Tuesday Ticker

By Jeff Sanford
Toronto, Ontario – July 16, 2018 – In this week’s Tuesday Ticker LKQ gets stock recommendation, Axalta raises prices, and much, much more.
Companies will report second quarter earnings results over the next couple of weeks. Expect a flood of financial results from publicly-traded companies. Check this space in the weeks ahead for the most interesting industry outlook scenarios offered up by auto aftermarket executives in conference calls convened to discuss results.
The big American publicly-traded auto recycler and parts distributor, LKQ, enjoyed a recommendation from a stock analyst this week. The analyst suggests the outlook in the parts sector is good. The North American auto fleet is aging, and that’s going to drive sales of aftermarket parts. According to the analyst auto parts suppliers are entering a “sweet spot for their industry” over the next two to three years. The average age of cars on the road in the U.S. hit at “an all-time high of 14.2 years in 2017.” As interest rates rise in the years ahead financing and leasing costs will rise. This will see owners hold onto their vehicles longer. As a result demand for after-market parts to repair these aging vehicles will rise. That’s going to create a good headwind for any recycler supplying aftermarket parts
On the conference calls held to announce first quarter results several executives from different paint companies mentioned the rising cost of raw materials used to make industrial coatings. This past week Axalta acted on the concerns voiced then and announced it is raising prices as a way of dealing with continuing increases in the costs of raw materials. The Axalta announcement also notes that packaging and transportation costs are rising. With crude oil prices trending up, transportation costs are rising throughout the economy. As a result Axalta will introduce a price increase for its industrial coatings technologies sold in North America. “The increase will take effect as permitted by contract and will be communicated directly to affected customers,” according to a press release. Michael Cash, industrial coatings president, Axalta, was quoted as saying, “Axalta makes every effort to work closely with our suppliers to combat rising input costs while ensuring that our products are competitively formulated. These price increases will help us continue to deliver on our promises to provide customers with innovative products and world class level of support and service that they and their customers have come to expect.” Axalta also announced this week that it will host a conference call to review its second quarter 2018 financial results at 8:00 a.m. EST, Thursday, July 26, 2018. Charles Shaver, chairman and CEO, and Robert W. Bryant, executive vp and CFO, will be on the call to review the company’s financial performance
The Boucherville, Quebec-based paint distributor announced the company has appointed Chris Adams to the position of senior vp, sales and marketing. As it is, Adams is responsible for all US branches and is leading all sales and marketing efforts in the United States. According to a bio in the press release he joins FinishMaster from ABRA Auto Body & Glass LP, a major MSO that is one of the big chains working to consolidate the industry. Prior to that position Adams was a senior executive at parts retailer Pep Boys and Enterprise Rent-A-Car. Steve Arndt, president and COO, Uni-Select, was quoted in the release as saying, “We are thrilled to have Chris join our team and help us accelerate profitable growth at FinishMaster.”
AutoCanada Inc. will release its financial results for the quarter ended June 30, 2018 on Thursday, August 9, 2018 after market close. The company will hold a conference call to discuss the results on Friday, August 10, 2018 at 11:00am EST. Paul Antony, chairman of the board, and Steven Landry, CEO, will be on hand to take questions from analysts and institutional investors. It should be an interesting discussion. AutoCanada seems to have started out on a consolidation play of North American dealerships. But recently shareholders have demanded the board strike a special committee to discuss future strategy. Over the past several weeks some board members have been replaced as a bit of a shakeup plays out at the company. Stay tuned for more info on that story in the weeks ahead.
Trade Tariffs
One possible outcome to the emerging trade war is an expansion of the used car market. Several reports note that current threats to apply 25% tariffs to vehicles would have a deleterious effect on sales of new vehicles. One estimate is that a 25 percent tariff would reduce sales new cars by more than 1 million units. As one analyst put it, “It puts consumers into a position where they may have to buy cars they would not have purchased previously, and it potentially moves buyers into the used car market, or makes them hold off on their purchasing decision.” Many cars coming off lease (and therefore headed to the used market) are crossovers and SUVs. If Trump does apply the 25% tariff expect to repair more of these older vehicles.
Some Tesla shareholders are getting annoyed with Elon Musk’s seeming inability to focus on the problems at Tesla. This past week Elon found time to travel to Thailand with a submersible that he claimed could be used to save the children trapped in a cave there. The sub was too big to fit into the cave, and Musk was asked to leave the rescue area. In the wake of the incident one investor asked him to stop with the PR stunts and buckle down on the problems at the Tesla plant, which has failed to hit production targets. A new part of the production line has been set up under a large tent outside of the plant. Workers are being forced to put in over time as the promised production levels of the company’s new Model 3 lag. This past week a portfolio manager with Tesla’s fourth- largest shareholder, was quoted as saying, “we are very supportive, but we would like peace and execution at this stage… it would be good to just concentrate on the core task [fixing the plant].”

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