ATCO Limited (ATCO) has reported an 8% year-over-year increase in adjusted earnings to $148 million for the first quarter of 2024. The company attributes this growth to the strong performance of its Structures and Alberta Utility businesses.
ATCO's Structures business, in particular, saw a significant 25% increase in adjusted earnings. Despite challenges in the Renewables sector, ATCO is optimistic about the future, expecting further growth opportunities, especially in the US market where AI technology could drive power demand.
Key Takeaways
- ATCO Limited's adjusted earnings rose to $148 million in Q1 2024, an 8% increase from the previous year.
- The Structures business notably increased earnings by 25% to $24 million.
- The company is focused on growth in the US market, particularly with the rise of AI technology.
- Renewables faced a tough quarter due to environmental factors and market conditions.
- ATCO is considering more detailed disclosures on renewable energy profiles in Q2.
- Lower Structures & Logistics CapEx this quarter is expected to be offset by future quarters' spending.
- The performance of the newly acquired business exceeded expectations, with a solid backlog and anticipated demand and government support.
Company Outlook
- ATCO is committed to delivering growth in 2024 and beyond, with a positive outlook on regulatory prospects and allowable returns on equity (ROEs).
- The company is expanding into high-growth markets, including residential housing.
Bearish Highlights
- The Renewables business experienced a difficult quarter, impacted by drought, low wind averages, and low merchant pricing.
Bullish Highlights
- The Structures business delivered exceptionally strong results, with a 25% increase in adjusted earnings.
- The company expects additional growth opportunities in the Structures business.
Misses
- No specific financial information was provided regarding the performance or growth rate of the newly acquired [Indiscernible] business.
Q&A Highlights
- ATCO discussed the potential impact of AI technology on power demand, particularly in the US market.
- There were previous discussions about Bitcoin data facilities in Alberta.
- The Investor Relations and Empower teams are considering additional disclosures for Q2 to enhance understanding of the renewable energy profiles and financials.
- Despite lower CapEx in the Structures & Logistics segment, ATCO anticipates capital expenditure to increase in the upcoming quarters.
- The acquired [Indiscernible] business is performing well, with expectations of continued growth supported by market demand and government policy.
InvestingPro Insights
ATCO Limited (ACLLF) has demonstrated resilience and growth potential in its recent financial performance, which is further supported by insights from InvestingPro. A key highlight is the company's impressive track record of dividend reliability, having raised its dividend for 30 consecutive years and maintained payments for 44 years. This consistency is a testament to ATCO's financial stability and commitment to shareholder returns, aligning with the company's positive outlook and growth strategy.
InvestingPro data provides a closer look at the company's valuation and performance metrics. With a market capitalization of $3.1 billion and a P/E ratio of 10.35, which adjusts to 9.74 for the last twelve months as of Q1 2024, ATCO presents an attractive valuation for investors.
The company's strong free cash flow yield is reflected in these figures, suggesting a potentially undervalued stock that could offer significant returns. Moreover, the dividend yield stands at a noteworthy 5.17%, emphasizing the company's substantial dividend to shareholders.
For those looking to delve deeper into ATCO's financial health and investment potential, InvestingPro offers additional insights. There are 9 more InvestingPro Tips available that can provide a comprehensive understanding of the company's financial landscape and future prospects. To access these valuable tips and optimize your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/ACLLF.
Full transcript - Atco Ltd I (ACLLF) Q1 2024:
Operator: Thank you for standing by. This is the conference operator. Welcome to the ATCO Limited First Quarter 2021 Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Mr. Colin Jackson, Senior Vice President, Finance, Treasury and Sustainability. Please go ahead, Mr. Jackson.
