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Finning shares fall on profit warning

Oct. 18, 2011 - Heavy equipment dealer Finning International warned that the costs of its new parts distribution system and a strike in British Columbia will squeeze tens of millions of dollars from its profits. Finning, the world's largest dealer of Caterpillar heavy equipment, said it faced higher costs in implementing its new parts supply system, which began operations this summer but faced startup problems.


October 18, 2011
By Canadian Press

"We are extremely grateful to our customers for their patience and apologize for the inconvenience this has caused,'' Finning president and CEO Mike Waites said in a statement.

"We are confident that the new system will enable us to provide the highest levels of service for which Finning is renowned.''

The industrial equipment company said the higher costs, as well as a five-week strike by 700 employees at its operations in B.C. and
the Yukon will reduce its third-quarter profits by between 20 and 25 cents a share. With 171.5 million shares outstanding, that could amount to $43 million at the high end.

Analysts had, on average, expected the company to earn 38 cents per share, according to those surveyed by Thomson Reuters. Finning earned $82 million or 48 cents per share on $1.48 billion in revenue in its second quarter, up from $36 million or 21 cents per share on $1.07 billion in revenue a year ago.

When it reported its second-quarter results this summer, the company had warned that it faced problems with the parts supply
system and strike, which saw employees return to work at the beginning of August.

The new four-year collective agreement covers Finning Canada employees in B.C. and Yukon and expires on April 14, 2015. It
provides for annual wage increases of four per cent in the first year, three per cent in the second and third years and four per cent
in the final year.

RBC Capital Markets Sara O'Brien said she saw some negative impact from the parts supply system in the fourth quarter, but noted
the company has seen good progress and expects the situation to substantially improve.

"We see these system glitches as temporary and improving. We recommend investors to buy on weakness,'' O'Brien in a report to
clients.

Finning has operations in Canada, the United Kingdom, South America and elsewhere and is a major supplier to the oilsands and
mining industries.

The new enterprise resource planning, or ERP system, was launched July 4 but had initial problems that impacted parts supply,
warehousing and distribution operations. The company said it has tried to improve the system's efficiency and the ability to process parts orders has improved to the point where the company expects fourth-quarter parts operations should approach normal levels.

Finning shares were down 68 cents at $19.98 on the Toronto Stock Exchange the day after the announcement.

Related links
Finning Canada
Finning workers approve collective agreement
Strike begins at Finning
Finning reports fourth-quarter revenue jump


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