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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Today is Friday, April 28, 2023. Welcome to the Toromont Industries Limited First Quarter 2023 Results Conference Call. Please be advised that this call is being recorded and all lines have been placed on mute to prevent any background noise.
Your host for today will be Mr. Michael McMillan, Executive Vice President and Chief Financial Officer. Please go ahead, Mr. McMillan.
Great, thank you, Michelle. Good morning, everyone. Thank you for joining us today to discuss Toromont’s results for the first quarter of 2023. Also on the call with me is Scott Medhurst, President and Chief Executive Officer. Scott and I will be referring to the presentation that is available on our website.
To start, I would like to refer our listeners to Slide 2, which contains our advisory regarding forward-looking information and statements. After our prepared remarks, we will be more than happy to answer questions.
Let’s get started. We can move to Slide 3, and Scott will kick us off.
Thank you, Mike, and good morning everyone. Last week, we announced that we have entered into an agreement for the sale of AgWest Limited, a wholly-owned subsidiary to Mechan International, part of the Zweegers Equipment Group, effective May 1, 2023. Netherlands Company has a long association with agricultural equipment, including the distribution of AGCO and CLAAS products worldwide.
Mechan will operate the business under the AgWest brand, retaining the current leadership team and employees. They will continue to operate out of AgWest three main and three satellite locations in Manitoba, representing the current portfolio of leading agricultural equipment brands, including CLAAS and AGCO products. Mechan’s global presence, deep agricultural knowledge and solid distribution reputation offer a strategic fit with AgWest people, customers, and suppliers.
AgWest has made great strides in operational excellence over the past number of years, all while dealing with a highly variable market dynamic. We wish Mechan and the entire AgWest team continued success.
Now turning to Page 4 of the package. We are pleased with the solid start to the year, buoyed in part by a solid opening order backlog. The equipment group executed well, delivering on several large customer orders, as well as growing rental and product support results.
CIMCO revenue improved in the quarter on project construction and higher product support activity. Across the organization, we remain committed to our operating disciplines, driving our after-market strategies and delivering customer solutions. During the first quarter, an excess property in Ontario within the equipment group was sold, resulting in a pre-tax gain of $3.5 million or $3.1 million after-tax, or approximately $0.04 per share.
Turning now to our financial results highlighted on Slide 5. Results for the first quarter of 2023 were solid, reflecting good equipment deliveries against the healthy opening backlog and good execution and operating leverage. Higher revenue in both the equipment group and CIMCO, lower relative expenses and higher interest income on cash balances, all contributed to higher net earnings.
Rental and product support revenue increased on good market activity, solid fleet utilization and technician headcount. Equipment revenue increased as the inflow of inventory supply continued to improve. Package sales demonstrated improvement as previously delayed construction schedules advanced. Supply chain constraints and general macroeconomic factors such as inflation, higher interest rates, and a weakened Canadian dollar continue to challenge the business as well as disrupt historical seasonality and are expected continue to do so for the near-term.
Backlog remains healthy, but down 21% year-over-year at $1.2 billion at the end of the first quarter with a decrease in the equipment group down 26% and an increase at CIMCO up 17%. Backlog is supportive and reflects progress on construction and delivery schedules as well as improvement in general equipment flow throughout the supply chain.
Bookings decreased 33% compared to the similar period last year. Equipment group bookings decreased against a tough comparable, which included several large orders last year. CIMCO bookings increased on solid demand for our products and services. On a consolidated basis, revenue increased 23% in the quarter in both groups with the equipment group up 24% and CIMCO up 17%.
Equipment and package sales increased 33% in the quarter on good deliveries on several large customer orders, improved inflow of inventory and the advancement on construction schedules. Product support and rental revenue increased 19% and 6% respectively in the quarter. Product support increased in stronger demand and technician availability with work in progress levels remaining high, while rental revenue increased on a larger fleet.