Colin Jackson: Thank you. Good morning, everyone. We're pleased you could join us for the ATCO's First Quarter 2024 Conference Call. With me today is Executive Vice President and Chief Financial and Investment Officer, Katie Patrick; and our President of ATCO Structures, Adam Beatty. Before we move into our formal agenda, I would like to take a moment to acknowledge the numerous traditional territories and homelands, how much our global facilities are located. Today, we are speaking to you from our ATCO Park head office in Calgary, which is located in the Treaty7 region. This is the ancestral territory of the Blackfoot Confederacy, comprised of the Siksika, Piikani, Tsuut'ina Nation, and the Stoney Nakoda, which include the Chiniki, Bearspaw, Wesley Stoney First Nations. The city of Calgary is also home to the Metis Nation of Alberta, Districts 5 and 6. We honor and respect diverse histories, language, ceremonies and culture of the indigenous peoples who call these areas home. The call today will begin with some opening comments from Katie on recent company developments and financial results, followed by an update from Adam on our Global Structures business. After these prepared remarks, we will take questions from the investment community. Please note that a replay of the conference call, a short supplementary presentation and a transcript will be available on our website at atco.com and can be found in the Investors section under the heading, Events & Presentations. I'd like to remind you all that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by ATCO with the Canadian securities regulators. And finally, I'd also like to point out that during this presentation, we may refer to certain non-GAAP or other financial measures, such as total segment measures, adjusted earnings, adjusted earnings per share and capital investment. These measures do not have any standardized meaning under IFRS, and as a result, they may not be comparable to similar measures presented in other entities. And now I'll turn the call over to Katie for her opening remarks.
Katie Patrick: Thanks, Collin, and good morning, everyone. Thank you all very much for joining us today for our first quarter 2024 conference call. ATCO achieved adjusted earnings of $148 million in the first quarter this year. This is $11 million or 8% higher than the first quarter last year. This $11 million of growth came primarily from the strong performance of our structures business and the Alberta Utility businesses. Collectively, this more than offset the expected downward earnings pressure associated with the normalizing inflation profile in Australia, along with a decline in merchant power pricing and weather challenges that impacted ATCO Power. I won't go into too much detail on Canadian Utilities as we spoke to their performance on this morning's call, but I do want to reiterate that we continue to focus on delivering growth in 2024 and beyond. This year, we have an increase to our allowable ROEs from 8.5% to 9.28% across our Alberta-based utilities. We have strong regulatory prospectivity as our distribution utilities enter their third performance-based regulation cycles. Our gas transmission utility confirmed their two-year rate application and electric transmission currently has rates set to the end of 2025. Transitioning to our other investments. ATCO Frontec delivered first quarter earnings that declined nominally from 2023 levels primarily due to the closure of the Trans Mountain expansion project caps. Now to may continue to drive a strong quarterly level of earnings contributing $5 million in the quarter. ATCO Structures continued the to deliver exceptionally strong results with adjusted earnings of $24 million in the quarter, over 25% higher than the prior year. Structures continues to deliver growth from the expansion of our base business and the optimization of our fleet with major projects being a supplement to these earnings. To speak to the success of driving repeatable base business earnings and to provide an update on the structures business overall, I'll now turn the call over to Adam.
Adam Beattie: Thank you, Katie, and good morning, everyone. As Katie alluded to, we had a great quarter and we're able to build on our solid 2023 performance. Though our typical earnings pattern has a seasonal low in Q4 that carried into Q1, this quarter, we were able to deliver performance more in line with the seasonal peaks we experienced in 2023. Moreover, we've delivered year-over-year improvement in first quarter results for five consecutive years now. Continued investment in our base business, particularly in our space rentals business, has allowed us to expand both our footprint of operating locations and our customer base, increasing the number of units we have on hire, while improving our average rental rates by 12%. To reiterate, this is a strong first quarter result from our teams as we now move into the more active construction seasons in North America. Our expansion into residential housing sector by the ARM housing acquisition continues to perform with another great quarter. We see continued demand for housing, coupled with recent federal government interventions to reduce the mortgage burden on first homebuyers with changes to the homebuyers plans and extending amortization on new home mortgages as continued evidence of improved opportunities in this business line for us. The residential housing segment has been a valuable strategic addition to our base business growth. Growth in our base business continues to be exceptionally meaningful to our overall results as it contributes upwards of 3/4 of our total earnings in a given period, providing earnings stability and a platform to offer our other products and services. Our continued investment in our base business has enabled us to reliably backfill earnings from major projects with sustained quality earnings. To emphasize again, this quarter is a great starting point for the year and is reflective of our continued execution on our strategy to expand our business with a combination of base reliable earnings balanced with access to high-growth markets that foster longer-term growth potential, such as residential housing and permanent modular construction applications. As we look to the future, there continues to be a solid pipeline of real projects in Australia, Canada and the United States that we believe will drive additional opportunities and support further growth for structures. I'll now pass the call back over to Katie.
