Toromont Industries Ltd
TSX:TIH
Earnings Call Analysis
Q3-2023 Analysis
Toromont Industries Ltd
In this recent story of progress, we've seen Toromont Industries exhibit enduring operational and financial strength through the first nine months of 2023, focusing solely on its ongoing businesses. With Mike McMillan assuming the role of President and CEO, the company said farewell to Scott Medhurst and greeted John Doolittle as the new CFO. This pivotal transition comes at a time where Toromont, despite the broader economic headwinds, delivered a performance marked by diligent implementation of their aftermarket strategies and a notable 8% rise in third-quarter revenue, contributing to a 14% increase year-to-date.
Net earnings from continuing operations delighted shareholders with a 21% surge in the third quarter compared to the prior year, reflective of effective revenue growth strategies and rigorous expense management. The accumulated gains through the first nine months shoot up to a 29% increase, totaling $375 million or $4.56 per share, a testament to the company's financial prowess.
Despite a 5% dip in third-quarter bookings, the bigger picture tells a different tale with a 5% increase year-to-date. The Equipment Group observed a reduction in bookings, which was cushioned by CIMCO's increased demand for its offerings. Nevertheless, a robust $1.2 billion backlog underpins a solid foundation for future growth, laying out a clear runway for continued success.
Looking to the horizon, Toromont is unwavering in its commitment to executing customer commitments and bolstering its key strategies, all while keeping a keen eye on economic signals and patterns. The ongoing recruitment of technicians underlines a strategic emphasis on servicing the aftermarket, a domain where long-term value creation is clearly in focus.
Diving into the core of their operations, Toromont's Equipment Group reported a vibrant 7% increase in revenue for the quarter and a 13% hike year-to-date. Sales climbed across the board with new equipment sales up by 5% for the quarter and a striking 20% year-to-date. Rental revenue, reflecting higher market activity, shot up by 11% during the quarter. Product support followed through with a 7% increase, showcasing an all-round upbeat sales landscape and a 13% operating income growth, underscoring overall operational efficiency.
A 10% quarter-over-quarter bookings contraction did little to shake the solid underpinnings, with a year-to-date increase of 4%. Construction orders may have waned, and business uncertainties have certainly necessitated caution. But, a substantial $1 billion backlog as of September end speaks volumes about the stable outlook and promises a continuous flow of revenue for the future.
On the financial health front, gross profit margins catapulted by an impressive 500 basis points in comparison to the same quarter of the previous year. Enhanced package margins from robust project execution and an upturn in product support margins bolstered this increase. While selling and administrative expenses have ticked up by 16%, these are offset by the margin improvements, signifying a well-managed balance between growth and operational expenditure.
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Good morning. Today is Tuesday, October 31, 2023. Welcome to the Toromont Industries Limited Third Quarter 2023 Results Conference Call. Please be advised that this call is being recorded. [Operator Instructions] Your host for today will be Mr. Mike McMillan, President and Chief Executive Officer. Please go ahead, Mr. McMillan.
Thank you, [ Ludy ] Good morning, everyone. Thank you for joining us today to discuss Toromont's results for the third quarter of 2023. It's a privilege and an honor to be hosting this call today as President and CEO; Scott Medhurst, who officially retired effective October 15, continues to support us as an executive adviser. However, I would like to take this opportunity to congratulate Scott and thank him for his incredible contribution throughout his successful 35-year career with Toromont.
