Yesterday AM (4/20/2018), GPC reported Q1 2018 earnings. Total revenue growth of +17.4% was 300bps above Consensus. Adj. EPS of $1.27 missed both Consensus of $1.32 and our $1.29. Full-year 2018 guidance remained unchanged despite the miss, potentially partially offset by a now lower tax rate guide of 26% (vs. 26-27% previously). GPC shares were down -3.5% versus the S&P 500 of -0.6%.
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Earlier today (4/18/2018), KMX held an analyst day at its store and reconditioning center in Murrieta, California. The majority of the C-suite (CEO, CFO, CMO, SVP Store Ops and SVP Strategy) were in attendance for tours of the reconditioning center, Wholesale lanes as well as for Q&A. The event was not webcast, and shares were +49bps versus S&P 500 +107bps.
Spin-cos are all of the rage, particularly within Autos given secular changes. The feasibility of a spin-off is one question we are receiving from investors. In response, we explored a European spin-off for LKQ and came away mixed viewing a spin-off as feasible, but better for downside support rather than an upside catalyst at current valuation.
This AM (4/12/2018) pre-open, GPC announced that it is tax-free spinning its Office segment to its closest peer ESND (Not covered) with expected cash proceeds of $347M and an expected pro-rata share value of ESND of $333M, which essentially assumes ESND’s pre-deal share value holds after the deal. GPC shares are +1% today (in-line with S&P 500).
KMX reported 4Q 2017 before the open. Used unit comps of ‑8.0% were below Consensus of -2.8% but met our -8.5%. Adj. EPS of $0.85 missed Consensus of $0.87 but beat our $0.83. See our first take on print. Shares are up +4% after starting off -8% in the AM. Incrementally, we think KMX handled the call and messaging of expenses well, which was enough for bulls to step in and wait for a widening used to new spread.
KMX reported 4Q 2017 before the open (04/04/18). Used unit comps of ‑8.0% were below Consensus of -2.8% but met our -8.5%. EPS of $0.85 missed Consensus of $0.87 but beat our $0.83. There was some added noise around one-time bonuses and DTA revaluation. We adjusted EPS for DTA revaluation but not one-time bonus ($8M), which we originally estimated at $10 - $15M in Q1 (not Q4). The adjusted effective tax rate of 26.3% came in below our 29.5% and Consensus of 33.5%.
Today (04/02/18), after market hours, AAP announced that EVP & CFO Tom Okray has decided to leave the company, effective 04/05/18 to take a position as CFO at GWW (Not covered). Controller/ CAO Jeff Shepherd will serve as interim CFO while an outside search is conducted.
On Tuesday (3/27/2018) we hosted a lunch with KAR’s CFO, Eric Loughmiller, and its VP of IR, Mike Eliason, at Wolfe HQ in New York. For those who couldn’t attend, we add our perspective after a day with mgt.
The current quarter epitomizes KMX’s high volatility with comps inflecting from a +8% in Q4 16 to an estimated -8% in Q4 17 (Exhibit 3). Call volume has asymmetrically skewed positively with investors looking at buying the dip, while some of the biggest bears we speak to have even moved to the sidelines or revisited as a long. However, investors are universally at a loss for why comps have slowed. We take a look and propose 17 possible explanations for the weakness.
We are hosting KAR management in NYC on Tuesday, and expect the team to remain visible given increased investor interest from the IAA spin-off. We put together a package of: questions for mgt, printable model, 1 pg. tear sheet, financial profile, SOTP, and annual scenario model.
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