Operating income was up 48% in the quarter and was 12% of the revenue compared to 10% in the similar period last year, reflecting the higher revenue and lower relative expense ratio. Expense levels decreased 13% of revenue year-over-year, reflecting the higher revenue coupled with ongoing focus on expenses given the economic environment.
Net earnings increased 61% or $36.5 million in the quarter compared to last year. Basic earnings per share was a $1.17 in the quarter, a 63% increase, both reflecting revenue growth, expense management, and higher interest income with cash on hand and current interest rates.
As always, our team remains focused on executing customer deliverables while adhering to our operational model with a disciplined execution. We are mindful of the changing economic environment and continue to monitor key metrics and supply demand dynamics. While focused on managing discretionary spend, we continue to invest in the technologies and digital platforms and recruit technicians to support our critical after-market strategy and value-add product offerings over the long-term.
Mike, I’ll turn it over to you for some more detailed comments on the group results.
Thanks, Scott. Let’s start with the equipment group on Slide 6, revenue was up 24% in the quarter with higher activity across all revenue streams except used equipment sales. Taken together, new and used equipment sales were up 33% in the quarter. New equipment sales increased 48% in the quarter across all market segments and regions, predominantly reflecting the delivery of equipment against the solid opening order backlog, reflecting improved inventory supply and also customer delivery schedules.
Used equipment, sales decreased 10% in the quarter with lower sales of used equipment, partly offset by slightly higher fleet dispositions. In the quarter, total new and used equipment sales increased 3% in construction, 307% in mining, 26% in power systems, 42% in material handling and 42% in our agricultural market.
Rental revenue was up 6% in the quarter, reflecting higher market activity, strong execution and an expanded heavy and light equipment fleet. Growth was experienced in most areas for the quarter with the following increases. Light equipment rentals up 9%, heavy equipment up 32% and material handling up 21% dampened somewhat by decreases in RPO revenue down 38% and power rentals down 8%. The RPO fleet was at $43 million versus $50.1 million a year ago, reflecting slightly lower demand and continuing to trend below pre-pandemic levels. Product support revenue grew 20% in the quarter with increases in both parts of 22% and service up 14% across all markets and most regions.
Looking at specific markets for the year, growth was as follows, construction up 15%, mining up 29%, material handling up 17%, power systems up 15% and agriculture activity up 5%. Gross profit margins decreased 20 basis points in the quarter compared to Q1 of 2022 with higher product support margins more than offset by lower margins in equipment and rental, coupled with an unfavorable sales mix, lower product support and rental revenue to totaled revenue.
Equipment margins were down on a weaker Canadian dollar with the improving availability and new equipment from suppliers. Rental margins were down despite good fleet utilization reflected of slightly higher acquisition, maintenance and repair costs. Product support margins increased on continued focus on efficiency as well as higher activity levels.
Selling and administrative expenses were up 7% in the quarter. Compensation costs increased on higher headcount, annual salary increases and higher profit sharing on the increased earnings, partially offset by the mark-to-market adjustment on DSUs.
Certain expenses such as travel and training have increased compared to the prior year with greater levels of in-person interaction in some inflationary effects. Allowance for doubtful accounts increased $0.5 million on the larger balance of aged receivables, as a percentage of revenue selling and administrative expenses were lowered at 12.6% in the current period versus 14.6% in the similar period last year, reflecting the higher revenue.
Operating income increased 44% for the quarter, mainly reflecting the higher revenue and the property disposition gain as Scott mentioned earlier, partially offset by higher expenses. Bookings decreased 35% in the quarter reflecting in part a tough comparable with an extended period of strong activity following the pandemic slowdown, as well as several large customer orders.
Backlog of $1 billion remains at healthy levels, however was 26% lower than last year, reflecting improved – improving equipment delivery for manufacturers as well as plan deliveries against customer orders. Approximately 80% of this backlog is expected to be delivered in 2023, but of course, the subject to timing differences depending on vendor supply, customer activity, and delivery schedules.