His unwavering dedication, leadership and support has been second to none. I look forward to continuing to work with Scott in this new capacity in the next few months, and we wish him all the best as he transitions toward his retirement. At the same time, I am delighted to officially welcome John Doolittle, Executive Vice President and Chief Financial Officer, to the Toromont team. John is a seasoned CFO and a highly accomplished financial executive, with over 30 years of experience in large global corporations across a broad range of industries. John officially joined Toromont on October 11, 2023. Please join me in officially welcoming John to the team. John 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'll be more than happy to answer questions. So let's get started and move to Slide 4. Please note that our discussion today will focus on continuing operations, unless otherwise noted. We are pleased with the operating and financial performance through the first 9 months of the year. The Equipment Group executed well, delivering against the opening order backlog in line with customer schedules and improvement in inventory flow along with good growth in rental and product support activity, as well as continued focus on expense control. CIMCO revenue and bottom line improved in the quarter on good execution and higher product support activity. Across the organization, we continue to navigate through evolving economic conditions and remain committed to our operating disciplines, driving our aftermarket strategies and delivering solutions tailored to our customer requirements. Now turning to our financial results highlighted on Slide 5. Results for the third quarter of 2023 reflected good execution on new equipment deliveries against order backlog and favorable operating leverage. Revenue increased 8% in the third quarter and 14% through the first 9 months of the year, with increases in both the Equipment Group and CIMCO. Rental and Product Support revenue increased on customer activity. Higher gross margins along with lower relative expenses and higher interest income on cash balances, all contributed to higher net earnings versus Q3 of last year. Net earnings from continuing operations increased 21% in the quarter compared to last year, reflecting revenue growth, expense management and higher interest income. Through the first 9 months of the year, net earnings increased 29% from last year, to $375 million or $4.56 per share, again, on a continuing ops basis. For the third quarter -- bookings for the third quarter decreased 5% compared to last year and increased 5% on a year-to-date basis. The Equipment Group reported lower bookings during the quarter, and CIMCO reported increased bookings on good demand for our products. Year-to-date, both groups reported increased bookings. Backlog remains healthy at $1.2 billion, down slightly from last year, however, historically quite solid. Backlog is supportive and reflects good order intake, progress on construction and delivery schedules as well as some improvement in equipment flow throughout the supply chain. General macroeconomic factors such as inflation, higher interest rates and Canadian dollar movements continued to challenge the business environment, as well as disrupt historical seasonality and are expected to continue to do so for the near term.
Looking forward, our team remains focused on executing customer deliverables and key strategies, while adhering to our operational model with disciplined execution. We are mindful of the challenging economic environment and continue to work closely with our customers, while monitoring key metrics and supply/demand dynamics. Managing discretionary spend is critical. However, we continue to actively recruit technicians in order to support our aftermarket service strategies and value-added product offerings with the long term in mind. John, I'll turn it over to you for some more detailed comments on the group results.
Great. Thank you very much, Mike. Good morning, everyone. I'm absolutely delighted and honored to join the Toromont team. I've received a very warm welcome, and I'm extremely impressed by all of the folks that I've met so far as well, I look forward to interacting with all of you in the coming months and quarters. Let's start with the Equipment Group on Slide 6. Revenue was up 7% in the quarter and up 13% year-to-date, with higher activity across all revenue streams. Taken together, total move and used equipment sales were up 7% in the quarter and 16% year-to-date. New equipment sales increased 5% in the quarter and 20% year-to-date across most market segments and regions, predominantly reflecting the delivery of equipment against order backlog, improving equipment inflow and support end customer demand. Used equipment sales increased 16% in the quarter, but were down 3% year-to-date. Used equipment sales from trades and purchases have been lower in the current quarter -- current year, as supply-demand dynamics shifted. Used equipment sales also include rental fleet dispositions which have increased in the current year after a period of constraint, reflecting fleet management decisions around an aging fleet as well as availability. In the quarter, total new and used equipment sales increased in construction markets up 13% and Material handling up 53%. This was partly offset by a 5% decrease in mining and a 6% decrease in Power Systems. Rental revenue was up 11% 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 were up 6%, heavy equipment