Home Cars IAA, ADESA power KAR’s Q2 results

IAA, ADESA power KAR’s Q2 results

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KAR Auction Services Inc., parent of ADESA, said Tuesday net income in the second quarter fell 7.4 percent to $57.2 million, due largely to costs, net of taxes, related to debt-refinancing activities.

Revenue grew 8.8 percent to $489.2 million from the year-earlier quarter, KAR said in a statement. The results came in comparison to an extremely strong year-earlier quarter.

The company also trimmed its guidance for full-year net profit to a range of $218.4 million- $232.4 million from $235.7 million — $249.7 million previously, but kept unchanged its guidance for full-year earnings before interest, taxes, depreciation and amortization.

In a conference call on Wednesday, CEO Jim Hallett called the company’s second-quarter results “fantastic,” citing an 18 percent rise in operating adjusted net income on a single-digit revenue gain.

“ADESA had a great quarter,” he said.

Insurance Auto Auctions, the company’s salvage-auction arm, “is clearly knocking it out of the park,” he added, “a grandslam.”

ADESA

At the wholesale auction company ADESA, gross profit, excluding depreciation and amortization, rose 9.9 percent to $210.5 million for the quarter, and net profit grew 16 percent to $53.7 million. Revenue climbed 8.5 percent to $489.2 million, aided by $18.2 million from acquisitions.

The company said rising off-lease volume drove both volume and auction-fee growth. Vehicles from commercial sellers, including financial companies selling off-lease units, rose 17 percent, while vehicles sold on consignment from dealerships slipped 1 percent.

The number of vehicles sold at physical auctions rose 6 percent — 1 percent excluding acquisitions — to 585,000 units, while online volume jumped 24 percent to 245,000. Of the online volume, 67 percent came from what ADESA calls upstream and midstream sales, which include closed online auctions, such as sales by a captive finance company of off-lease vehicles offered only to that brand’s dealerships.

Revenue per unit sold edged up $6 from a year earlier to $748 for vehicles sold at physical auctions but dipped $4 to $105 for vehicles sold online.

Hallett said he expects units from commercial sellers to continue to increase. After reaching 54 percent of ADESA’s business in the second quarter, “We expect it to reach 60 percent,” he said, forecasting a corresponding increase in fees ADESA receives for pre-auction reconditioning and other services.

IAA

IAA’s revenue grew 13 percent to $298.7 million. Gross profit jumped 20 percent to $117.2 million, while net profit surged 48 percent to $37.3 million.

Units sold rose 11 percent to 580,000, while revenue per unit rose 2 percent from a year earlier.

“Strong results in IAA are expected to continue for several years,” Hallett said, because insurance companies are expected to declare a growing number of severely damaged vehicles to be a total loss, which would feed IAA’s volumes.

Two or three years ago, he noted, roughly 13 percent of all damaged vehicles were declared “totaled.” Now, he said, that figure is “starting to touch that 20 percent range.”

IAA has been expanding to meet growing demand. On Monday, IAA said it had secured 22 real estate locations in ten states to prepare for the weather event season and potential catastrophic events.

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