Let’s turn now to CIMCO on Slide 7. Revenue was up 17% in the quarter with the advancement on construction schedules and increased product support activity. Package revenue increased 29% in the quarter. Industrial market revenue was up 37% with higher activity in both Canada and the U.S.
Recreational activity remained relatively unchanged. Product support revenue improved 8% in the quarter with increases in both Canada and the U.S. Activity levels continue to improve reflective of market conditions and increased labor capacity.
Gross profit margins were up 340 basis points in the quarter versus the comparable period last year. Package margins were up 380 basis points on improved execution and the nature of projects in process. Product support margins increased 50 basis points on improved execution on fixed rate contracts and higher market activity. And the unfavorable sales mix reduced margins by 90 basis points reflecting a lower proportion of product support revenue to total revenue.
Selling and administrative expenses were up 12% in the quarter. Allowance for doubtful accounts increased $1.1 million on a higher balance of age receivables. Compensation costs increased due to an increase in headcount, annual salary increases and higher profit sharing accruals on the higher earnings.
Other expenditures such as travel and training expenses increased to support activity and staffing levels. As a percentage of revenue, selling and administrative expenses were lower at 16.7% in the current period versus 17.3% in the similar period last year in part driven by higher revenue.
Expenditure control measures on discretionary spend remain a key focus for the CIMCO team. Operating income was up $3.7 million or 320% for the quarter, reflecting improved gross margins and higher revenue. Bookings increased 1% in the quarter. Recreational orders were up 23% with higher orders in the U.S. being slightly offset by weaker orders in Canada.
Industrial orders were down 14%, mainly on weaker orders in Canada, partially offset by increased U.S. orders. Backlog of $199.1 million was 17% higher versus last year. Recreational backlog was up in both Canada and the U.S. reflecting good order intake last year in some deferral or delay in construction schedules resulting from supply chain constraints.
Industrial backlog was marginally down with a decrease in Canada being slightly offset by an increase in the U.S. Approximately 85% of this backlog is expected to be realized as revenue in 2023. However, again, this is subject to construction schedules and potential supply chain constraints.
On Slide 8, I’d like to touch on a few key financial highlights. Investment in non-cash working capital increased 67% versus a year ago, mainly driven by higher accounts receivable and inventory levels, reflective of higher activity levels. As one would expect however, our operating teams are continue to exercise discipline while focusing on customer requirements, market conditions, activity levels and supply chain dynamics.
Accounts receivable continue to receive focus and while DSO decreased down three days compared with last year at 37 days, we are closely managing the aging of our receivables and credit metrics. Inventory levels are higher than prior year, driven by a number of factors including a strong backlog, delivery timing, improving availability through the supply chain for both equipment and parts, higher activity levels with completion with parts availability coupled with solid demand and inflation.
We ended the first quarter with ample liquidity including cash of $675 million, an additional $470 million available to us under our existing credit facilities. Our net debt to total capitalization ratio was a negative 1%. Overall, our balance sheet remains well-positioned to support operational needs and we’re prepared to manage challenges related to the economic variables and business conditions.
We’ll continue to exercise the operational and financial discipline one would expect as we evaluate investment opportunities that may develop over time. Toromont targets return on equity of 18% over a business cycle. Return on equity improved to 24.9% compared to 19.7% for Q1 of 2022 and exceeds our five-year average of 20.7%. Return on capital employed was 32.4%, up from 27.4% for Q1 of 2022. Improvement in both of these metrics reflect improved earnings and continued capital discipline. And finally, as announced yesterday, the Board of Directors approved the regular quarterly dividend of $0.43 per share, payable on July 5, 2023 to shareholders on record on June 9, 2023.
On Slide 9, we conclude with some key takeaways as we look forward to Q2. We expect the business environment to gradually improve, however, a number of factors are in play, some of which include the evolving dynamics of the global supply chain and improving availability. Inflationary and macroeconomic trends, and managing customer credit risk along with growth opportunities, all of which can overshadow normal seasonality and buying patterns.
