Finning International’s $2.8B Backlog Surge and Strategic Divestitures Signal a Buy Now Opportunity

Finning International (TSX: FNT) has positioned itself at the intersection of industrial resilience and strategic reinvention. With a record $2.8 billion equipment backlog—up 9% sequentially—driven by soaring demand for mining machinery, and the imminent divestiture of non-core assets worth $490 million, the company is primed for a period of accelerated revenue growth and capital reallocation efficiency. This combination of robust order momentum and disciplined balance sheet management makes Finning a standout buy in the industrials sector.

Backlog Surge: A Catalyst for Imminent Revenue Growth

Finning’s equipment backlog, now at an all-time high of $2.8 billion, is the clearest signal of its future revenue potential. The backlog’s growth is fueled by 100+ ultra-class mining trucks booked across Canada and South America, where Finning’s Caterpillar dealership operations dominate. In Canada, mining customers are investing in fleet renewal and oil sands projects, while South America’s Chilean copper sector is booming. This isn’t just short-term demand: mining projects typically span years, ensuring sustained revenue visibility.

The backlog’s durability is further bolstered by Finning’s product support business, which grew 11% year-over-year in Q1 2025. Mining operators rely on Finning for maintenance, parts, and technology upgrades, creating recurring revenue streams. Management’s confidence is evident in its statement that the backlog positions the company to deliver “improved resilience and earnings capacity in 2025.”

Strategic Divestitures: Unlocking $490M to Fuel Shareholder Returns

Finning’s decision to sell non-core assets—4Refuel ($450M implied value) and ComTech ($40M)—is a masterstroke of capital reallocation. These transactions, expected to close by Q3 2025, will free up $490 million in net proceeds, which will be deployed to:
1. Accelerate buybacks: Finning’s renewed NCIB allows repurchase of up to 9.9% of its public float.
2. Boost dividends: A 10% dividend hike to $0.3025 per share was just approved, continuing a 24-year streak of growth.
3. Reduce debt: With a net debt-to-EBITDA ratio of 1.5x, Finning can further strengthen its balance sheet.

Crucially, these divestitures are accretive to EPS, as 4Refuel and ComTech contributed low-margin revenue and required ongoing capital. Their removal will improve ROIC and sharpen Finning’s focus on high-margin core operations.

Margin Improvement in Core Regions: South America and Canada Lead the Way

While Q1 2025 margins dipped slightly due to sales mix shifts, the long-term trajectory is upward. In South America, EBIT margins held at 10.6% despite inflationary pressures, thanks to strong mining sector pricing power. In Canada, margins remain robust at 8.7%, supported by product support growth and operational discipline.

The key is Finning’s ability to optimize capital allocation: reducing SG&A costs, improving inventory turns (up to 2.73x in Q1), and prioritizing high-margin businesses like power systems and data center equipment. The result? Adjusted ROIC rose to 18.4% in Q1, up from 17.6% in Q4 2024, with further gains expected as non-core assets exit.

Free Cash Flow Resilience: The Engine of Shareholder Value

Finning’s free cash flow (FCF) has become a consistent outperformer. In Q1 2025, FCF hit $135 million, a staggering improvement from a $210 million cash burn in Q1 2024. This turnaround is due to:
- Backlog-driven inventory efficiency: Dealership inventory turnover improved to 2.73x.
- Working capital management: Net working capital as a % of revenue fell to 26.5%, a multi-year low.

With divestiture proceeds now on the horizon, FCF could hit $500 million+ annually by 2026, creating a virtuous cycle of buybacks and dividends.

Why Buy Finning Now?

1. Backlog durability: Mining projects are long-cycle, ensuring revenue visibility for years.
2. Margin expansion: Core regions are optimizing costs while divesting low-ROI businesses.
3. Balance sheet flexibility: $490 million in proceeds will supercharge shareholder returns.
4. Dividend and buyback discipline: 24 years of dividend growth and a 9.9% NCIB cap show management’s commitment to capital efficiency.

Risks? Consider Them Mitigated

• Tariffs and trade: Limited direct impact to date; mining demand is global and commodity-driven.
• Labor costs in Chile: Offset by rising copper prices and automation investments.

Final Verdict: A High-Conviction Buy

Finning International is at a pivotal moment. Its $2.8 billion backlog ensures revenue growth, while strategic divestitures unlock capital to reward shareholders. With improving margins, resilient FCF, and a balance sheet primed for reinvestment, this is a buy at current prices. Investors seeking exposure to industrial resilience and disciplined capital allocation should act now—before the market catches up to Finning’s compelling story.

Investment Thesis: Buy Finning International (TSX: FNT) for capital appreciation and income growth. Set a price target of $50 per share within 12 months, driven by backlog conversions and accretive capital returns.