"We're not strapped for cash. We've got a lot of ideas, we've got a lot of great improvements to make, and we want to improve the customer experience."
-- President Jay Adair during Copart's (NASDAQ:CPRT) earnings conference call, 3/5/09
I think that comment pretty much sums up the state of affairs for auto salvage specialist Copart. In case you didn't catch the conference call, here are a few points to help flesh out Adair's statement.
In terms of cash, a quick balance sheet comparison might not lead you to draw such a rosy conclusion about the state of this salvage shop. After all, cash on hand fell from $50.8 million last quarter to $22.4 million on Jan. 31 (the end of the company's fiscal second quarter). But to conclude that Copart is burning cash would be to overlook the natural flow of this business. The second quarter is a time to build up inventory, whereas the cash flows back into corporate coffers the following quarter. Copart estimates that cash on hand should top $70 million in the third quarter.
Meanwhile, debt (the item called "book overdraft" on the balance sheet) is under $10 million, and Copart's $200 million credit line remains undrawn. So, no, Copart is not strapped for cash.
As far as ideas, the company has already rolled out a new website, which drives vehicle sales through its online auction platform. Beyond that, we didn't get too many specifics on new developments, but Copart sounds pretty excited about enhancing its services while competitors pull in their horns.
Such investments should widen the firm's economic moat, which is evidenced by the fact that Copart is seeing its returns rise while the industry as a whole is flat compared to December's nadir. Given the increasingly valuable franchise here, I'm happy to see that Copart repurchased nearly a quarter-million shares during the quarter, at an attractive average price of $26.93.
I think this recession-resistant business shows that there are indeed places for equity investors to take refuge even in the most brutal of economic environments. While firms like General Motors (NYSE:GM), Ford (NYSE:F), and even Toyota Motor (NYSE:TM) continue to spin their wheels, niche businesses like Copart and AutoZone (NYSE:AZO) are cruising pretty comfortably.
