Copart Q3 & FY '96
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Copart Q3 & FY '96
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Copart, Inc. BACKGROUND Copart provides services to process and sell salvage vehicles. They auction salvage vehicles which are either vehicles deemed a "total loss" by insurance companies or are recovered vehicles for which an insurance settlement with the vehicle's owner has already been made. They also print a Salvage Estimating Guide based on their historic sales data that serves as a way for suppliers and buyers to estimate the value of salvage vehicles. UNION CITY, Ca., October 9, 1996/FOOLWIRE/ --- Copart released Q4 and FY 1996 results yesterday morning. Revenues for Q4 were $31.5 million. Volume was a little over 100,000 cars. Earnings was $0.21 per share. The company has made a lot of changes. With the retirement of their president, they decided they wanted to close down the East Coast Division to consolidate everything on the West Coast. They closed down the East Coast network to consolidate it into Dallas, Texas into their national network. So all the national accounts they have can be converted through the Dallas network and then throughout the US. They moved their Commercial Division from Connecticut to the Dallas network, so all of the commercial units they handle throughout the US go to the Dallas network. That consolidation is done and they are all under one roof which gives them better control.
The MIS department consolidated their computer systems into one major IBM box, so to deal with communications from the East Coast/West Coast is just a file code and they are in the same mainframe. The communications systems are already interfaced at all of their divisionals, regionals, and general managers and upper management can communicate online any time. The interface with the JD Edwards accounting package they purchased two years ago is completely interfaced coast to coast so their numbers are more available to them on a daily or hourly basis to see what the company is actually selling, or the number of cars being brought in.
In the midst of doing all that, they have finished their nationwide freight rate system. It has just been sent out and will be completed within the next 90 days. Their freight rates for transport in and transport outs will be pretty much consolidated throughout the US and within their computer systems.
The big issue that hurt their earnings last quarter was the purchase program. It was at 9%, is still at 9%, and will probably stay flat at 9%, but what they have done is convert a lot of the purchase programs over to more earnings type purchase programs. Out of all of the cars they have purchased, the ones that were not making the money they were supposed to be making, they converted to another purchase program or a PIP program or a flat-fee program. PIP percentage program is right now running at 27% and the purchase program is at 9%.
In the last 12 months they have opened 5 new facilities, one in Florida, one in North Carolina, one in Los Angeles, Phoenix, and Indianapolis. They acquired two -- one in Jacksonville MS and one in El Paso TX. So, growth going forward will stay in the 20-25% range as expected.
Comparing Q4 to Q3, the gross margin has increased from $81 to $88 per vehicle. G&A increased due to the buildup of the staff to handle increased volume of operations, development of large marketing operations, and investment in MIS. As a result of that, the operating margin decreased $2 to $41 based on lower units processed in Q4 versus Q3. However, compared to the same quarter in the prior year, net income has increased 29% to $2.7 million and EPS has increased 24% to $0.21 per share. There was a same store increase in revenue per vehicle of 3% and an increase in the same store vehicles processed of 13%.
Operating issues in Q4 versus Q3 included the increase in the volume of the purchase program to 8.8% of total cars processed and the margins have decreased from $69 in Q3 to $37 per vehicle in Q4. That is basically due to increased demand from insurance companies doing business with pools in the East. What Copart has made a strategic decision to do is to try to program with them and, if not up to the standards, they are looking to changing to percentages or switching them to other programs. As of today, they are out of the contracts that were losing money. What they have seen in the first part of this year is a lot of those profits reversing themselves, so they are seeing the benefit of that in Q1. They will take on new cars on the purchase program, but again they are looking at somewhere in the range of 8-10% for those going forward.
In the Eastern division they have seen margins increasing on that segment of their business during the quarter from $65 to $69 while at the same time there was a volume decrease just due to cyclicality from 38,000 to 32,000. One of the things they have talked about in the past is the difference in the value of the vehicles there. Compared to the West coast, the average sales prices on the East coast are about 20% less than what they have seen at auction on the West coast.
On new openings, volume has increased to in excess of 5,000 cars and in Q4 showed a profit versus the prior quarter's loss of approximately $100,000. Copart believes that these yards are an investment in the future and that for the first six to twelve months of any given yard they are going to show losses. What they do from an accounting standpoint is, up until the first opening, they will capitalize the losses and those are amortized over the subsequent 12 months.
Increases in G&A, marketing and MIS costs are an investment in the future. They believe they should get approximately $100,000 in savings per quarter by eliminating the Eastern division headquarters and that should be accomplished in Q1 1997.
For the year they had revenues of $118 million versus $58 million in the prior year. Volume has increased to 391,100 cars versus 223,300 in the prior year. The PIP percentage was 25% for the year and purchased cars totalled 6% of their volume. Compared to the prior year the gross margin has decreased from $91 to $89 per vehicle. And G&A has increased as a result of the buildup of staff to handle the increased volume of operations, development of large marketing operations, and the investment in MIS. And, as they mentioned from the same store increase in sales it is evident how the increase in marketing operations has come to fruition.
Net income has increased 62% to $11.2 million and EPS has increased 31% to $0.85 per share. For the year, same store revenues per vehicle increased 9% and same store volume increased 3% (does not include the impact of the NER acquisition they did in May of last year).
They have eliminated the Commercial Division in Connecticut and incorporated it into their Dallas network. They have closed their Eastern Division corporate offices to get some synergies out in California. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |