(By Tim - iStockAnalyst Writer) The front page news for the last few days has been the proposed/pending financial bailout of the U.S. auto manufacturers. Auto sales have fallen tremendously on two back-to-back sets of bad news. First, rising oil prices pushed gasoline prices over $4.00 per gallon killing the sales of popular SUV's and pickup trucks. Now that gas is back under $2.00, the tough economic climate has consumers unwilling to make large ticket purchases. If new cars are not being bought, then older models are staying longer in the hands of their owners and additional repairs will be necessary as the miles on these older vehicles pile up. This should be a benefit to the auto parts retailers.
Two auto parts retailers are reporting earnings this week and these reports should give us a clue about the direction of sales for this segment.
Pep Boys - Manny, Moe & Jack (NYSE:PBY), released their 3rd quarter results yesterday and they were not very attractive. Same store sales fell 10% and earnings were a net loss of 14¢, which is an improvement from the previous year's minus 54¢ for the same quarter. Management is blaming the revenue fall on slow consumer spending and fewer miles being driven. I see a company that has not generated an annual profit since 2005 and is losing business to their competitors.
Autozone, Inc. (NYSE:AZO), revealed positive results today for their 1st quarter of 2009. Revenues were up 1.6% from a year earlier but same store sales slid 1.5%. Net income came in a $2.23 per share a 10.1% improvement and beating the consensus estimate by a nickel. AZO has a market cap of $6.9 billion and a P/E of 11. I find it interesting that yesterday's closing price is only 2.8% lower than where it closed out 2007.
O'Reilly Automotive Inc. (NASD:ORLY), purchased CSK Auto in April 2008 in a $500 million, mostly stock deal, to expand into the western U.S. The company appears to be a favorite in the sector, trading a a P/E of over 18. The merger results are expected to help boost earnings 18% in 2009.
Advance Auto Parts Inc. (NYSE:AAP), has beat the consensus for the last 3 quarters and will report Q4 and year-end in February. In early October, AAP stock sold off big and has not recovered as strongly as AZO and ORLY. The $3 billion market cap company trades at a P/E of 12.6 and pays a small dividend.
Looking at these stocks, first the Pep Boys are being left behind. The other 3 are on track to grow their earnings at 10% plus rates for 2009. The stock prices have held up relatively well in 2008 and some positive earnings surprises are in the cards for 2009 as the car manufacturers continue to struggle. AZO, AAP, and ORLY should stand out against troubles in other segments of the retail sector.
