Toronto, Ontario -- May 6st, 2018 -- In this week's Tuesday Ticker, Earnings announcements, Uni-Select shares updates on its Canadian operations, AutoCanada disappoints, and much, much more.
Publicly-traded companies continue to report first quarter earnings.
This past week Uni-Select executives hosted a conference call to discuss the first quarter results. Overall, sales increased a mighty 42 percent to a total $422 million in Q1. The huge increase in sales is a result of the recent acquisition of a company called The Parts Alliance. The acquisition of that firm—the largest deal Uni-Select has ever undertaken—added $110 million to the Uni-Select bottom line. The new revenues from the company increased sales 37 percent. All in net earnings came in at $27 million, an increase of 16 percent. Earnings per share are $0.25. The story is this quarter was also about solid organic growth of 5.9 percent in the Canadian operations. That growth rate is remarkable for a quarter that is supposed to be one of the slower ones.
Going on to talk about the results Henry Buckley, CEO, Uni-Select, said on the call, “Overall, our first quarter results were in line with our expectations when considering the seasonality of our business... Once again, the Canadian and U.K. operations performed well... However, in the U.S. segment, we continued to work through some challenges.” The company revamped its U.S. operations last year, shifting paint suppliers among other things. Touching on the U.S. situation Buckely said, “In terms of our top line performance, recall that last year, we were distracted by the product line changeover. In the quarter, it is worth mentioning that we also experienced general market softness. As a result, we have put a sales recovery plan in place, and have been doubling down our sales growth initiatives. We had early signs of success and we have won significant new business volume, including a very large customer that we'll start to phase in during the second quarter.”
He went on to discuss the solid business here in Canada. “Our Canadian operations performed well considering it's their seasonally softest quarter of the year. Our first quarter sales were up 13.5 percent to $111 million, driven primarily by robust organic growth of 5.9 percent... Our company-owned store conversion strategy is progressing well, with the rollout of Bumper to Bumper and the FinishMaster brands, as well as the continued deployment of our point-of-sale system, PartsWatch.” The company integrated one store in the quarter, but according to Buckley, “... we'll be moving into new phases of our company-owned store integration in the coming months... Since we started this journey into owning stores, we've primarily focused on systems integration with the point-of-sale system PartsWatch. With this implementation well underway, we will focus on the harmonization of our product lines and the optimization of our network. For the after-market part side, the strategy will be to optimize our network to improve profitability... In terms of FinishMaster Canada, we continue to expand customer coverage to further accelerate growth. We continue to pursue our long-term strategy to build our Canadian company-owned store network in conjunction with a strong network of independent Bumper to Bumper stores.” The Canadian Automotive Group is expected to produce organic sales growth of between 2.5 percent and 4 percent for the full year.
Uni-Select has increased its profile along Bay Street as it has grown. The company is now followed by analysts from some of the Big Five Canadian banks. The analysts were on the call to ask management questions. Some of those questions led to answers that will be interesting to shop owners. Among the relevant questions:
• Leon Aghazarian from National Bank asked about increases in the price of paint. He noted that some of the big global paint manufacturers have reported that the price of raw materials for making paint have risen. Aghazarian asked, “... there's a lot of inflationary pressure that they're seeing. Are we seeing the pass-through there? Any impact, potential impact, on the margins on FinishMaster for the year?” Steven Arndt from Uni-Select fielded the question, replaying, “The price increases that they are passing forward are similar to the years in the past. So don't see any significant impact on our margins; may come a little bit earlier, but that's really not at our doing. So right now, we see them the same as they have been over the past few years.”
• Jonathan Lamers from BMO wondered about slowing demand in the auto industry as car sales decline from last year’s peak. Lamers asked, “... just kind of a high-level question, it seems like industry demand growth has slowed a bit. My understanding is that the insurance customers, the insurance companies are reimbursing less for paint blending than they formerly did. Are you receiving any feedback along those lines from the body shops?” Arndt responded, “We have not heard that, that there's a reduction in reimbursements from the insurance companies. There's always an ongoing technical approach to estimates and the repair process, but our customers have not said that to us at this point.”
