As the number of cars on the road has ticked up, along with miles driven, Copart (CPRT 0.62%) is humming along. The company, which provides online auction services for car sellers as well as marketing services, reported results that showed improvement during the fourth quarter.
Copart results: The raw numbers
| Metric | Q4 2016 | Q4 2015 | Growth (YOY) |
|---|---|---|---|
| Sales |
$332.7 million | $282.3 million | 17.8% |
| Net income |
$84.1 million | $57.4 million | 46.5% |
| Earnings per share |
$0.71 | $0.44 | 61.4% |
Data source: Nasdaq and SEC filings. YOY = year over year.
What happened with Copart this quarter?
Copart's results revealed that unit sales continued to increase, which helped to improve revenue in several key business segments.
- Global unit sales rose 13.8%, which increased service revenue by 18.8% and purchased car revenue by 11.8%.
- Gross profit grew from $118.8 million last year to $141.5 million in the fourth quarter.
- Copart said that net income and EPS grew in part because of stock repurchases that were completed this year and last.
- U.S. operations volume increased 14% year over year, mainly from an increasing position in the salvage market and growth from non-insurance volume.
- The company said it reported non-GAAP figures for the quarter (which it typically doesn't do) because of two currency-related changes. These included a post-tax effect of $4.8 million of booked gains on currency balances and a $1.3 million after-tax loss from the weakening British pound following Brexit.
What management had to say
Copart CFO Jeffrey Liaw mentioned on the earnings call that unit sales increased because of "elevated driving activity, accident rates, and total loss frequency" (that last term refers to when a car is involved in an accident and then considered a total economic loss). The company noted that total loss frequency increased by just 1.2% in 2014 but increased 6.8% this year. Copart's management also said that all three factors are helping to increase the company's North American salvage market share.
Additionally, Copart's executive vice president, William Franklin, said that the complexity of new vehicles and increased technology components means that car-part demand is expected to increase. "Cars are becoming more complex as they incorporate exotic and lightweight materials, inter-fit construction processes, sensors, cameras and other electronics, all of which demand that shops employ new equipment, tools and training, as well as acquiring more replacement parts per repair," Franklin said on the call.
The company also noted that because of its increase in sales volumes, it will make more land acquisitions for new salvage yards than it previously anticipated. It was going to add 20 new yards in North America, but said that number will be higher now (though it didn't specify how much higher).
Looking forward
By Liaw's own admission, Copart doesn't traditionally give a lot of guidance, but he did say on the call that the same factors that have been important for the company over the past two years will continue to be key areas to watch in 2017: "I'd say just looking backwards say four to eight quarters, big drivers are currency, scrap values, [and] catastrophic events, which can cause higher than normalized cost incurrence."
