Online automotive auction company Copart (NASDAQ:CPRT) saw its revenue jump in the second quarter of fiscal 2018, and earnings spiked, even as the company continued to experience an increase in operational expenses as a result of Hurricane Harvey last year.
Copart results: The raw numbers
|Metric||Q2 2018||Q2 2017||Year-Over-Year Change|
|Sales||$459.1 million||$349.5 million||31.3%|
|Net income||$103.2 million||$66.0 million||56.3%|
|Earnings per share||$0.43||$0.28||53.6%|
What happened with Copart this quarter
- Total revenue was up by 31.3% year over year, to $459.1 million.
- The vast majority of the company's revenue came from its services segment, which reported $401.9 million in revenue in the quarter.
- Global unit sales were up 15.5% year over year.
- Gross margins slid to 41.7% from 42% a year ago.
- Operating income was $150.9 million, which was a 38.6% increase from the year-ago quarter.
- Total operating expenses grew by more than 28% year over year, to $308.1 million.
- Copart said its operating results for the second quarter were "adversely affected" by costs of $36.5 million that were incurred as a result of Hurricane Harvey.
- The company had a $10 million charge to income tax expenses for the repatriation of foreign earnings and profit as a result of the new tax law.
- But Copart also received a favorable adjustment of $7.6 million to its taxes in the quarter, to account for its new federal corporate tax rate under the new tax law.
What management had to say
Copart CFO Jeff Liaw said on the earnings call that the company's U.S. average selling price increased in the quarter by 27.5% year over year, mainly due to "increased bidding activity" from buyers as newer cars were being totaled and less severely damaged cars were being designated as a total loss.
Management spent a significant amount of time on the call discussing the impact of Hurricane Harvey on the company. Executive Vice President Will Franklin said:
At this point, we have a clear picture on the impact of Hurricane Harvey on our financial results. Overall, we expect to lose approximately $8.2 million on the event. As always, we've conducted a comprehensive post-event review of our performance to identify areas of improvement and to prepare for the next [catastrophic event].
Franklin added that one of the biggest improvements Copart is making is in how it recovers and stores flooded cars. The company has acquired more permanent lots and facilities in the Houston area, and in other areas in the U.S. that are prone to hurricanes, in order to help control the costs associated with leasing land during a catastrophic event.
As usual, the company's management didn't offer any guidance, but did mention that it's continuing to invest in land for the development of lots. Liaw said that, "We invested $69.4 million this past quarter, of which approximately 80% ... was for land and development, a continuation of our capacity expansion efforts in general."
Buying up more land is still very much a part of Copart's current growth strategy and Franklin told analysts on the call that, "[W]e don't see the need for land abating in the next few years."