Shares of KAR Auction Services (KAR 0.33%), a provider of auction services and technologies for the automotive industry, plunged as much as 15.5% Wednesday morning after the company delivered mixed third-quarter results. Here are the details investors need to know.
KAR's revenue increased 14.6% during the third quarter, compared to the prior year, to $701.9 million, better than analysts' estimates of $697.5 million. Adjusted earnings per share checked in at $0.35, a 9% increase compared to the prior year but lower than analysts' estimates of $0.40 per share. "Though we experienced growth across our businesses in the third quarter, volume and margin pressures drove consolidated results lower than we anticipated," said Jim Hallett, chairman and CEO of KAR, in a press release. "We are focused on stabilizing our cost structure and performance to drive sustainable growth and deliver long-term shareholder value."
KAR will continue to face challenges on volume and margin as the overall light-vehicle market in America plateaus and likely begins to decline in the coming years. Moreover, many analysts anticipate 2019 to be peak off-lease volume with a decline not far away, which would have negative impacts on auction volume. Tom Kontos, chief economist at KAR, told Automotive News that more off-lease vehicles are being purchased by the originating dealer and not making it downstream to auctions -- certainly a development for investors to keep an eye on. Ultimately, KAR faces challenges, but these challenges are simply part of the cyclical automotive industry, and investors will need to keep a long-term horizon when investing in the company.