There's no simpler way to determine the value of something than to put it up for auction and let buyers figure out the optimal price. That's the essential substance of the business model that Ritchie Bros. Auctioneers (NYSE:RBA) uses to bring buyers and sellers of heavy machinery and equipment together.
Coming into the company's first-quarter financial report on Thursday afternoon, Ritchie Bros. investors had hoped that the auction specialist would get the 2015 season off to a solid start. Few, though, expected that Ritchie Bros. could put together nearly as strong a performance as the company did to start off the year. Let's take a closer look at Ritchie Bros. and how it managed to do so well in the first three months of 2015.
Ritchie Bros. keeps on selling
Ritchie Bros. shocked many investors with the positive surprises it posted. Revenue jumped 17%, to $115.6 million, setting a new record for the best Ritchie Bros. has ever done in the first quarter of a year. Net earnings soared 65%, to $23.6 million, producing earnings per share of $0.22, far better than the $0.15 per share that most investors had expected.
Examining the results more closely, Ritchie Bros. got just about everything right during the quarter. Gross auction proceeds jumped 12%, to $955.6 million, which was also a quarterly record, and the company's revenue rate -- or the portion of sales proceeds that Ritchie Bros. takes for itself -- rose more than half a percentage point, to 12.1%. Operating margins launched higher by more than 7.5 percentage points as revenue rose at a much faster rate than overhead expenses.
Ritchie Bros. still sees plenty of activity in its auction business. During the first quarter, the company did 40 industrial auctions in 12 different countries across the globe. The biggest sale involved almost $180 million in assets in Orlando, combining live-auction participants and online bidders in a single platform.
Several other major auctions occurred in the U.S. and Canada, and 90 more auctions are scheduled for the near future at the company. Meanwhile, Richie Bros. set a new record for online bidder registrations, and sold more than $405 million in assets to online bidders, up 27% from the first quarter of 2014.
Can Ritchie Bros. Auctioneers keep up its fast growth pace?
CEO Ravi Saligram couldn't have been happier with the results. "It is clear that our team is laser-focused on executing our new strategy and demonstrating the value of our services to our customers," Saligram said. Moreover, the CEO noted how the company's positive momentum has continued beyond the end of the first quarter, with a record showing at a Ritchie Bros. auction in Edmonton last month.
More good news from shareholders came from the Toronto Stock Exchange, which approved the company's request to allow Ritchie Bros. to authorize a stock repurchase program. Pursuant to the new program, Ritchie Bros. repurchased 1.9 million shares during the first quarter, spending $47.5 million in the process. Although many companies have implemented repurchase programs, the stated purchase of the company's buyback is to offset dilution from options given as compensation to employees.
Perhaps the only sign of weakness came in looking at average figures for Ritchie Bros. auctions. With a greater number of auctions, average gross proceeds fell about 2%, to $22.2 million, and the average number of consigning participants per auction also fell from year-ago levels. Yet average bidder registrations and overall lots rose, pointing to continued success.
Ritchie Bros. investors appeared satisfied with the company's financial results, sending the stock up about 3% in after-market trading following the announcement. As long as low interest rates make borrowing to make capital expenditures easier, Ritchie Bros. is likely to see continued strong demand for its equipment auctions. Only if the economic cycle turns southward will the company likely experience a slowdown; while investors should be ready for that, in the long run, Ritchie Bros. still looks solid.