Katie Patrick: Thank you, Adam, and congratulations on another strong quarter at ATCO Structures. Overall, ATCO had a great first quarter. Colin and I appreciated speaking to many of our investors last week about our portfolio of businesses. We continue to highlight information to the investment community, which we hope will bring light to pockets of unrealized value in our businesses. We look forward to keeping you updated as we progress on our growth plans throughout the year. That concludes my prepared remarks. I will now turn the call back to Colin.
Colin Jackson: Thank you, Katie and Adam. In the interest of time, we ask if you limit yourself to two questions. If you have an additional question, you are welcome to rejoin the queue. I will now turn it over to the conference coordinator for questions.
Operator: [Operator Instructions]. The first question comes from Rob Hope with Scotiabank.
Rob Hope: I want to start off on, actually, two questions on ATCO structures. As you kind of pointed out in your prepared remarks, the seasonality of this business was not quite what we would normally see here. So, when you take a look at what [Technical Difficulty] is this a situation where we're going to be moving away from that normal seasonality. [Technical Difficulty]
Colin Jackson: Sorry, Rob. Rob, it’s Colin. And I am sorry to cuts you off. We’re having a very hard time hearing you. You’re cutting in and out. Could you maybe just try moving closer to your microphone and try again.
Rob Hope: Sorry about that. Just in terms of the ratability of the structures business, it does seem like the seasonality is not quite what it was. Is this a situation where the base business is just growing at such a clip that you could be moving away from some of the more seasonal or cyclical parts of the business.
Adam Beattie: Rob, it's Adam. I think there will always be a seasonality cycle in our base business in North America, purely because of the weather conditions and how they impact the construction season. So there will always be some seasonality. We've certainly tried to balance the structure of our business so we can reduce that seasonality impact in Q1 and Q4. So I guess, reducing the spread there is the main objective. And I think that's certainly an intention, and we hope that, that will be seen further forward.
Colin Jackson: And Adam, if I may ask the cyclicality that we won't saw with the large caps. Can you address that as well?
Adam Beattie: Yes. With the large camps, certainly, we're doing a lot more in terms of other business lines outside of camps. That is what we call sale trade activity that is selling product that balances out that cyclicality of the workforce housing stream of business line as well, whether that's education product, whether that's commercial, industrial applications, residential housing, that certainly contributes to balancing out some of the peaks and troughs that we've seen in the major project activity in the past.
Rob Hope: And then maybe as a follow-up, just taking a look at the average rental rates, global space was up 12%, workforce was down 35% year-over-year. Can you just talk to kind of what the key factors are that are driving that difference for each individual movement?
Colin Jackson: Certainly. So when you get workforce housing rentals come off, they come off on a larger scale of products at one particular time. So a lot of that is driven by Canada where we've seen off-hires on Trans Mountain pipeline project and also the coastal gas leak project. So a portion of that product is returned and that will need to be redeployed. So that's why that volatility in the utilization rate tends to occur at a larger scale than what you'd see in space rentals.
Operator: The next question comes from Maurice Choy with RBC Capital Markets. The next question comes from Ben Pham with BMO.
