope you have a very safe day. Thank you.

[Operator]

Thank you. That brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.