Toromont's Data Center Power Play: AVL Expansion and a $1 Billion Order
Toromont's strategic bet on enclosure manufacturing pays off as AVL ramps, orders surge, and product support grows.
TIH.TO · Earnings Call · 2026-07-29
AVL: From Acquisition to Core Growth Engine
Toromont's second-quarter results were defined by the accelerating contribution of its AVL (enclosure and power systems) business. Revenue jumped 16% year-over-year, with operating income up 41% — but the headline net earnings were flat, masked by purchase commitment expenses tied to the company's accelerated path to full ownership. Management increased its stake in AVL to 80% during the quarter, an explicit signal of strategic conviction. As Mike McMillan put it, the decision was "made based on long-term expected returns."
The quarter also brought the company's largest single order to date: a $1 billion booking for power system enclosures, slated primarily for 2027 delivery. When asked about concentration, management noted it spans "multiple purchase orders within a larger purchase order" and is spread across the U.S. Eastern Seaboard. The order underscores the strength of data center demand, a theme echoed across the broader market in recent earnings calls from companies like BXP and ACO-X.TO. Toromont is clearly riding this secular wave.
We purchased land north of Hamilton. It's approximately $20 million in terms of the land purchase. So we'll need to do a build-out... don't expect any production coming out of that facility until sometime mid-2027.
The new facility will add 40% to 50% more capacity to the overall AVL network, complementing the existing Hamilton and Charlotte plants. Charlotte, in particular, has ramped faster than expected — John Doolittle noted it "ramped very well in the second quarter" and should be near full capacity by Q4. This expansion is not just about volume; it's about securing a leadership position in a constrained supply environment for backup power enclosures.
Product Support and Core Equipment Group Showing Underlying Strength
Beyond AVL, the core Equipment Group delivered solid execution. Product support revenue grew 8% in the quarter and 9% year-to-date, reflecting higher technician headcount and fleet utilization. Mining and construction both contributed, though construction remained flattish. The company's Package revenue (in the CIMCO segment) softened due to project timing, but backlog sits at a healthy $375 million, up 7% year-over-year.
Management's commentary on product support was particularly upbeat: “We're quite happy with the growth that we saw in product support, like even in the Equipment Group, we're up 8% to 9% on a quarter year-to-date basis.” — Michael Stanley McMillan, President and Chief Executive Officer · 2026-07-29 This is a key indicator of the aftermarket opportunity as delivered equipment ages into higher-margin service work.
The company also continues to invest in its technician workforce, a recurring theme from prior calls. In February 2025, Mike noted: “We have seen a gradual increase in interest in the RPO model” — Mike McMillan, President and CEO · 2025-02-12 — a sign that customers are seeking flexibility. That flexibility now pays off as rental and RPO fleets convert to sales.
Outlook and Risks: Tariffs, FX, and the Long Game
Management acknowledged ongoing uncertainties around U.S.-Canada trade and currency volatility, but the tone was confident. The $2.9 billion backlog provides visibility, with roughly 60% expected to be delivered in the next 12 months. Data center demand remains the dominant driver, and Toromont is positioning itself to benefit not just from standby power but potentially prime power and bridging applications.
The company's disciplined capital allocation — increasing AVL ownership, buying land for expansion, and funding organic growth — reflects a long-term view. As John noted earlier in the year: “We acquired that facility in Q2, and we do have some limited production starting on 1 line” — Michael Stanley McMillan, President and Chief Executive Officer · 2025-10-31 — a testament to how quickly the team has scaled.
However, the purchase commitment expense line will continue to weigh on reported net income (it increased to $54.3 million in Q2 from $1.7 million a year ago). Excluding this non-cash item, net earnings rose 42% in the quarter — a figure that strips out the noise and reveals the underlying momentum.
Verdict
Toromont is not just a cyclical distribution play anymore; it has become a strategic player in the data center infrastructure buildout. The AVL order book, capacity expansion, and rising product support point to durable growth well beyond 2026. The market will likely reward this trajectory, even if near-term EPS is obscured by one-time charges. The company is executing on all cylinders, and the $1 billion order is a definitive proof point.