Ben Pham: First question, I wanted to ask your peers so far from a Canadian energy infrastructure landscape, they've been highlighting [indiscernible] data center potential opportunities. I'm curious from AI's perspective or through CU, your franchises, Alberta, Australia, is there any conversations you're having on that front where it's interconnects or power generation that you're best having some discussions about?
Katie Patrick: I think it's definitely an interesting trend for the industry as a whole. We all know the sort of the statistics around the need for power to drive some of the AI technology. And a lot of our peers have, candidly, a lot of our peers have strong U.S. portions of their business, which I think is where the majority of that action is currently coming from. That said, there's nothing to say that Alberta wouldn't be a good market for that. And in previous time, we did have inbound discussions related to Bitcoin data facilities, which have a similar profile of the high-need energy, high-need for space and the cooler conditions actually where we're conducive to that. So nothing to report as yet. Interesting something to watch. The one thing I want to say is that for the most part, obviously, Alberta's energy market is different in the sense of it not being within our regulated rates. So it would be a different profile should we look for those type of opportunities.
Ben Pham: I'm not sure if someone asked this on this call the Alberta power generation segment and the negative earnings coming from that. Are you able to share -- from an EBITDA perspective instead, are you tracking or expecting it to track in that initial range that you had previously highlighted?
Katie Patrick: Yes. I may have you take that one offline with Colin and team on the specifics on the modeling. I don't think you were on the CU call, but generally, we did highlight that we had a rough quarter for the Renewables business. There's a number of conditions in Alberta, including drought, historically low wind averages as well as the merchant pricing given the turbulence in the market were very low. So those all contributed to a difficult quarter for our renewables business.
Colin Jackson: And then just to add we can certainly take the EBITDA off-line, the Investor Relations team and the Empower team are in discussions currently to see if there's perhaps some additional disclosure we can make in Q2 to help people understand the wind hydrolysis solar profiles and the EBITDA a little bit better in those businesses. So stay tuned, and hopefully, we'll have some slightly additional disclosure in Q2.
Operator: The next question comes from Mark Jarvi with CIBC Capital Markets.
Mark Jarvi: On Structures & Logistics, we saw a lower CapEx this quarter than we've seen in the last couple of quarters. Is there something there where you're running a little lower in that business starts to generate more free cash flow? Or is there an expectation that investments will ramp up in the next quarter as you get back to sort of that CapEx profile we saw for the last couple of years?
Adam Beattie: Mark, Adam here. Certainly. So what happened there is we obviously self-perform a lot of our fleet manufacturing, and we manufactured a number of sales trade projects during that period. So it slowed down a little bit of our capital if we redirected our priority into those sales trade projects. So that capital will catch up back up over the next few quarters. And then we're still forecasting to spend on our annualized budget.
Mark Jarvi: And then when it comes to [Indiscernible], can you just kind of maybe outline how that business has tracked since we bought it in terms of whether it's earnings, revenues and just sort of the housing policy aspect here in Canada, what sort of the upside case could be? And when that would sort of like relative to what you see as a base business in terms of the maybe the upside scenario in that business?
Adam Beattie: Look, I think the business has been quite reliable quarter-over-quarter in their performance. They have a consistent backlog that's been quite realized probably above what our expectations were on initial acquisition. So they've outperformed expectations so far to date. We certainly think the activity in the market or the housing supply and demand gap we'll see that continue over the next few quarters as we see more demand coming into their pipeline and also other external factors like some encouragement from the federal government around modular as a solution to a part of the housing crisis, financial mechanisms that support first-time mortgage buyers and then also permitting and adjustments in policy, municipal and local, that could also encourage modular as a fast term solution for some of the housing gaps that we've seen.
Mark Jarvi: So is there like an LTM marine that you can share to the carve-out of Triple M and then share what you think a reasonable earnings trajectory and growth rate should be?
Adam Beattie: No, not at this time.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Colin Jackson for any closing remarks. Please go ahead.
Colin Jackson: Thank you so much, and thank you to all of you for participating today. We appreciate your interest in ATCO, and we look forward to speaking with you again soon.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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