rentals up 11%, power rentals up 31% and material handling slightly up 1%. Product support revenue grew 7% in the quarter, with increases in both parts and service. All markets in most regions were higher in the quarter, construction up 3% and mining up 7%, power systems up 22% and material handling was up 7%. Gross margin increased 40 basis points in the quarter compared to Q3 2022, largely reflecting higher new equipment margins of 130 basis points, offset by lower rental margins down 40 basis points and lower product support margins down 60 basis points. Selling and administrative expenses increased 3% in the quarter on a 7% increase in revenue. Compensation costs increased with higher headcount, annual salary increases and higher profit sharing on the increased earnings. Certain expenses such as travel and training have increased compared to the prior year, with greater levels of in-person interaction and some inflationary effects. Allowance for doubtful accounts decreased $0.8 million on improved aging. As a percentage of revenue, selling and administrative expenses improved to 11.9% year-to-date compared to 12.7% for the same period last year. Operating income increased 13% for the quarter, reflecting the higher revenue and gross margins, partially offset by the higher expenses. Bookings decreased 10% in the quarter after a strong start to the year. Construction order activity was lower after significant activity last year, coupled with the caution given the current uncertain business and economic factors, all overriding normal seasonality. Through the first 9 months of 2023, bookings were 4% higher than a similar period last year. Backlog was $1 billion at the end of September, reflecting improving equipment availability for manufacturers, as well as planned deliveries against customer orders. Now to CIMCO on Slide 7. Revenue was up 15% in the quarter, reflecting the advancement on construction schedules against a strong order backlog and improved execution, coupled with increased product support activity. Package revenue increased 2% in the quarter, with recreational market revenue up, partially offset by lower industrial market revenue. Revenues in the U.S. were higher, while revenues in Canada were lower. Year-to-date Package revenue was up 15% compared to prior year on strong industrial revenue, partially offset by lower recreational revenue. Revenues were higher in both Canada and the U.S. Product support revenue improved 29% 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 increased 500 basis points in the quarter versus the comparable period last year. Package margins improved on good execution in the nature of projects in process. Product support margins increased on improved execution and a higher volume of activity, and sales mix was favorable in both periods, with a higher proportion of product support revenue to total revenue. Selling and Administrative expenses were up 16% in the quarter. Compensation costs increased due to an increase in headcount, annual salary increases and higher profit sharing accruals with a higher earnings level. Other expenditures such as traveling and training expenses increased to support activity in staffing levels. As a percentage of revenue, Selling and Administrative expenses were lower at 15.8% through the first 9 months of 2023 versus 16.5% in a similar period last year. Operating income was a double lot of last year at $6.3 million for the quarter, reflecting improved gross margins and higher revenue. Bookings increased 18% in the quarter. Industrial orders increased 20% compared to last year, with an increase in Canada, offset by lower U.S. orders on tough comparables from last year. Recreational bookings were up 14%, higher in the U.S., slightly offset by weaker bookings in Canada.
Backlog of $245 million was 21% higher versus last year, with an increase in both markets, reflecting continued good order intake and some deferral or delay in construction schedules, mainly resulting from supply chain constraints. On Slide 8, I'd like to touch on a few financial highlights. Investment in noncash working capital increased 32% versus a year ago, mainly driven by higher inventory levels. Inventory levels are higher from the prior year, driven by a number of factors, including strong backlog, delivery timing, variability in the supply chain for both equipment and parts, coupled with foreign exchange inflation. Accounts receivable continues to be an area of focus. And while DSO increased slightly, we are actively closely managing the aging of our receivables and credit metrics. We ended the first quarter with ample liquidity, including cash of $807 million, an additional $460 million available to us under existing credit facilities. Our net debt-to-cap ratio was at negative 7%. Our NCIB program was renewed during the quarter. Year-to-date, we have purchased and canceled 238,000 common shares for $25 million. These purchases are reflective of good capital hygiene intended to help mitigate option exercise dilution. Overall, our balance sheet remains well positioned to support operational needs, and we're prepared to manage challenges ahead, related to the economic variables and business conditions. We will continue to exercise the operational and financial discipline one would expect, as we evaluate investment opportunities that may develop over time. Toromont targets a return on equity of 18% over a business cycle. ROE improved to 24.3% compared to 21.5% for Q3 2022, and exceeds our 5-year average of 20.7%.