We continue to proactively monitor developments closely and we’re prepared to take action appropriately. As one would expect, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements, and our discipline focus on building our business for the future.
Our backlog levels remain well-positioned as bookings are shifting toward pre-pandemic levels. However, care must be taken to monitor customer buying patterns and preferences. In terms of technician hiring, we made progress in 2022, and this remains an essential focus to support our growth in our aftermarket and value-added product and service offering.
Operationally and financially, we’re well-positioned with ample liquidity and our strong leadership teams disciplined culture and focused operation – operating models. We appreciate our entire team’s effort and commitment to continue to support our customers and deliver value for our stakeholders. Thanks also to our valued customers, supply partners and shareholders for their continued support.
That concludes our prepared remarks. At this time, we’ll be pleased to take questions. Michelle, over to you to set up the first call, please.
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Yuri Lynk at Canaccord Genuity. Please go ahead.
Good morning, guys, and Mike, congratulations on the new roll.
Great. Thank you, Lynk. Good morning.
Good morning. Scott, you’re not finished quite yet, so I’m going to start with you. Can you share with us what role Mike’s strengths in M&A and operations in the U.S. and internationally played a role in his selection as CEO? And I’m asking the question, because Toromont’s facing a pretty highly consolidated, I’d say, home market for Cat dealers and maybe this is signaling that the next move is likely to be outside of the country or even the continent. So any color on the selection process there?
That’s quite a question, Yuri. Thank you. I’ll give you some color. I think we – the Board – I want to speak to the Board here in the committee. I think this outcome and I think this is a very positive for our company. The board put a lot of work into this – a lot of thought, a very orderly process both from the committee and the board very extensive. And I’m just delighted Mike’s followership is incredible here with our company, which I think is important. He’s been with us now over three years and he understands Toromont, okay.
And that was, I think, a key part of how the board was assessing things. He’s been involved with everything. He’s been my partner side by side and Toromont is about a team and the leadership collectively. And I think Mike understands our business philosophies and I think the board was very focused on. I know they were very focused on a lot of fundamentals, both from an M&A operational perspective and a lot of thought went into that selection and I think the board you can be assured that Board’s due diligence was very strong and I’ll leave it at that.
Okay. And then Mike, a quick one for you, and I’ll hop off here. But the – just on the gross margin, I mean, the mix of product support and rental was much less favorable in Q1 versus the prior year’s quarter. Gross margins were actually up a tick. What’s the offset there and how sustainable do you think that might be?
Well, I think a couple of factors we highlighted there, Yuri. As you look at the mix of sales, I think both within, call it, new and used equipment sales and the mix between product support and equipment, as you mentioned. Product support was up nicely in the quarter overall. But we are seeing with availability, we did see –for example, we did see lower used equipment sales in the quarter, still a fairly strong pace given what we’re comparing to and what we’ve seen over the last couple of years.
And so one would expect that, I think we’ve talked about this in the several quarters ago. As availability improves, we’re going to continue to see probably a little bit more pressure on margin at times. Rental, for example, when you look at our rental business, we’re replacing the fleet with new higher cost units as availability is there. And so we’re uploading into our fleet, repair maintenance costs are a little bit higher at the moment, but utilization and things are still performing very well. And so it’s a bit of a balance, right? As you think of the effects and the inflationary effects that they flow through the business. And then you couple that with availability. Those would be the main factors.
Okay. I’ll hop off guys. Thanks.
Thanks, Yuri.
Your next question will come from Jacob Bout at CIBC. Please go ahead.
Good morning. And Mike, congratulations on the appointment as a CEO.
Thank you, Jacob. Good morning.
First question is just on bookings and backlog. And I know this can be lumpy quarter-to-quarter, but I know the MD&A for the Equipment Group you’re calling out the uncertain economic environment leading to cautious investing behaviors across industries. I think this is the first quarter that you’ve made these comments specifically. And what does this say about the remainder of this year and into next year? And are you seeing areas with more cautiousness than others say in buildings commercial, residential or how does that work?
