The rise of the Internet has dramatically increased consumer awareness of auctions, with online auction websites allowing people to sell everything from high-value collectibles to ordinary household items. But when it comes to buying heavy machinery and equipment, Ritchie Bros. Auctioneers (NYSE:RBA) has developed more than a half-century of expertise in bringing buyers and sellers together.
Coming into the company's fourth-quarter financial report on Thursday afternoon, Ritchie Bros. investors were looking for solid, but unexciting, growth from the auction business. For the most part, the company delivered results that were largely in line with investors' expectations.
Yet Ritchie Bros. also admits that it would like to grow faster, and it hopes that its recent initiatives aimed at accelerating its growth will start to pan out in 2015. Let's look at Ritchie Bros. and its quarterly report more closely to see what we can learn about the business and its future prospects.
Ritchie Bros. sees more activity
Ritchie Bros. achieved reasonable growth rates during the fourth quarter. Revenue climbed 6%, to $138.5 million, inching just above the $137.9 million consensus among investors following the stock. Adjusted earnings of $0.31 per share matched expectations, and adjusted operating income rose 10% from the year-ago quarter, to $46.7 million.
Looking more closely at the results, Ritchie Bros. saw greater activity in its auctions, with gross auction proceeds soaring 12%, to $1.24 billion during the quarter. Unfortunately, though, Ritchie Bros. took a smaller portion of those proceeds as its cut, with its revenue rate falling by two-thirds of a percentage point, to 11.16%. Cost containment helped boost the bottom line, however, with operating margins improving by almost 1.5 percentage points.
Operationally, Ritchie Bros. continued to provide a solid mix and integration of e-commerce and live-action auction events. For the full 2014 year, the company sold about $1.8 billion in equipment and other assets to online buyers at its auctions and through its online equipment marketplace, which was 18% higher than 2013's figures. Overall, those purchases made up more than two-fifths of Ritchie Bros.' total gross auction proceeds, and Internet-based bidders represented three out of every five bidder registrations at the company's industrial auctions last year.
Meanwhile, Ritchie Bros. held 78 industrial auctions in 14 different countries during the quarter. Among its achievements were its biggest auction ever in Panama City, as well as a C$109 million auction of assets in Edmonton in October.
What's ahead for Ritchie Bros. Auctioneers?
CEO Ravi Saligram praised his company's efforts, noting that its results "reflect a continuation of a five-year growth trend in our Canadian operations and positive momentum building in the U.S. business." But Saligram sees itself working more on boosting overall revenue in 2015, and in particular, squeezing out more money from its gross auction proceeds. To help with that, Ritchie Bros. has named new executives, and it's still looking for a new CFO, chief marketing officer, and president for its U.S. and Latin America division.
The addition of 11 new territory managers to the sales team should also help boost Ritchie Bros. revenue. For the year, the company added 35 new members to that team, bringing the total to 307 as of the end of 2014.
Ritchie Bros. also announced that the Toronto Stock Exchange approved its stock repurchase plan, opening the door for the company to buy back as much as $100 million in stock during the next three years. Investors shouldn't expect a dramatic drop in share counts, however, as the company said that its intent is to offset new share issuance from stock options used as compensation.
The big question facing Ritchie Bros. is whether volatile economic conditions in the natural-resources industry will have an impact on demand for heavy equipment. So far, the results that Ritchie Bros. announced today suggest little difficulty; but any threat to that growth could cause problems for its future strategy.
On the other hand, with continuing improvement in U.S. economic conditions generally, Ritchie Bros. certainly has the ability to take full advantage of rising demand in other areas of the industrial economy, and boost sales. If it does, then Ritchie Bros. shareholders could see nice gains in 2015 and beyond.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Ritchie Bros. Auctioneers (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.