O’Reilly Automotive Inc. (ORLY) posted a 22% increase in earnings to $2.06 per share in the third quarter of 2014 from $1.69 in the year-ago quarter. Earnings also exceeded the Zacks Consensus Estimate of $1.95. Net income improved 16% to $217 million (11.6% of sales) from $186 million (10.8% of sales) in the third quarter of 2013.
Quarterly revenues scaled up 9% to $1.88 billion from $1.73 billion in the same period a year ago. Revenues surpassed the Zacks Consensus Estimate of $1.85 billion. Comparable store sales increased 6.2% in the reported quarter compared with a 4.6% increase in the third quarter of 2013.
Gross profit ascended 10% to $968 million (51.6% of sales) from $879 million (50.9% of sales) a year ago. Selling, general and administrative expenses rose 8% to $624 million (33.3% of sales) from $579 million (33.5% of sales) in the year-ago quarter. Operating income increased 14% to $344 million (18.3% of sales) from $300 million (17.4% of sales) in the same period last year.
Store Information
During the first nine months of 2014, O’Reilly opened 145 net new stores. During the third quarter, the company opened its first store in Pennsylvania, taking its presence to 43 states. The company plans to open a total of 200 stores in 2014 and 205 stores in 2015.
The total store count across 43 states stood at 4,311 as of Sep 30, 2014. Sales per weighted average-store increased to $435,000 in the third quarter of 2014 from $417,000 a year ago.
New Distribution Centers
In September, O’Reilly opened a new distribution center in Naperville, IL. The Devens, MA, distribution center will be inaugurated by the end of the year. O’Reilly believes that these distribution centers will enhance the network and performance of the company and facilitate future growth.
Share Repurchases
During the quarter under review, O’Reilly repurchased 2.5 million shares for $387 million, reflecting an average price of $152.42. During the first nine months of 2014, the company repurchased 4.6 million shares for $687 million, translating into an average price of $150.55. Subsequent to the end of the third quarter and through Oct 22, 2014, the company repurchased an additional 1 million shares for $156 million, implying an average price of $150.55.
Since the inception of the share repurchase program in Jan 2011, O’Reilly has repurchased a total of 46.2 million shares for $4.2 billion, indicating an average price of $90.84. As of Oct 22, 2014, the company had approximately $303 million worth of share repurchase authorization left under this repurchase program.
Financial Position
O’Reilly had cash and cash equivalents of $298.3 million as of Sep 30, 2014, down from $363 million as of Sep 30, 2013. Long-term debt was $1.4 billion as of Sep 30, 2014, at par with Sep 30, 2013.
In the first nine months of 2014, net cash flow from operations increased to $983 million from $719.8 million in the previous-year period. Meanwhile, capital expenditures (net) increased to $317.2 million from $299.5 million in the same period of 2013.
Guidance
For fourth-quarter 2014, O’Reilly projects earnings per share in the range of $1.60–$1.64. The company expects consolidated comparable store sales to increase by 3% to 5%.
For full-year 2014, the company expects earnings per share in the range of $7.19 to $7.23, higher than the previous guidance of $7.00 to $7.10. Meanwhile, O’Reilly expects consolidated comparable store sales to increase 5% to 6%, up from the previous estimate of 3.5% to 5.5%. The company also raised the revenue guidance to $7.1–$7.2 billion from $7–$7.2 billion for 2014 and gross margin guidance to 51.2%–51.4% from 50.9%–51.4%. Further, it raised the operating margin guidance to 17.3%–17.5% from the earlier guidance of 17.1%–17.5%.
O’Reilly expects capital expenditures in the range of $390 million to $410 million. Free cash flow is expected between $675 million and $725 million, up from $625–$675 million guided previously for the year.
O'Reilly is a prominent player in the automotive replacement parts and accessories industry along with Advance Auto Parts Inc. (AAP), Pep Boys – Manny, Moe & Jack (PBY) and CarMax Inc. (KMX). O'Reilly currently retains a Zacks Rank #3 (Hold).
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