By CRM staff
Toronto, Ontario -- November 26, 2018 -- In this week’s market update, Copart reveals the true cost of hurricanes to its salvage and auction business, and a forecast of growth for the collision repair sector.
The cost of hurricanes: Copart
Sales and earnings for Copart grew by double digits in its first quarter of fiscal 2019, ending Oct. 31, 2018. The U.S. numbers for the online vehicle auction company were largely influenced by catastrophic weather events and expansion into non-insurance markets.
In the quarterly results conference call, Jeffery Liaw, chief financial officer, noted Copart achieved a record first quarter in unit sales revenue, gross profit, and operating income. Global revenue grew 10.1 percent year-over-year. Excluding hurricanes Harvey, Florence and Michael, revenue would have been 15.1 percent. Liaw said global service revenue grew 5.5 percent, but, again, excluding those three hurricanes, this revenue would have grown at 11 percent. Gross profit grew from $163.3 million one year ago to $195.9 million this year or 20 percent growth.
While the quarterly results were presented in a way that compares current and past-year numbers with and without the influence of hurricanes, Liaw said the company considers preparation for catastrophic events a cost of doing business. “The first quarter of '19 is likewise burdened by expenses related to Hurricanes Florence and Michael which collectively represented US$4 million of gross profit loss in the quarter,” Liaw said. Copart has not treated the hurricanes as an “extraordinary event” for financial reporting purposes.
“We believe that storm readiness and response is an essential service that we provide to our customers and although catastrophic events tend to be unprofitable for Copart and in the case of major storms like these, substantially so, we believe our commitment to exceptional service in these events distinguishes Copart from the competition.”
William Franklin, Copart’s executive vice-president, U.S. operations and shared services, explained how the company prepares for a predicted catastrophic event, in order to provide a high level of service to its insurance customers. Before the storm hits, Copart obtains access to land, and stages equipment and people. “For hurricanes Florence and Michael, we relocated 180 people, 75 loaders. We arranged for an additional 500 trucks for sub-haul capacity and we committed to 17 new temporary property leases.”
Franklin reported that U.S. volume grew by 4.3 percent when adjusted for all catastrophic activity. “Our volume growth continues to be driven by organic growth and market wins within the insurance market and a continued expansion into the non-insurance markets,” he explained. Franklin said organic growth in the salvage market continues to be driven by an increase in total loss frequency as high repair costs are leading to a higher percentage of accidents resulting in an economic total loss.
He stated that Copart is aggressively developing its non-insurance business, which includes franchise and independent dealers, finance companies and leasing companies, fleets, charities, municipalities, equipment dealers and wholesalers. The growth in volume for Q1 2019 was spread broadly across multiple seller segments. Volume from dealers was up 29 percent, finance companies 11 percent, wholesalers 54 percent, rental car companies 30 percent, and fleet and industrial equipment up 77 percent.
Global market outlook predicts 2.5 percent growth
The global automotive collision repair market is expected to grow at a rate of 2.5 percent from 2018 to 2024, according to a report from Global Market Insights. The market is estimated at US$236 million for 2017. For the purposes of this report, the collision repair market includes sales of refinishing products, parts, tools and equipment, and repairs.
Finishing compounds show significant growth of around 4 percent over the forecast timeframe. Aftermarket parts will exhibit the highest growth rate among parts, at more than 3 percent CAGR from 2018 to 2024. This growth is credited to the availability of spare parts and components at lower cost compared to the OEMs.
The report notes that increasing technical complexity in vehicles, including the incorporation of innovative technologies including lane departure warning systems, forward collision systems, night vision, and automatic emergency braking, may pose a threat to the industry players. “The requirement of highly skilled technicians along with the high-end tools and equipment for car repairs may provide a challenge for the automotive collision repair market place.”