Yes. Let me start with that, Jacob, and I’m sure Scott can provide some color as well. I think tone of caution is warranted when you think of – the buildup of our backlog still at a very strong level. And we touch on buying patterns, we talk about overriding normalcy [indiscernible] and I think we want to be careful. If you look at our overall backlog today for Q1, it’s quite comparable when you look at the booking level in the quarter compared to, say, pre-pandemic, which frankly Q1 of 2020 was a couple weeks of the pandemic was taking hold. So it’s a good comparator. And so it’s at a reasonable level relative to call it pre-pandemic levels. But what we’ve seen when you look at the buying patterns, the behaviors of our customer, activity levels are fairly strong still as we look at the year we’re going into a busy season.
But I would still say the macroeconomic factors like inflation, customers locking in price, availability are still overriding normal seasonality. And so I think a tone of caution is there. We’re not going to get back to normal seasonality in a quarter, so to speak. We’ve seen a tapering a little bit. But I think that’s one key area as well.
So I’ll put a little more color on there, Jacob. So, as Mike said, you’ve got interest rate changes, you’ve got inflation, and you’ve got from what we’ve seen so far and you’ve got historically strong numbers relative to the – so this is – this quarter by quarter, we continue to say, it’s difficult to extract things. I think you got to look at it over the long-term with all these fluctuations and variables in play. The industry activities were still solid, right? And if you look at the overall, it was just slightly down, but we’re focusing on what we saw was some softening in the larger iron. But again, it can shift, because you’re coming off strengths, right? So – but on the overall, as Mike said, on a pre-pandemic, there’s still solid activities going on, but we’re just going to continue to monitor things, some availability’s improving. We’ll see how that all plays out.
Appreciate the color. Maybe just a second question, as you think about the first quarter, is there any evidence of pull forward effect buying ahead of price increases?
Well, we’ve been dealing with price increases now for a while. So I can’t typically say, there’s any trend developing there that’s been ongoing.
Yes, I think that – I think even in – with that regard, we’ve spoken about that a little bit in the past too, right, Jacob, when you think of a rising interest rates, we knew there were inflationary effects and price increases all through last year and that’s carried forward to a degree, right? So now the question is how that moderates over time and what we see going forward, right? So I think that’s a reflection of our overall backlog at this point in time as well.
Okay, thank you.
Thanks, Jacob.
Your next question will come from Cherilyn Radbourne at TD Cowen. Please go ahead.
Thanks very much and good morning. And congratulations, Mike, on your appointment.
Thanks, Cherilyn. Good morning.
So notwithstanding some very strong deliveries in the quarter, the inventory balance is still quite elevated and I appreciate the inflation is part of that. But I was hoping you could comment on how much of that inventory is committed and whether that’s different from what would be normal at this time of year.
Yes, that’s a great question, Cherilyn. I think, like you say, if you look at our numbers, we’ve used – we’ve invested in receivables with activity, but also the inventory is the primary driver of working capital investment in the quarter. And we commented a little bit, it’s split pretty evenly with parts and equipment. And so I think as you look at availability – as availability is improved or improving through the quarter, we want to be careful there because it’s not all units that are available, but there are improvements occurring in certain areas.
We are seeing that availability and the investment level reflects that there’s still some constraints. So we’re still are waiting on certain parts. You see, our whip is still slightly elevated and that’s a contributing factor as well. And so, when we look at what’s committed, we don’t disclose a lot about that, but I would say over half of that is committed when we think of – and I would maybe position that more towards the equipment group in the Toromont Cat business. And so we monitor that very carefully on a quarterly basis. And so we do have some units for sale in certain categories, but I’ll give you a bit of characterization there.
