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Letter to the Editor
This article originally appeared in the September 2001 Issue of INSIGHT
View Not Pretty at Halfway Mark
For many companies associated with our industry, the results are in for the first six months of the year and those results are not pretty.
With a few notable exceptions such as Copart, a processor of salvaged vehicles; Keystone Automotive, a provider of aftermarket parts; and FinishMaster, the leading materials jobbing operation, most companies were looking at a revenue drop YTD of 3 to 4 percent, and an earnings drop from 15 to 45 percent.
First, the winners and Keystone look like they have turned the corner in sales and profit improvement with sales for the quarter ending June 29th, sales up 6 percent and profits up 44 percent.
FinishMaster's overall GPM rose from 35.9 to 36.7 percent, while at the same time, management has brought down both Internet expenses and operating expenses.
FinishMaster management also reports that their same store sales were off approximately 2 percent, and that they felt this is representative of the entire refinish industry. We would agree with this assessment after reviewing Sherwin-Williams's, PPG's, and DuPont's latest quarterly reports all showing a fall off in materials sales - both OE and refinish with the exception of Sherwin-Williams, which reported increasing refinish aftermarket sales for the same period.
The Boyd Group, with sixty company owned locations in both the U.S. and Canada, reported net income up nearly 30 percent for the first six months. Boyd Management estimates that this year sales will exceed $133 million (Cdn). Boyd's stock, however, has not reflected this performance or management's optimism, dropping from $2.00 (Cdn) at the beginning of the year to a current level of $1.69 (Cdn).
Well that's pretty much it for the winners. Let's look at the losers as reflected in their quarterly earnings reports.
Our old friends at Parts.com put a positive spin on their report, which showed a 46 percent increase in revenue for the quarter. Later in the report, it shows that they have continuing losses of $1.8 million for the first six months. More importantly, their balance sheet shows current assets of $105,000 while at the same time current liabilities of $3,655,000 - not exactly a healthy 2 to 1 ratio of current assets to current liabilities. We assume that back taxes and notes make up the bulk of the current liabilities.
As we mentioned last month, it's tough to make money selling parts at ten percent off MSRP, plus 15 percent shipping to collision repairers and independent service operations.
Our other old friend, Driversshield announced in their quarterly report that their latest quarter losses have risen to $227,000 for the quarter compared to the $14,000 profit the same quarter last year.
Driversshield reports as their sales the sales of the collision repairer that actually did the repair work, that full cost is then passed on to the insurer and the shop gets the repair order total less a reported 12 percent.
Most quality shops we know can't operate on the basis of a 12 percent overall discount, but perhaps we are missing something as today Driversshield announced a contract with Wausau, a Wisconsin based insurer part of Liberty Mutual, to handle their claims.
In the release, E.J. Stark, Wausau's Vice President of claims, states, "We believe the Driversshield.com CRM solution will both speed up and improve our service to our customers, while also reducing our costs, which also benefits our customers."
Well, perhaps it will reduce their claims costs at the expense of both the repairer and the quality of repair. We wish them luck.
Last month, we wrote about CCC and their trials and tribulations. Well, on August 20th, they released their second quarter report showing a record $18.5 million loss for the quarter, versus a profit of $17.5 million for the same quarter last year. One of the key points in the report stated that DriveLogic's operating losses increased by $4.9 million, or 117 percent, from $4.2 million, with as yet no possible date to begin any sales in sight.
It seems pretty amazing that now management has no idea when product will be ready for the market. Read the details in the financial section at Yahoo.com if you have a chance. It makes for interesting reading.
On a year to date basis, the U.S. Auto Parts and Equipment index is up a full 32 percent, while at the same time, the DOW is down 4 percent. Our index for the collision repair related industry is up almost 25 percent and my stock picks as represented by the INSIGHT fund index is up a paltry 10 percent - better than the DOW or S&P, but not great. Stocks that I thought would be winners such as 3M Corp., Sherwin Williams, and DuPont have not come through as expected.
Although auto company sales are off in total about 5 percent, it is still a good productions year for the industry and its "cars on the road" that drive the collision repair industry, not OE profits, which have been hard hit, not only by rebates to keep volume up, but by recalls and quality problems.
In collision repair, the business continues to concentrate in the larger shops and at the same time, it is being directed there through expanding insurance company direct repair programs.
-Charles Baker-
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