By Jeff Sanford
Toronto, Ontario -- March 6, 2018 -- In this week's Tuesday Ticker, Napa earnings, Akzo shuffles its board, Dealers Association speaks out against aluminum tariffs, and much more.
The Bank of Canada has been raising interest rates of late. The bank argues higher interest rates are necessary to head off the threat of inflation, but recent data suggests the bank could be getting ahead of itself. According to the most recent report from Statistics Canada the economy is already decelerating as indebted households begin to reign in spending. According to Stats Canada the economy grew at an annual pace of just 1.7 percent in the fourth quarter. That was slower than many expected. The idea that rapidly expanding growth will kick off a round of inflation seems less plausible in light of the latest data. Growth was really rather low in the latest quarter. According to Stats Can, temporary factors, specifically a strong housing market, bumped up the rate of growth in the quarter. New home construction was stronger than expected as buyers rushed to beat the imposition of tighter mortgage requirements that came into effect on January 1. Without the increase in residential spending from housing the growth rate would have been just 0.7 percent. That’s quite low. The stall in growth was attributed to indebted consumers who increased the rate at which they saved money. With consumers increasing their savings rate, consumer spending fell. It will be interesting to see what the Bank of Canada’s outlook on interest rates will be in light of the most recent data.
Danish paint maker AkzoNobel this week announced that Nils Smedegaard Andersen had been nominated to become a member of the Supervisory Board of the company. According to a press release from the company the intention is to elect Andersen as chairman of the board following his appointment at the upcoming annual general meeting to be held in April. AkzoNobel has been criticized by some shareholders for the recent handling of a bid by Axalta to acquire Akzo. Since then an alternative merge bid with Nippon paints has fallen apart. Akzo has agreed to split off its chemical business into a stand alone company, while the past CEO and chair of the board have stepped down. If Akzo is going to instill some confidence in the management of the company, appointing Andersen as chair of the board seems a smart move. Andersen, a Danish citizen, has loads of experience in high profile board positions. He is the non-executive director at energy giant BP and Unilever, a massive consumer products maker. He is also on the audit committees of both companies. Nils as group chief executive global trans-ocean shipping company, A.P. Møller - Mærsk. Andersen has also acted as president and CEO of Carlsberg Breweries. That is, he has a lot of experience. According to a quote included in the press release, “We are very pleased to nominate Nils Andersen. He has a wealth of relevant experience gained during an extensive international career in the consumer goods, energy, and shipping industries. Nils will bring this broad business insight to the Supervisory Board as AkzoNobel becomes a focused, high-performing paints and coatings company." Andersen was quoted as saying, "I am excited to be nominated for the role of Chairman of the Supervisory Board and look forward to being able to play my part in the transformation of AkzoNobel and delivering further value creation for shareholders and other stakeholders." The annual general meeting will be held on April 26, 2018.
The CEO of Genuine Parts Company (GPC), Paul Donahue, hosted a conference call to announce the fourth quarter results at parts retailer GPC (parent company of Napa). According to Donahue in the fourth quarter sales and earnings across the company were up 11.3 percent to $4.2 billion with net income at $108 million and earnings per share at $0.73. “In our U.S. automotive operations, total sales were up 2 percent in the fourth quarter with comp sales up 1 percent. And while 1 percent comp sales increased short of our long-term expectations, we did show sequential improvement from Q3 results. Comparable sales to retail customers outperformed our sales to commercial accounts. The sales results are consistent with the past several quarters, which we have attributed to challenging business conditions across many of our major accounts, fleet and now auto care customers,” said Donahue. The CEO went on to say that, “we continue to see many of our major accounts performing well and our auto care customer group was improved from third quarter. We have several initiatives in place to further build the sales potential with our major accounts and fleet customers and we will be launching new and enhanced benefits for industry leading auto care program.” Donahue said he expects these initiatives to further the “expansion of other value-add services such as auto tech training, which impacts thousands of repair shops and even more automotive technicians to drive stronger sales with our commercial customers in 2018.” Donahue went on to say that he expects the aftermarket sector to stay strong in the years ahead. According to Donahue, “we're optimistic for the gradual strengthening of the overall aftermarket industry as well as our U.S. automotive sales for several reasons. We expect the demand for failure and maintenance parts to increase due to the impact of a more normalized winter season, something we haven't experienced for two years. We expect a number of vehicles in the aftermarket sweet spot to stabilize in 2018 after falling for the past few years due to the historically low new car sales in the post-recession years of 2008 through 2011. And finally, the long-term fundamental drivers for the automotive aftermarket remains found with a growing total fleet relatively stable fuel prices which continue to drive more miles driven amongst consumers.” Donahue cited statistics suggesting that the “total miles driven” among North Americans increased 1.1 percent in November and is up 1.3 percent over the last 11 months. Donahue also suggested the company will be doing some more acquisition. “We also expect our ongoing acquisition to positively contribute to our future sales. During 2017, we added four automotive store groups including the fourth quarter acquisition of Monroe Motor Parts as well as Stone Truck Parts, the heavy-duty operation to our U.S. network. These types of accretive tuck-in acquisitions are an important part of our growth strategy and we expect additional opportunities in the future.” In terms of NAPA Canada, sales remained strong in the quarter with total sales up mid to high single-digit and comp sales up mid-single digits. “These results include and are highlighted by a strong performance from our heavy-duty truck parts business as well as solid results across Western Canada,” said Donahue. This past December NAPA Canada added Universal Supply Group to its operations. Universal is a Kingston, Ontario based operation with 21 stores that sell auto parts, heavy duty truck parts and paint and body parts. “The addition of Universal Supply strengthens our core presence in the eastern Ontario market. So, our team in Canada is headed into 2018 with solid momentum and we look forward to another strong year from our Canadian team,” said Donahue.
Aluminum and Steel
Donald Trump seemed to surprise just about everyone when he hastily announced without warning that he was attaching 25 percent duties to imported steel and aluminum. A broad swath of corporate America strongly disagreed with the policy, warning that prices would rise for products through the economy, slowing consumer spending. According to experts such tariffs would hit the auto and aerospace industries the hardest, though the price of everything from beer to soft drinks, canned soup, pharmaceuticals and the iPhone could be expected. Toyota executives said the proposal would, “hike the price of cars and trucks sold in America.” Auto dealers also raised concerns. “These proposed tariffs on steel and aluminum imports couldn’t come at a worse time,” the president of the American International Automobile Dealers Association, was quoted as saying. “Auto sales have flattened in recent months, and manufacturers are not prepared to absorb a sharp increase in the cost to build cars and trucks in America.”