I’ll add a little more. So, this – you put your orders in, right, Cherilyn and as Mike said, a portion is committed. And then because it’s been so tight, we’re trying to really be proactive with the data we’re getting on the – particularly on that aftermarket. So you had parts increase fairly significantly. And part of that is due to our scheduling and our repairs and trying to get those components – some of those components are still tight. So you take what you can get and we’re not in a normal flow of orders still, okay, in terms of our disciplines. And you just – so there’s a bit of fluctuation in there, but this is what we’re focused on and be aged, right?
That’s where you got to be careful here. So that’s where we’re monitoring closely. But I can – you’re good observation, that’s an area where we’re monitoring closely and you got to have that pipeline discipline in there, but we’re not in a normal ordering process still. But I think what we saw in the quarter was improvement in some availability, still tightness in some areas as well.
One other quick comment on that too, Cherilyn for context is, we are also, like in the parts side, we have invested a little bit just to support new customer opportunities like we look at some of the mining space and things like that. So there is some capital put aside there to invest and support mining activity and so forth. So that’s a little bit of a factor. It’s more the aforementioned factors that Scott mentioned and I did earlier.
I’m not sure how much you’re going to want to say in response to this next question. But as you know, Caterpillar announced a novel agreement with a miner in your Québec territory last week, which involves providing access to equipment based on an hourly fee driven by usage. So I was just hoping you could help us think about how the economics and the risks of that arrangement will be shared between Caterpillar and Toromont. Any comments would be helpful?
Well, these agreements are very collaborative and I think both parties assessed it from a recipe. We’re – actually historically, we try and operate discipline with customer maintenance and repair agreements. A lot of analysis goes into those and that’s a developing area in there that Caterpillar is involved with and we’re pleased to be part of it.
Okay. That’s all from me. Thank you.
Thanks, Cherilyn.
Your next question comes from Michael Doumet at Scotiabank. Please go ahead.
Hey, good morning guys.
Good morning.
I’ll say congrats to both of you, obviously for different reasons, but both deserving and Mike, I think only 32 more years at Toromont to match Scott’s tenure. But no, seriously, obviously very excited to see what you can do with this business. First question on rental. I think for several years we waited for growth in QM to mature before looking for the inflection in profit from dispositions and then supply chains tightened up and that pushed out the timeline a year or two. But ramping disposition, it does feel like it’s right around the corner. And I know you guys take a conservative approach in terms of accounting/depreciation.
And I was wondering, maybe if you can ballpark for us the market value of the rental fleet versus the book value, because the gain on the cash flow statement suggests it’s almost 2x. So I wonder, is that correct? And then also maybe if you can speak about the pace of dispositions we can expect in 2023?
Maybe just to start with that one. So you’re right. When we look at QM, like we did mention last year that we’re quite pleased with the utilization and the execution of the fleet. We still have room to go there. And I think we are getting – we’re at year five and we generally say, each the allied products, for example, have a different life cycle than say the Caterpillar products. And so, on average we do start to see some disposal and re-upload of equipment into the fleet at about year five.
I think – and you’ll see if you look at our disposals that we disclosed broadly, they’re marginally up, right? And so we’re not disposing a lot of equipment at this point. So to your question about the full cycle margin, if you will, it’s pretty consistent over the last several quarters in that regard. Again, we still have quite a bit of work to do. I think when it comes to executing in the Québec and Maritime region and building the fleet and reinvesting, we put some decent capital into play there this year as well, quarter to date.
I’ll add a little more there, Mike. So Mike’s right, I mean, there’s improvements going on. In terms of that disposition, we’re still not where we want to be on that aging profile. Okay. We’re holding on because it’s been tight, right, in over the last multiple quarters and years. So we haven’t able to deal with those fleets like we like to. And then you’re – so you’re still not within your normal disposition scope, because we’re holding on and we saw it in the quarter, we saw some increased expenses because of the repair costs as a percentage of the revenue in areas we don’t like because we just had to hold on so that we’re working hard.
