By Jeff Sanford
Toronto, Ontario — August 7, 2017 — This week’s Tuesday Ticker looks at earning reports from LKQ and AkzoNobel, how stock in 3M rose 16 percent in the last year, how Amazon may soon branch out from parts and into selling auto service and much, much more!
LKQ Corporation released its second-quarter 2017 financial results, announcing earnings of 53 cents per share, beating consensus estimates by a penny. Earnings came in at 52 cents per share in the same period last year. On a conference call discussing the earnings, Robert L. Wagman, the company’s CEO said, “… we believe Q2 was a strong quarter for our company and we are pleased with the results … There is no doubt that the mild winter weather patterns, which hit us particularly hard in the winter months, carried over into the spring as our bodyshop customers have limited backlog of work coming into the second quarter.”
As has been the trend for several quarters now, the company continues to grow its parts and services revenue faster than the market as a whole. “According to CCC, collision and liability related auto claims on a national basis were up only 1.7 percent in the second quarter of 2017, following a 1.1 percent increase in the first quarter. So, our growth of 2.8 percent in Q2 reflects a 110-basis point [1.1 percent] out-performance, and gives us confidence that we continue to do the right things to serve our customers,” said Wagman. “Importantly, the growth in our core collision product continues to be stronger than the North American average as whole. We also had an excellent quarter in terms of the sale of salvage mechanical parts, and the PGW aftermarket glass business, which we owned for a full year as of April 21, 2017, was a solid contributor to the overall North American organic growth rate during the remainder of the quarter … The total loss rates continue to increase, reaching 19 percent at the end of the second quarter. CCC believes this increase is the result of the mix effect and hangover of an older vehicle fleet and a slight uptick in the vehicles one- to three-years old being deemed a total loss.”
Overall LKQ purchased 77,000 vehicles for dismantling, a 6.9 percent increase over the comparable quarter of the prior year. LKQ has made a point of making sure trucks delivering parts to collision repair shops are as packed as possible before heading out on the road. The company’s program, Roadnet, is designed to drive efficiencies in this area of the business. For the month ended June 2017, LKQ was operating, “… at a 97 percent usage level across our fleet with year-over-year increases of 60 percent in terms of miles dispatched, 28 percent for stops dispatched, and 34 percent for routes dispatched. I’m particularly pleased that we have reduced our missed service windows by 53 percent, which today stands at less than 1 percent, another validation of our continued commitment of stellar delivery service to our customers,” said Wagman.
Following on the good news from LKQ, analysts at the brokerage William Blair sent a note to investors citing the results. According to the analysts, “This is two straight quarters of slight … upside [in terms of earnings per share].” Based on the solid second quarter the brokerage recommends buying the stock on any weakness. The analysts were impressed that North America organic revenue managed to increase by 2.8 percent, despite the mild weather.
“LKQ is outperforming auto parts retailers in North America,” according to the analyst’s report. According to the note as North America growth begins to accelerate, “LKQ is a top idea. Shares are up over 3 percent following another good quarter highlighted by 4.9 percent global organic daily sales growth for parts and services … We believe LKQ has turned a corner with two straight quarters of [earnings per share] upside and improving North America growth. While mild weather in North America remains a headwind, LKQ is taking market share and expanding gross margins. Also, organic growth in Europe and specialty continues at strong levels. LKQ is one of our top ideas currently, and we see room for shares to rise to $42, or 25 percent upside … We believe EPS of $2.30 is achievable in 2018 in a bull case assuming global organic growth of 6 percent and execution on M&A.” Some of the possible tailwinds include the “… shift to a younger car parc, salvage yard expansion, and normal weather.”
AkzoNobel just published its half-year and second quarter 2017 results. According to reports half-year revenue was up 4 percent. The company also report that it has made “… strong progress on strategy to accelerate growth and value creation,” and that it is, “Progressing [its] strategy to accelerate growth and value creation.”
AkzoNobel recently fended off an unwanted takeover attempt by PPG. Part of the strategy to avoid the takeover was to promise extremely impressive levels of growth in the years to come, as well as a plan to split up the company into two standalone entities. The CEO who made the promises, Ton Buechner, recently stepped aside. Nevertheless, AkzoNobel execs continue to reassure investors.
The company did announce it will hold an Extraordinary General Meeting (EGM) on September 8, 2017. That was an event that PPG was pushing for. According to Dutch law PPG has to step back from any attempted takeover activity as part of a legislated ‘cooling down,’ period, presumably forcing PPG to sit on the sidelines at the EGM now that the meeting they were demanding be called earlier has finally been scheduled.
The incoming CEO, Thierry Vanlancker, has only been in the job a week or two. But he commented nonetheless, saying, “I was involved in developing our strategy to accelerate sustainable growth and value creation for all our stakeholders. We will continue to deliver on the plans for the creation of two focused, high-performing businesses – Paints and Coatings and Specialty Chemicals. The separation process remains on track. As part of our ongoing program to strengthen the relationship with our shareholders, we are announcing a range of new activities including an EGM, which will be held on September 8 … We remain focused on executing our new strategy and continue to expect EBIT for 2017 to be around €100 million higher than 2016, as a result of growth momentum and continuous improvement. This assumes no further material changes in market and economic dynamics, including foreign currencies.”
3M also recently reported earnings. The company generated earnings of $1.58 billion in the second quarter. That breaks down into earning per share of $2.58 for the St Paul, Minnesota-based adhesive, tape and finishing products maker. Wall Street analysts had been expecting earnings to come around $2.59 per share. Even so, investors still love the stock. According to a report, “3M shares have risen 18 percent since the beginning of the year,” a period within which the S&P 500 stock index has only increased 10 percent. Over just the last twelve months stock in 3M is up 16 percent.
Boyd Group Income Fund recently announced it will release its earnings for the second quarter of 2017 on August 11, before markets open. Brock Bulbuck, CEO, will host a conference call following the release.
Related Market Notes
A news report suggests Amazon is considering selling auto services such as repairs, as well as parts. Some analysts credited a recent crash in the stock price of retail outlets that sell auto parts to Amazon’s parts sales. The so-called “Amazon effect” has been known to create similar reactions in other markets. Now, according to the automotive services consultant at strategy firm OC&C, “… car repair could be Amazon’s next move.” According to a report on Mashable, Amazon has already begun to, “… offer various standard [auto part] installations and fixes through its larger home and business service arm.”