Return on Capital employed was 31.5%, up from 30.4% for Q3 2022. An improvement in both of these metrics reflect improved earnings and continued capital discipline. And finally, as announced yesterday, the Board of Directors approved a regular quarterly dividend of $0.43 per share, payable on January 4, 2024, to shareholders on record on December 8, 2023. On Slide 9, we conclude with some key takeaways as we look forward to the last quarter of the year. We expect the business environment to be influenced by a number of factors that are in play, some of which include geopolitical developments, the evolving dynamics of the global supply chain, improving availability, inflationary and macroeconomic trends and managing customer credit risk along with growth opportunities, all of which can overshadow normal seasonality and customer buying patterns. We continue to proactively monitor developments closely and take actions that we believe are appropriate. As one would expect, we consistently focus on key priority areas, including safe operational execution, serving and supporting our customer requirements and our disciplined approach to capital allocation, as we focus on building our business for the long term. Our backlog remains well positioned. However, as noted, care must be taken to monitor customer buying patterns and preferences. In terms of technician hiring, we continue to actively recruit, and this remains an essential focus to support growth in our aftermarket, in value-added product and service offerings. Operationally and financially, we are well positioned with ample liquidity and our strong leadership teams, disciplined culture and focused 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. So that concludes our prepared remarks. And at this time, we'll be pleased to take questions. So Ludy, I'll turn it back to you. And if you could provide us with the questions, please.
And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Cherilyn Radbourne from TD Securities.
Congratulations to -- congratulations to both of you on your new roles and our best wishes to Scott as he retires, following a very impressive career at Toromont. In terms of the quarter, it sounds like construction customers are acting a bit more cautiously as it relates to CapEx. But on the other hand, you indicated that activity levels in product support and rental were healthy across all markets, including construction. So just curious what you make about that on an overall basis?
Yes, a great question, Cherilyn. Thanks for your well wishes as well. Yes, a couple of things. I think, again, the tone is pretty cautious, I think, just given the macroeconomic factors, right? And normally, as you know, we would see in Q4, a lot of times, we'd have some conversions on RPOs. We'd have capital decisions by customers depending on their financial position and so forth. And so I think what we're seeing is a little bit better availability of equipment gives our customers a little bit of time to think through their timing decisions as they wrap up their year-end, and they make their decisions on how they see things and their requirements as they go into Q4. And so I would say it still feels very cautious, I think, given some of the questions around interest rates and so forth on the other hand, we are seeing as a result of pretty strong activity over the last several quarters. The product support business and other parts of our business, including rental, continue to perform reasonably well. So it's a bit of a mix, and that's why we're cautious with our comments around overriding normal seasonality as we go into Q4. And as you know, we don't provide much in the way of guidance, but our backlog certainly also shows that it's fairly supportive as we go into the next year.
Okay. That's helpful. And then on the supply chain, I was hoping you could give us a bit more color on how that's functioning now, particularly as it relates to large machines and large engines and how that's influencing how you're continuing to manage around any remaining constraints?
Yes, it's a great question. It is -- so broadly speaking, we would say that the supply chain continues to improve. There are certain units that we've been talking a little bit about around excavators and so forth that, again, the supply is improving. We're still constrained to a certain degree on certain, let's say, consistent with the past larger units when you look at, and even in the -- like when you think of certain models of sort of the medium-sized equipment or small wheel loaders and so forth. And so I think as we go forward, we continue to work really closely with our customers, just to try to make sure that we understand the delivery schedules and the build slots. You mentioned large engines. I mean large engines still have extended time frames. And so as we navigate and we see supply improving each month or each quarter, we continue to just work with our customers in terms of helping them understand the time frames and as they work through the winter months and so forth. So bit of a long answer to your question here, but I would say, there are some areas in parts that are still a little bit challenged. Certain units, as I mentioned, still have fairly tight supplier extended time frames. But we certainly see that improving as we get into next year.
And your next question comes from the line of Devin Dodge from BMO Capital Markets.
All right. It seems like peak new equipment demand may be behind us, but are you able to give us a sense as to where the machine population in your territory sits now versus a couple of years ago?
