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Letter to the Editor
This article originally appeared in the December 2000 Issue of INSIGHT
December 2000 Investment Update
Collision Repair Industry stocks showing significant gains included ADP, BASF, Copart, DuPont, PPG, Sherwin-Williams, and Valspar. On the insurer side both Allstate and Progressive showed significant gains. Insurers are apparently ending their price wars and are passing along significant rate increases in addition to intensifying their efforts to contain claims costs.
On the down side for the month were FinishMaster and Insurance Auto Auctions, where poor earnings reports were followed by immediate drops in the price of both stocks.
FinishMaster earnings for the nine months ending September 30th dropped from $0.47 per share to $0.39 this year. Lower profits were associated with higher operating costs including interest expense. The refinish materials business, both at the jobber and the manufacturer levels has become cutthroat as demand stays level. As a result raw material increases and costs associated with distribution have not been fully passed on (although this may well be about to change), and as a result earnings have suffered.
On the dot com scene, earnings problems continue. For example, we added eAutoClaims.com Inc. to our report this month. We had been waiting for this company’s annual 10KSB report to the SEC, and it finally came out this month for the year ending July 31, 2000.
While most dot coms are not showing a profit, these guys push the credibility limit for listed stocks, with reported sales of $1,141,086 and a net loss of $3,075,757. The business model is similar to Driversshield.com’s (formerly First Priority), in that both companies, as claims managers, actually pay the shop after taking a 12 to 15 percent discount, in addition to charging the insurer for handling the claim. As with Driversshield.com, it is hard to believe that, in many cases, the shop is not figuring out a way to add enough labor or other costs to the job to cover the discount, and thus pushing up the insurer’s severity level.
While being a dot com company, estimates handled by eAutoClaims move by fax from the shop to the Florida headquarters, and images can either be sent by e-mail or by FedEx if not digital. The company claims, as does Driversshield.com, to have over 2,000 shops signed up for their program.
Another dot com participant that we have just added is Parts.com, again a Florida-based company. This stock has dropped from a year opening high of $25 to a current low of $1.20, based most likely on continuing and increasing losses. They recently announced a "strategic partnership" with Driversshield.com.
Let’s hope that the Presidential election is resolved before you receive this issue of INSIGHT, and that the Market, based on the good news of this resolution, moves forward, and that any losses we may be suffering on a year-to-date basis are reversed.
-Charles Baker-
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