The team’s been doing very well to upload and prioritizing some of those uploads, particularly in the rental services area. But certainly still not normal full. In terms of Québec great improvement, but still our go-to-market approach particularly with some segments that we like to operate in still needs work, but improving.
That’s helpful color. Thanks. And maybe just switching topics here. CIMCO that business has had a couple of sideways years, especially through the pandemic, first obviously on the recreational side and then tougher comps on the industrial side. But it looks like it’s getting its growth mojo back. I wonder, how you think about that business. Maybe from a capital and people perspective, and if you think you can go a little bit more aggressive into growth mode here?
Well, to start on that one, I think the team has done a really nice job executing and putting in some improvements. And you see it in the results, right? You see the equipment sales and so forth on a comparative basis the product support business is doing well. And so there’s been quite a bit of work done last year and you mentioned the Recreational segment, so that’s starting to come back into play. We did make some comments about that’s a little bit stronger than we’ve seen historically.
The order input and so forth is good and we’re still working our way through some of those deferrals and scheduling, right? Because a lot of times we’re going into locations once it’s constructed to put in the package and commission it. And so, I think that’s what you’re seeing there. In terms of capital, last year as you recall, we put in a fair bit of capital because we moved locations from our Waterfront Toronto location to Burlington, and that was a fairly big capital investment.
Going forward, we still would look at the business as a reasonably capital light strong return business with growth in both markets, right? And so, we’re looking at some areas in the U.S. and so forth and quite happy with the management team and they’re hitting some stride there, but a lot of work to do there.
I wouldn’t mind adding one more if that’s okay. I think you used the term mojo growth. Okay, so let’s put a little more color mojo growth. I’d like to think we’re going to grow in an orderly fashion and you saw some margin improvement in there, particularly on those package deals. That’s what we want to do is grow orderly, not like growth is one thing, doing it with some discipline and execution efficiency for our customers. And proving that out I think is important and that’s what we’re focused on.
Yes.
And the team has done a nice job in there with a lot of heavy lifting, assessing a lot of different parts of operational excellence from the product support side to the – how we go to market with the package goods. And so still a lot of a lifting in there, but good to see some improvement and some growth. So careful with mojo growth versus…
One quarter.
Quarterly, how’s that? Okay?
Obviously, great quarter guys. Thanks for the answers.
Thank you.
Okay. Thanks, Michael.
Your next question comes from Maxim Sytchev at National Bank Financial. Please go ahead.
Hi, good morning, gentlemen. Congrats on a transition for both of you.
Great. Thanks, Maxim. Good morning.
Hi, Maxim.
Scott, maybe just the first question was wondering if you can provide a bit more color in relation to the thought process around the AgWest divestiture? Thanks.
Yes, why don’t I start that?
The new boss is going to take that one, okay.
Not yet. Not yet. I think a couple things I would say about AgWest. Number one, that business has done really well over the last couple of years. I mean, the team has executed incredibly well, put a lot of focus on like operational excellence, the things that we find near and dear. And so the team has done well and the markets have been pretty good. Having said that, scale for this business wasn’t really possible for us, right? It was – it has been limited to the manageable market.
However, Mechan International that we mentioned as the buyer operates in other markets and already has a very strong relationship. And they distributed through a number of markets in Europe. They’re a distributor for CLAAS and AGCO, and they were looking to invest in the North American market. And so, we just felt that this was a great solution for our customers, especially for our people and also for the suppliers. And with that relationship, we felt it was a timely transaction for us.
Yes, I’m just – when we looked at this and the roadmap we had out, and again, Mike, I want to be clear here. It was improving thanks to our team’s efforts. When you looked at what we felt we needed on the scale and scope strategically and how we were executing relative to that. It’s just made of a whole lot of sense when this dialogue is initiated. So that’s basically it. But I think it’ll be good for – it’s a good decision for all stakeholders and as we monitor our capital as well.
And so I guess like there’s no readthrough for how we should be thinking about CIMCO, especially given your prior comments?
No.
