Online automotive auction company Copart (NASDAQ:CPRT) saw its revenue climb in the first quarter of fiscal 2018, but earnings took a nosedive as the company paid "abnormal" -- but expected -- sums of money to house vehicles in the wake of Hurricane Harvey.
Copart results: The raw numbers
|Metric||Q1 2018||Q1 2017||Year-Over-Year Change|
|Sales||$419.2 million||$345.9 million||21.1%|
|Net income||$77.5 million||$167.2 million||(53.7%)|
|Earnings per share||$0.32||$0.70||(54.3%)|
What happened with Copart this quarter
- Total revenue jumped by 21% year over year, to $419.2 million.
- Service revenue was $374 million in the quarter, an increase of nearly 22% from last year.
- Gross margins improved by more than 12% year over year.
- GAAP operating income increased by more than 18%, to $123.9 million.
- Total operating expenses increased by more than 22% year over year, to $295.2 million.
- Most of the expense increases came from vehicle yard operation costs, which jumped by 31% year over year.
- Copart was expecting operating costs to increase as a result of storage facility, labor, and equipment lease expenses to cover an influx of vehicles damaged by Hurricane Harvey.
What management had to say
The company explained in its press release that the massive drop in earnings came as operating expenses skyrocketed: "The operating results for the three months ended October 31, 2017 were adversely affected by abnormal costs of approximately $35.8 million incurred as a result of Hurricane Harvey."
This shouldn't come as a surprise to investors, considering that Copart CEO Jayson Adair said on the fourth-quarter earnings call that the beginning of the 2018 fiscal year would bring "significant costs." Copart is in the process of moving and storing hurricane-damaged vehicles, and that means the company has had to spend lots of its resources on equipment leases, renting extra space, and moving around employees.
"These costs included temporary storage facilities; premiums for subhaulers; labor costs incurred from overtime; travel and lodging due to the reassignment of employees to the affected region; and equipment lease expenses to handle the increased volume," the company said in a statement.
Copart doesn't like to offer forward guidance, but investors should expect the current expenses to continue impacting the company until later this year. Copart's management said last quarter that the expenses from Hurricane Harvey will carry through the next few quarters, and that auction revenue (from the sales of the vehicles) probably won't be seen until the third or fourth quarter of fiscal 2018.
This means that Copart isn't likely to see its bottom line grow until the vehicles' costs subside and after the company is able to start selling the extra vehicles its picked up from the hurricane. Investors will have to remain patient while they wait to see if, and by how much, the company's current expenses pay off.