Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Atco Ltd (ACLLF, Financial) achieved adjusted earnings of $91 million in Q3 2024, marking a 12% increase from the previous year.
- The Canadian utilities segment showed strong performance, driven by an increase in the allowable ROE from 8.5% in 2023 to 9.28% in 2024.
- Non-regulated assets contributed to growth, particularly through increased demand and strong seasonal spreads in natural gas storage.
- Atco Structures delivered its ninth consecutive quarter of year-over-year adjusted earnings growth, with a notable increase in global space rental activity.
- The acquisition of NRB Modular Solutions is expected to enhance Atco Structures' manufacturing capabilities and support long-term growth strategy.
Negative Points
- Adjusted earnings for Structures and Logistics were modestly lower compared to last year due to a provision for bad debt at Atco Frontec.
- The reset in utilities' allowable ROE to 8.97% for 2025 is expected to moderate earnings growth in the utilities segment next year.
- There is a noted downward trend in global workforce housing and fleet performance, attributed to the conclusion of a long-term contract.
- The Frontec business faced headwinds, impacting its earnings contribution and raising questions about its future growth potential.
- The company's growth strategy may require balancing between organic growth and potential inorganic opportunities, which could introduce additional risks.
Q & A Highlights
Q: Can you discuss the returns and balance sheet structure for the three investment categories in your strategy pyramid?
A: The key differentiator is the dividend profile. Yield investments have stable earnings supporting a payout ratio north of 65%. The middle category offers returns inching towards double digits with a payout ratio below 50%. The top growth-focused category aims for double-digit returns but reinvests earnings for growth. We aim for a balanced portfolio, not necessarily a third in each category, while maintaining strong investment-grade ratings. - Katie Patrick, EVP and CFO
Q: What does success look like for the Frontec business, and is there potential for improvement or divestment?
A: Frontec complements our structures business, particularly in camp operations and defense sectors. Despite recent headwinds, it offers synergies with structures, and we remain optimistic about future growth opportunities. - Katie Patrick, EVP and CFO
Q: How do you plan to balance growth between the three investment categories in the strategy pyramid?
A: Structures has increased its earnings contribution, providing organic growth opportunities. While we are open to inorganic growth, our existing businesses are generating strong opportunities, which is our preference for achieving balance. - Katie Patrick, EVP and CFO
Q: Can you provide an outlook for the global workforce housing and fleet performance, particularly in Canada and the US?
A: The dip in utilization is due to the Trans Mountain pipeline project completion. We see solid opportunities for redeployment or sale of workforce housing units, with strong activity in Australia and emerging opportunities in the US and Canada. - Adam Beatty, President of Atco Structures
Q: How is Atco diversifying its customer base and regions for workforce housing products?
A: We are diversifying into new industries like renewables and disaster relief, expanding beyond traditional sectors. Regionally, we are spreading into other provinces in Canada and exploring new project opportunities in the US and Australia. - Adam Beatty, President of Atco Structures
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
