Wolfe Research's Auto & Auto Retail Analyst, Chris Bottiglieri, hosted a webcast on LKQ to discuss an overview of the business, what went wrong, a recap of shareholder friendly changes that we think ValueAct was behind, LKQ growth algorithm after factoring in the turn-around, and Plan B: exploring asset divestitures and LBO scenario.
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This AM (9/10/19), LKQ held a call on its EU integration. LKQ did a strong job of addressing the critical questions from our preview. Our one critique is that qualitative details were lacking on how they accomplish this, but mgmt. likely relied on the ‘18/’20 analyst days for those details. LKQ shares +5%.
Copart reported FQ4 ‘19 results with total revenue of $543m above Cons. $525m & our $539m. Adj. EPS of $0.60 was above Cons. $0.58 & our $0.59. Shares were up 6.5% vs. +1.3% for the S&P 500.
LKQ is hosting an analyst call on 9/10 to provide an update on its Europe segment. In Q4 18, LKQ reiterated its targeted 10% EBITDA margins (vs LTM of 7.8%) by the end of 2020. However, with the stock near 5-year lows, the market has written off this target due to a combination of executional (Exhibit 7) and macro issues. The key issue from this call is whether the updated plan is credible, and if not, should Europe be up for sale?
Wolfe Research's Auto & Auto Retail Analyst, Chris Bottiglieri, hosted a webcast to discuss latest thoughts on Carvana, KAR, IAA, and AAP.
This AM (08/13/19) IAA reported Q2 with Rev beating Cons but EBITDA missing. However, these results were already known via discontinued ops disclosure in KAR’s 10-Q. The acceleration in volume and clarity around purchase accounting impacting COGS settled shares, which were +5%.
This AM (08/13/19), AAP reported Q2 SSS of 0% vs Cons. of +1.7% and our -1.0%. EBIT margins of 8.4% missed Cons. 9.4% and our 8.8%, driven by the soft comps and weaker gross margins. Adj EPS of $2.00 missed Cons. of $2.22 and our $2.03. AAP narrowed the high end of its comp and EBIT margin guidance but raised FCF guide. Shares were flat vs S&P +1.5%
Lyft: Good performance with the trees, but what about the forest?
Performance is Q2 was quite good, as a focus on better pricing and share gains for business travelers and other “high-value” routes led to better-than-expected margins. But we believe that growth in these segments is finite. Enough revenue growth to get to breakeven (from -25% EBITDA margin currently) will require Lyft to tap into the broader market, in our view. And, for that, pricing needs to go down, not up.
Takeaways from Continental earnings call
Continental is a bellwether. In our view, anyone following US suppliers should take a closer look at what they said (which we summarized in this Daily). Conti’s auto business experienced similar 1st half margin compression as suppliers we cover but they are not expecting a similar recovery in the 2nd half.
KAR reported Q2 on 8/6 with a call on 8/7. KAR beat on revenue but missed significantly on EBITDA. However, one-off items helped to explain much of the weakness. While results were disappointing relative to the high expectations set into the spin, we did take some solace in strong underlying EBITDA growth. If KAR hits 2H numbers and proves these were isolated issues, then we see considerable room to run given valuation/growth profile. We cut est. slightly but raise our CY 19 price target to $33 (was $31) on higher than expected cash post-spin. Shares -6%.
What good would a KAR quarter be without controversy? Unfortunately, this quarter was no exception. Total Rev beat Consensus by 4% and Wolfe by 3%. Total volume was in-line with our estimates with much of the difference driven by purchase accounting. Adj. EBITDA missed Cons by 8% and Wolfe by 9%. A non-recurring inventory loss at a subsidiary explains 4pts of the EBTIDA miss. Call tomorrow (08/07/19) at 11AM.
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