By Jeff Sanford
Toronto, Ontario — July 17, 2017 — This week’s Tuesday Ticker looks into the continuing nosedive at retail auto parts stores, the car sales boom in Saskatchewan, what associations have to say about possible NAFTA renegotiations and much, much more!
Uni-Select
Research analysts at National Bank Financial have reduced their estimates for upcoming earnings from Uni-Select. The National Bank Financial analyst expects the company will earn $0.50 per share for the quarter, down from their previous forecast of $0.53 per share. Estimates for Uni-Select’s third quarter 2017 earnings are $0.58 per share and then $0.51 per share in the forth quarter of this year. Full year 2017 earnings are expected to come it at $1.92 per share and $2.41 per share in 2018.
PPG
Even though the AkzoNobel acquisition fell through, shares in PPG stock continue to do well. The company’s stock has been rising consistently through spring and early summer. It just hit $113 a share this week.
BASF
BASF has been recognized as one of the best workplaces in manufacturing by Great Places to Work Canada. The results are based on an analysis of employee feedback gathered through a so-called Trust Index Survey, which evaluates the corporate environment.
“At BASF, we take great pride in our employees as they are a key pillar to our success,” President of BASF Canada, Marcelo Lu, was quoted as saying in a press release. According to the release, 93 percent of BASF Canada employees agree, “… that BASF is a safe place to work, 90 percent said they’re proud to work for BASF, and 85 percent said they intend to work for BASF for a long time.” This is the first time BASF has been recognized by Great Places to Work Canada.
Genuine Parts Company
Genuine Parts Company (the parent company of NAPA) will release its second-quarter fiscal 2017 results on July 20, before the market opens. Investors will be keeping a close eye on the results as auto parts retailers suffer a bit of a rout this summer. To be completely honest, auto parts retailers are having a dismal 2017.
Stock in AutoZone is down 36 percent this year. Advanced Auto Parts is off 40 percent. These declines come after a long decade in which the stocks of auto parts retailers did really well. Advanced has now missed earnings two quarters straight.
Some critics warn that what’s happening with the auto parts retailers is a sign of something more serious. There is a bigger trend playing out here. Part of the story is that Amazon is now offering same-day delivery of auto parts in some 40 cities (according to a report). Most importantly, Amazon’s prices are, according to a report on The Street “… 23 percent lower than AutoZone or O’Reilly.” Today, “… 42 percent of [O’Reilly’s] sales are to professional service providers (PSP)—such as repair and autobody shops.”
Recently, O’Reilly admitted that its, “… DIY business was weak, which implies do-it-yourselfers simply are ordering from Amazon and waiting a few days for parts in order to save a few bucks.” Are the big retail store-based parts sellers in trouble? According to The Street’s report, “If you include the nearly 5,000 stores O’Reilly operates, it’s hard to see to how these stores can grow same-store sales with 15,000 auto parts stores littering the country. The competition must be brutal. They all carry the same parts, right? If nearly all these stores can deliver parts within an hour, how much differentiation can there be?”
Another report on Seeking Alpha lines up four factors underpinning the disruption occurring in the sector:
• “Easy growth is gone and it is going to be a battle to keep customers.”
• “It used to be that retail stores had knowledgeable staff that were very helpful with advice and know how. But today, while there are still some very knowledgeable retail workers, the vast majority of stores have focused on the bottom line. This means trained and experienced workers are out and low wage order takers are in.”
• “A new model with lower margins is coming to the auto parts world. Carl Icahn, billionaire investor and businessman, recently announced he is acquiring Precision Auto Care. He has a goal of owning thousands of auto repair shops who will then use his AutoPlus distributor instead of any of the big four auto part chains. Margins of 50 percent, currently the approximate margin at AutoZone, are history.”
• “Millennials are much less interested in even owning a car, let alone DIY repairs. AAA did a study and found that from 2007-2011, millennials aged 18-34 bought 30 percent fewer cars.”
Related Market Notes
– Car industry watchers are worried a crackdown on steel imports by President Donald Trump could hurt US automakers. Such tariffs would be good for US steel producers, but the price of cars could rise along with steel prices. A story in the Detroit News notes that, “The Trump administration is considering tariffs on steel imports in an effort to squeeze China and other countries that Trump says are destroying the US steel industry. No action has been taken, but auto industry analysts and trade experts say the threats already have created uncertainty in the market.”
– Collision Repair magazine recently reported that OEConnection intended to purchase Clifford Thames Group (CT). The deal was completed June 30, 2017. OEC is a provider of supply chain and e-commerce technology solutions for OEM parts. CT manages the data needed to repair and maintain vehicles for manufacturers, repairers, leasing and fleet companies. The unified company creates a, “… global parts and service business unmatched in the auto industry, with 13 offices spread across four continents,” according to a press release.
The Chairman and CEO of OEC, Chuck Rotuno, was quoted as saying, “The combination of CT and OEC means great opportunity for the industry. The new OEC is the only global one-stop shop that provides the means for automakers and dealerships around the world to deliver parts and service information quickly and accurately into the hands of repairers in collision, fleet, mechanical and retail segments, as well as their own service lanes, through a suite of parts cataloging, supply chain, pricing, ecommerce, service and business intelligence solutions.”
Both companies have done very well recently, according to Davis Noell, Managing Director of Providence Equity Partners, the majority owner of OEC. “Both OEC and CT had record years in 2016 with revenue growth in excess of 20 percent and combined now have over $130 million in revenues, setting up OEC to capitalize on further opportunities ahead,” he said.
– Last week AIA Canada, the Auto Care Association (ACA) and Mexico’s ARIDRA presented a united statement about NAFTA to US Trade Representative Robert Lighthizer. The three national auto aftermarket organizations came together to warn that upcoming negotiations on NAFTA should see the agreement, “… modernized and expanded, not repealed …” According to the statement, if NAFTA were eliminated, import tariffs would revert to World Trade Organization rates for trade among the three nations.
“This would cause extensive differences in duty rates for auto parts,” according to the statement. “The elimination of these duties under NAFTA promotes integrated supply chains, cost efficiencies and more options for US purchasers and consumers.”
The three trade groups also suggested the existing NAFTA Agreement should be modernized to include e-commerce provisions. “A sizable number of citizens of all three countries do at least some shopping online, and one of NAFTA’s largest shortcomings is its lack of e-commerce provisions that protect and promote cross-border transactions. Likewise, tremendous strides have been made in trade facilitation since NAFTA was adopted,” according to the statement. Renewed discussions on NAFTA could begin as soon as August 16.
– Auto sales are through the roof in Saskatchewan. The Canadian Automobile Dealers Association reported last week that, “Saskatchewan is in the middle of a record-breaking year, with sales up 15 percent across the province compared to last year.” Michael Hatch, the association’s Chief Economist was quoted in a report in the Saskatoon Star Phoenix as saying, “Saskatchewan has the highest growth in sales in the country so far this year … Fifteen percent is a huge growth level.”
The country as a whole is still on pace to see two million vehicles sold this year, which would be a new record for Canada. Hatch suggested that sales were high in Saskatchewan because of its strong economy. The economy in Saskatchewan is less dependent on oil than Alberta. Hatch also cited, “… consumer faith in a product that is steadily improving in terms of quality and longevity,” for the rise in sales.