Yes. I think it's -- thanks for the question there, Devin. I think -- we have to be careful on that particular position, just given where we've come from and I think where we're headed. And I think a couple of things I'd mention though, just to give you a little bit of directional thinking. Overall, as we mentioned, you look at our sales in the last quarter or 2, we're quite happy with new sales. It's improving and so forth. But the mix, I think it's important to think about the mix of the product that we've also put into the field, and also the rollouts on the rental side. And so there are a number of dynamics that I think would be quite different than pre-pandemic. So for example, the team has worked really hard on the mining side, and learn the way into a number of greenfield opportunities, and that's been positive for us. So we'll see our mix is a little stronger on some of the larger gear. I think when you look at our past with used was quite strong when we were in a more constrained environment, and so that's starting to change a little bit, but we also see, with availability, some of the rollouts coming in to the market from our rental business, right? As we replace the rental fleets and so forth. And so again, I'd say the population has moved around a fair bit. But it's -- I would say -- I wouldn't want to mislead you in terms of what that mix looks like in that overall population until things stabilize and we get a better idea of what our annual run rates are going to be.
Okay. That's good color. Okay. going to switch over to the rental business. So you've generated pretty solid revenue growth in rental services, but we have noticed that it's lagged the growth in the original equipment cost of the fleet, at least for the last couple of quarters. Just -- can you give us a sense, is this primarily related to mix? Can you just talk more broadly about the utilization trends that you're seeing across your rental platforms?
Yes, it's a great question. I think what we're seeing there is a number of factors contribute to our rental business. So generally speaking, when we talked in the Equipment Group, we're up on a quarter-over-quarter basis and stuff, I think it's about 11% in the quarter and year-to-date. Now part of that is driven by, as availability of equipment, and we've been able to start to replace the fleet. We're replacing the fleet with a higher acquisition cost, right? And then rolling out some of the other old aged units. And so what I would say is we have a larger fleet in terms of number of units. We have a higher cost fleet, and so utilization is a little bit lower in a sense, just driven off of the fact that we have a larger number of units out there and so forth. And so I think the other piece that's important, too, is the labor side of the market. We continue to hire tech and it's a constrained market. And that can affect our business a little bit at times just in terms of how we get our rental units back and ready to rent and so forth. But generally speaking, I wouldn't say anything that's surprising. It's natural, given where we've been. And as we look forward, we expect to continue to drive utilization, improve some of our turnarounds. And as we look at the economy where things go, I think we're quite happy with where we're positioned on the rental side.
Your next question comes from the line of Michael Doumet from Scotiabank.
Welcome, John.
Thank you, Michael.
Just to clarify one earlier question on the cautioning for demand in construction equipment. It sounds like better availability, higher rates and there's some uncertainty. But I just wanted to make sure that there wasn't any slowdown as far as the end market activity. Something that you'd probably be able to see with tracking of the machine hours. So I just wanted to clarify what the end market activity was?
Yes. I think a couple of things to mention there, Michael. I think -- and I think we're all aware of what you hear in the marketplace today around residential construction and infrastructure, right? And so I would say a couple of things. Our business is pretty well diversified when you think of our end markets, right? Either it's in mining, construction, infrastructure and so forth. So residential and our customers putting in sewer, water and things like that, in fact, where we'd see a little bit of softness in that marketplace. I think as a tailwind to that, of course, I'll say in our -- one of our primary markets here in the GTA, in Canada in general. The immigration policy, the labor shortage is also driving a need for affordable housing. And so I think as we look through into the longer term, we're certainly comfortable with both the diversified nature of our business, but also that sort of tailwind and demand for housing, as the economic variables and factors work their way through. So that's where we would see a little bit of softness is probably more on the residential timing of projects in the -- perhaps in the near term. But when we look at some of the larger commitments and other infrastructure projects and so forth, that seems reasonably solid at this stage.
And then on the equipment margins, that was up quite noticeably in the quarter. And I would have thought that given the improved availability, might have had the -- or would have had the opposite effect. So just wondering if you can explain the bump in the equipment margins in the quarter?
Yes, a couple of things. I mean, part of it is driven by fulfilling the backlog and some of the lead times. So new equipment -- new equipment, as we disclosed in our financials, the new equipment component. When I think of gross profit overall, we're up about -- I think it was about 40 bps, but new equipment being contributing to that.