• Jonathan Lamers also asked for an update on the implementation of PartsWatch Canada. According to Brent Windom from Uni-Select, “We certainly are active. We'll be going live again next week with another implementation. That'll bring us close to the high 30s of our store count that'll be completed this far. We're certainly looking to try to be done by the end of the year, at the latest first quarter of next year. We're doing it at a very methodical pace. And I'd say where we're really gaining now, that is the ability to manage the business across the country in a more stabilized manner... So we're pretty happy with where we are right now and we see a great opportunity to improve.” Henry Buckley also commented on the question, saying, “Yes, if I could add onto this one, this is really, really important. And I mentioned in my remarks, when you start a store group, from the outset, we're building from the foundation up. And we've always said all the way along, we're going to walk before we run on this initiative. So you don't see us acquiring stacks and stacks of stores. We don't want a huge backlog. We want to make sure we get our processes and systems correct. We want to make sure we have the right team members in place to help drive that business. I think Brent and the team are doing a great job getting that foundation set... As we move into the next phase of this integration process, we're going to continue to harmonize our product lines, harmonize and optimize our branch locations to make sure we have the right network as a foundation and then you'll see us layering on locations. We'll have the system in place; we'll have it more optimized. The processes will be in place. And then you'll see us layering on new store locations at that point, in conjunction with our independent customers. And Brent and the team have done a very good job with the Bumper to Bumper program in Canada and we're seeing significant upside in terms of the future for that program... So for us, it's really putting together the two key elements... and you'll throw in FinishMaster Canada is doing extraordinarily well in their accelerated growth program as well. But again, we want to make sure we walk before we run on this and we get the processes and the foundation really set rock-solid. So if it takes us a little more time, we're okay with that.” The majority of the stores will be done by the end of the year or at the latest, Q1 of next year according to the execs.
The Edmonton-based dealership group this week reported its financial results for the three month period ended March 31, 2018. While net income rose to $4.8 million, revenue fell 2.9 percent to $620.5 million. Total vehicle sales were also down, dropping three percent to 12,667 units. The poss-2017 peak-in-sales is hitting the company’s business. There was also a large 16 percent decline in fleet sales of new vehicles. Investors did not take kindly to the news. Shares were down over 10 percent the day after the earnings release (which was distributed after market close).
In the press release the company chose to highlight the good news around “single store” performance. According to the release same store revenue of $562.1 million, up 4.6 percent in the first quarter of this year from the same period last year. Same store gross profit was $95.5 million, up 1 percent compared with the same quarter in 2017. The positive performance in terms of same-store stats was driven by increases in both volume and average revenue per vehicle sold. Also doing well was the collision repair side of the business. AutoCanada operates hundreds of collision repair bays at its stores.
According to the press release, “Same store parts, service and collision repair revenue grew by 11.8 percent. While the number of service and collision repair orders completed in the quarter declined year over year, the average price of those orders went up, driving an overall increase in revenue for this segment. Total parts, service and collision repair generated $95.9 million of revenue, up 5.7 percent from same time 2017. This accounted for 15.5 percent of the company's total revenue and 43.6 percent of its gross profit, up from 14.2 percent of revenue and 42.4 percent of gross profit in the same quarter of 2017.” Also reported was, “Total finance and insurance generated $28.7 million of revenue, a decrease of 2.3 percent from same period in 2017. This accounted for 4.6 percent of the Company's total revenue and 25.7 percent of its gross profit, flat from 4.6 percent of revenue and up from 24.0 percent of profit in the first quarter of 2017.” The stock fell 10.42 percent the day after the announcement, closing at $18.66 a share on May 4. That reduces the company’s market cap to 512.4 million on 27.46 million outstanding shares. The volume of shares trading hands was heavy; 943,100 shares exchanged hands over the course of the day as compared with an average daily volume of 213,002 over the last thirty days (according to a report). AutoCanada is a component of the S&P/TSX SmallCap Index.