Okay. Okay. Perfect. And then just a quick follow-up in terms of the used market and I guess what you’re seeing there and given the fact that it was saw a bit of a decline relative to new, I was wondering if you can provide some more comments right there?
Yes, thanks Maxim. I’ll take that one. Use remains a key strategic platform. The team did a great job last year executing particularly on the new platform of consignment and purchasing. We’ve always been aggressive in pursuing the last year in particular. It’s a tough comp again, but you saw where our inventory increased and used and that’s because we think we can execute in there strategically. What was really off was the trade. I think we were down over 15% there in the trade revenue side reflecting some softer activities in there. And then also the demo revenues down. So that’s the reflection of we’ve been – we haven’t been able to get the build on that demo inventory and that demo inventory that’s lower hour as we classify it. But that did build in this quarter on the inventory side, which I’m not afraid of that. So that was down and the purchasing was only down slightly I think about five. But that can be a timing thing. So we’re still really committed and that used from a strategic perspective. But there was some softness in a few areas.
Okay. Okay. That’s helpful. Thank you. And then maybe if you don’t mind that first squeeze in one more just in terms of the rental market. I’m just curious if you can maybe identify some structural trends that we can think of. When it comes to the ultimate penetration rate on rentals because when we look at Europe I think, way ahead on in terms of rentals there. I’m just trying to think what could be the ultimate upside in this market? Thanks.
Well, really what you – what we look at there in terms of the ultimate is to continue to grow our share in there and our participation levels. And that’s why we’re investing. I mean the rental services we’ve taken it up again on a unit basis, another 12% or so on a quarter-over-quarter basis. So we continue investing in, it’s really because we see this as a growing segment as you know Maxim, we’re investing with a broad base of products. We continue to expand in there with the full rental services. We just strategically moved out west with our industrial rental services business. We’re excited about that and now we got to continue to go execute, continue to gain a bigger share of what is appears to be with the data we see at growing market.
Super helpful. Thank you so much.
Thanks Maxim.
[Operator Instructions] Your next question will come from Bryan Fast at Raymond James. Please go ahead.
Yes, good morning guys. First off, Mike, congratulations on the new role and Scott to you as well on the pending retirement.
Thank you, Bryan.
That’s great. Thanks Bryan.
And I know you touched on margins broadly, but could you speak to the strength you saw specifically on product support margins from the equipment group and just maybe the durability of that trend?
Yes, a couple things there. I think activity levels certainly are the leading indicator there. And keep in mind like we were up overall, we talked about a 20% and it was pretty broad based right across all different segments. And so, that’s a promising signal as well. We did see some part of that is parts costs and inflationary factors from last year. And so when we’re talking about year-over-year, there is that component as well, which has been greater than we would’ve seen in prior quarters. So I want to want to put it in the right perspective. But activity in general has been strong and it’s been pretty broad based across each of the businesses and markets.
Thanks. And then just, you saw another strong quarter for mining on deliveries here. And understanding that this end market is lumpy in nature. But could you discuss maybe the overall trend you were seeing from the mining group and just with the tone of customers?
Yes, so part of those strong numbers were obviously due to the backlog and the great job the team had done executing some fairly significant RFQs. And they did a heck of a job in there. There is still activity in the mining sector that’s going on. Of course, we never get ahead of ourselves because you got to earn that business with your value propositions. It’s very competitive. But that’s what’s going on there. And we continue to work hard to earn the product support business on the annuity side.
Okay. That’s it for me. Thanks for the color.
Thanks, Bryan.
There are no further questions. So I will turn the conference back to Mr. McMillan for any closing remarks.
Great. Thanks again, Michelle, and to everyone for their participation today. Before concluding the call, I’d like to remind listeners that our annual meeting of shareholders will be held today at 10:00 a.m. Eastern. This is a virtual meeting only and details are available on our website at toromont.com. That concludes our call. Please be safe and have a great day.
Ladies and gentlemen, this does conclude the conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.