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Ticker Tuesday: Stock exchange hits a record and Uni-Select, Sherwin-Williams and Axalta post results

By Jeff Sanford

Toronto, Ontario — February 13, 2017 — Collision Repair magazine’s Tuesday Ticker keeps you updated on the latest in financial news from the companies making up the broader auto claims economy. The Toronto Stock Exchange’s main index hit another new record high on Monday. The S&P/TSX composite index hit 15,729.12, passing the previous record close of 15,657.63 that was hit on September 3, 2014.

– Uni-Select had a great year in 2016. The company recently announced its year-end financial results. The company reported double-digit growth in sales. The company brought in $1,197.3 million last year, an increase of 13.4 percent over the year previous. The company added 16 stores to the network in the final quarter of the year, resulting in a total of 50 new stores for 2016.

Henry Buckley, President and CEO, commented on the Canadian size of the business, saying, “We are pleased with our sales and earnings growth in the quarter. In Canada, we returned to positive organic growth with the Prairies strengthening. Total sales of FinishMaster US were up 17.7 percent; excluding the impact of the product line changeover, organic sales would have been approximately 4.1 percent.” He went on to mention the rebranding occurring at some of the new acquisitions, saying, “In Canada, we are investing in the future, building the Bumper to Bumper brand, for both independent customers and corporates stores, as well as expanding the newly launched FinishMaster brand nationally. We continue to be highly committed to building our business for the long term through balanced profitable growth and the expansion of both networks.”

The 13.4 percent increase in sales is measured against previous year’s sale ecxluding the sale of a major asset (in 2015 the company divested itself of its US parts distribution business). The company also noted that sales generated from new acquisitions represented $157.9 million or 15.0 percent of the total. Management of Uni-Select were careful to point out that the addition to sales from acquisitions exceeded the impact of shifts in the Canadian dollar, which penalized sales by $14.2 million or 1.4 percent.

According to the company, “Existing customer growth and net customer recruitment in the Paint and Related Products (US) segment…was partially offset by the product line changeover and the softness of the economic conditions in the Automotive Products (Canada) segment.” The company’s “cash flow from operating activities” increased by $117.7 million compared to 2015, due to the benefit of, “… additional vendor financing activities, lower investment in inventory, income tax refunds and higher operating income.”

The press release also notes that, “Organic sales in Canada decreased by 1.1 percent in the twelve-month period due to a reduced volume from existing customers in relation to the softer economic conditions, delivery delays on some products and reduction in benefits from price increases compared to 2015.” Nevertheless, an article in the investing press calls Uni-Select, “… one of the top-performing stocks in the market in 2015; it finished off last year on a high as well, even undergoing a 2:1 split to attract even more investments. This year, the stock is off to a great start — up by 6.2 percent. Over a longer two-year term, that figure is over 90 percent.”

– Sherwin-Williams also announced strong year-end results. Consolidated net sales for the year increased 4.6 percent to a record $11.86 billion. Full year net income per common share increased 7.5 percent to a record $11.99 per share. The company also said that it expects the Valspar transaction to close within 90 days at $113 per share, “with minimal divestiture.”

Compared to the same periods in 2015, consolidated net sales increased $516.3 million, or 4.6 percent, to $11.86 billion in the year. No wonder shares in the company are up 13 percent over just the last month. We’ve seen earnings rise for Sherwin-Williams in the fourth quarter, but it may be the Valspar acquisition that’s driving investor’s interest.

– Axalta also reported earnings this past week. In a conference call CEO Charles Shaver said that, “All in all, we see 2017 developing as a reasonably solid year from a demand standpoint …” The company noted that the Transportation Coatings segment generated earnings of $88 million in the last quarter of the year, up from $82 million a year ago. According to Shaver, “Light vehicle net sales growth this year is anticipated to be up slightly, supported by global auto production up around 1 percent based on current forecasts … Clearly, we’re seeing more pressure on overall growth in this end-market given expected lower production rates in North America and slightly less growth in [Europe and the middle east] … Though we anticipate less headwind relative to last year where we weathered significant downturns in heavy-duty truck, as well as some non-truck commercial customers. In 2017 we anticipate moderate additional reductions in North America class 8 production. But a more supportive overall market picture …”

Overall the company expects to produce revenue of between $930 million to 980 million in 2017.
 
– PPG announced this week that the US Department of Energy (DOE) will provide $1.14 million to develop new, “… silica-based performance fillers for non-tread components which improve the fuel efficiency and performance of tires.” The funds are provided through the Office of Energy Efficiency and Renewable Energy’s Vehicle Technologies Office. According to the report, “PPG will develop reinforcing fillers for non-tread tire compounds … The DOE project aims to enable a 2 percent increase in the fuel efficiency of tires with an initial focus on the non-tread component … The objective is to cut energy loss through the sidewall, while maintaining or improving resistance to forces such as cracking, tearing and abrasion that lower quality of the tire.” Forecasters are expecting PPG to post earnings per share of $1.32 for the quarter.

– LKQ Corporation announced last week it will release fourth quarter and full year 2016 financial results before the market opens on Thursday, February 23, 2017. Shares of LKQ have an average recommendation of ‘Buy’ from the eight research firms that are covering the firm. The average one-year price target on the stock in the last year is $39.17.

Related Market Notes

– According to a report from bond rating firm Fitch, “Donald Trump’s presidency poses a risk to the global economy.” The report warns about Trump’s “… unpredictability, his administration’s aggressive tone and his break with established ‘norms’ in international relations.” The report goes on to note that, “Less than a month into a presidency characterised by frequent Twitter tirades and … the Trump administration represents a risk to international economic conditions and global sovereign credit fundamentals. US policy predictability has diminished, with established international communication channels and relationship norms being set aside and raising the prospect of sudden, unanticipated changes in US policies with potential global implications.”

The report goes on to warn that countries with large trade balances with the US are most at risk. As the Fitch analysts note, “The administration has abandoned the Trans-Pacific Partnership, confirmed a pending renegotiation of the North American Free Trade Agreement, rebuked US companies that invest abroad, while threatening financial penalties for companies that do so, and accused a number of countries of manipulating exchange rates to the US’s disadvantage.” The aggressive tone of the statements on trade, “… suggest there is much scope for compromise.” The countries whose credit ratings most at risk, “… were those with close economic and financial ties with the US. Canada, China, Germany, Japan and Mexico,” according to Fitch.

– The Alberta Finance Department unveiled its “Year in Review” recently. According to a report, “Considering that we’ve been a straight-A student for so long, I would call 2016 a C-minus,” ATB Financial Chief Economist Todd Hirsch was quoted as saying. “It was a pretty rough year, but not a disaster … so I’d say a C-minus, maybe bordering on a D.”

– On a positive note for Alberta, oil is trading above US$52 a barrel as the OPEC deal to scale back production appears to be sticking. Last week the US Energy Information Administration released its short-term outlook projecting crude prices to average US$55 a barrel in 2017.

– Canadian job growth unexpectedly surged in January. According to Statistics Canada, the country added 48,300 jobs last month. In a newspaper report Doug Porter, Chief Economist at BMO Capital Markets, was quoted as saying, “We’ve had a very good run here from employment and I think it’s sending a pretty convincing signal that the economy is starting to improve.”

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