But where we saw some tightness in overall margin was in, say, rental was a little tighter, partly because, as I mentioned earlier on the call, the acquisition costs and rates and so forth, so a higher base, product support as well. We're seeing a little bit there. It's really -- it's really driven off parts pricing and things like that. And so -- but not overly material. Net-net, we're up, right? 40 basis points on the quarter. And so it is really -- I think of it as broadly mix when you think of parts rental and new equipment. And then, of course, used -- we're seeing in the used segment itself, we're seeing a couple of factors there. One would be targeted purchasing of used in trades and so forth, but also the rollout of some of our rental fleet does tend to go through that channel as well. And so there's a bit of a factor there as well.
Your next question comes from the line of Yuri Lynk from Canaccord Genuity.
Just want to follow up on the seasonality question. You're talking about some changes there in the pattern. Is that -- just want to confirm, is that mostly confined to RPO conversions that normally occur in Q4? Or it sounds like you're also hinting at some delayed purchasing decisions. And as a follow-on to that, are you seeing any other seasonality changes in, say, product support or the rental business as a whole?
Yes. No, great question, here. I think a couple of components you break down there. I would say, starting with the RPO. If you look at our RPO level right now, it was about $55 million in the Equipment Group, which if you roll back historically, as you mentioned, we tend to see conversions in Q4, but we usually enter Q4 at a higher level, right? So we're maybe 2/3 of the value we would have seen pre-pandemic. And so I do think, from a customer perspective, they're evaluating their Q4 decisions still given the higher cost of borrowing their options that they have ahead of them like an RPO and what their pipelines look like. And so I think that's where we see some caution going into Q4 in a sense. On the rental side, again, the rental business has been pretty solid in terms of activity level. As I mentioned earlier, we have a slightly higher cost base with new equipment and so forth, as we're changing that fleet over. And I think that's a natural thing. But we do feel, I think, both on the product support side being up and the rental side of the business, activity levels are still fairly solid and so comfortable with where that's positioned.
And since this is, I think, the first call for you two gentlemen as a team, maybe I'll just ask strategic priorities for this management team going forward over the next -- you're going to talk about the long term. So what are those priorities? If you could just give us an update on how you see it?
Sure. Why don't I start and then we'll get John's impression here a few weeks in. Fundamentally, I would just say, strategically, we don't see a big shift there. I think given where we are, we have the team focused on the controllables, managing all aspects of our business and just working closely with our customers. We've got some good activity in the mining segment. You can see in our order backlog, we still -- as we look at most of our businesses, some decent positions in the backlog. CIMCO as well. We often don't bring CIMCO into the equation too much, but CIMCO has had a couple of nice quarters year-to-date, good performance and a solid backlog. And so I'd say our first priority, again, is organic support for the business like executing on what we have ahead of us, driving our opportunities from an organic perspective.
And I think our debt is in good position and so forth. Technician hiring, as I mentioned earlier, is also a big part of what we're trying to do and think long term, continue to make sure that we have growth in that area so we can increase our product support. And we have a number of investments underway as we -- Bradford, for example, with the remanufacturing facility, due to come online in Q2 next year. A lot of work being done within that organization, too, to just prepare for that opportunity. So maybe I'll hand it to John to give you some observations.
No. Thanks, Mike. I'll just give you my perspective, which I think is very consistent with what Mike just described in terms of capital allocation -- thoughts on capital allocation strategy. I mean the company has been an absolutely great steward of capital. I commend the company for that. We're lucky to have a lot of flexibility. As Mike pointed out, the balance sheet is very strong. Debt ratios are very good. And I always think, first about feeding the business organically as our first priority as well. As you know, we renewed our NCIB program. We've got a great history on dividends. And of course, over the course of time, we'll look at inorganic opportunities, but we'll be disciplined, methodical and careful as we do that to make sure that they're a good fit for the organization.
And would those opportunities -- are those opportunities limited to dealerships? Or are you looking at potentially a third business line?
I would say we always -- we're always careful when we think about those opportunities, right, Yuri? I think, for example, I mean, we're number -- I think there's a number of things that we can even small tuck-ins to complement our service offering. So anything that is like the dealership side of things, as we've said in the past, we want to be well positioned. We want to be a top performer. And if an opportunity comes, we'll evaluate that carefully and with discipline. And we want to make sure we can make a difference in whatever we look at. Outside of that, which you don't necessarily have control over roadside of how you execute and operate your business. We look at complementary, like if we do look at, say, scope and scale, I would be very careful to say anything that's considered new scope would be complementary. And so when we look at new business opportunities, it would be adding a broader product value, customer value prop for our business, expanding our product support offer that type of thing or a line of equipment that doesn't conflict with that with what we offer today, but is attractive to our customers and maybe opens us up to a broader set of customers. Again, that would be very disciplined, pretty intentional when we think about that outside of a completely different line of business, which, frankly, is outside of our sweet spot, right? In what we do.
Your next question comes from the line of Jacob Bout from CIBC.
Question on CIMCO here. Strong margin recovery, you're seeing a build in booking and in the backlog. Just maybe, provide a little more detail on what you're seeing in the U.S. versus Canada. And then what the outlook is here for the foreseeable future for both those areas. Just maybe a bit of a compare and contrast.
Bit of color. Yes. No. Thanks for that way. As we've spoken about, Jacob, in the last few years, say, in the U.S., we've put a team in place and we continue to refine that operating model. But I would say that the team has -- is executing nicely on both sides of the border, frankly. We put a lot of focus on the team, putting a new project management system. It's given us better visibility. The team has worked really hard on focusing on execution around projects and controls. And you can see it in the results, like they've done a really nice job there. And I think on both sides of the border, we have -- in the U.S., of course, we're a small portion of the market in a few orders does tend to move their numbers around a bit, but the team is executing on a couple of larger deals right now and doing a very nice job. And so certainly, the opportunity is in the U.S. in many regards as far as new organic growth opportunities in the commercial, industrial and recreational space. And so where in Canada, it's similar in the sense we just have a higher market share and the team continues to look at some of the product offers that we have as well. We've talked in the past a little bit about CO2 and Pneumonia, getting away from synthetic refrigerants. Team has a couple of nice -- they've got some capabilities in some product lines that they've developed to help drive efficiency, gains and heat recovery. And I think we're going to hear more of that as we go forward. But generally speaking, I would say the team is well positioned on both sides of the border, and I think now it's about execution. And you can see it from the backlog, they're getting some decent traction at $245 million there.
Do you feel like you've turned the corner in the U.S.?
I think, I would say the team's well positioned. I think the growth opportunity there is pretty attractive in that sense. Again, a very fragmented market in some regards. But in terms of the project execution, the management team's leadership there, we set up a new facility in South Carolina, which is really just getting off the ground, which will be a good center for us to operate out of. And so turn the corner, I'm not sure, but I think well positioned, right? To start to grow that business and leverage the management expertise we have there.
And maybe just going back to the comments around the cautiousness in the construction sector. As you look across your various business groups, how do you see this playing out? Maybe just talk specifically about Battlefield and what that -- what weakness in residential construction will mean for that group?
Yes. I think, again, we've actually -- when you look at CapEx, for example, we've -- in both heavy and light fleets, but Battlefield, it's split fairly evenly between the heavy and light categories. We continue to invest and upgrade the fleet in the Battlefield side of things. I think the opportunity continues to be driving the Quebec and the Maritimes market. I mean, we've -- the team has done a nice job there, but we still have a ways to go to get to the utilization levels we like as we continue to invest in that fleet. And so I think there's a nice opportunity there to continue to increase our market share and grow that part of the business. I think the rest of the business, again, we're looking at other locations, other opportunities in markets that we think we can add location here and there, like we have when you think of Mississaugas or going with in other facilities we've set up over the last little. So all that to say, I think the team -- the business is well positioned. The fleet is in good condition. We're starting to see the rollouts of the aged fleet as availability improves and that's helpful as well. And I think the big -- one of the considerations, as I mentioned earlier, is, again, just continuing to build our team, our technician team there and helping to support our customer requirements. But generally, if you see in an environment like this with some uncertainty and -- and so for the rental business tends to do reasonably well. But by market, it can vary a fair bit, right?
And there are no further questions at this time. I would like to turn it back to Mr. Doolittle for closing remarks.
Yes. Thank you, Ludy. And thanks to everyone for joining the call this morning. I thought it was a great call and appreciate everybody's participation, and that concludes our call. Please be safe. Have a great day, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.