After the closing bell on Oct. 28, O'Reilly Automotive Inc. (ORLY, Financial) released its earnings results for the third quarter of 2020. The company reported new records on both the revenue and earnings front.
Revenue was $3.21 compared to $2.67 billion last year, while diluted earnings per share came in at $7.07 compared to $5.08 in the prior-year quarter. Wall Street had been expecting revenue of $2.98 billion and earnings per share of $6.19.
Overview of the quarter
For the quarter, comparable store sales increased 16.9% year over year, primarily on strength in the DIY and professional businesses. The comparable store sales numbers for U.S. stores open at least one year include online ship-to-home and pick-up-in-store orders. This growth was more than three times the 5% growth recorded in the prior-year period.
CEO and Co-President Greg Johnson had the following to say about the results:
"We were pleased with our strong sales performance throughout the third quarter, and our business has continued to perform very well through the first three weeks of October, generating robust comparable store sales in the low double digits…
Our Team's hard work and commitment to expense control resulted in another extremely profitable quarter, exemplified by our 22.6% operating profit margin, which represents a 249 basis point improvement over the prior year, and a 39.2% increase in diluted earnings per share to $7.07."
Net cash provided by operating activities increased $859 million, or 57.7%, to $2.34 billion. The company ended the September quarter with $1.62 billion in cash and cash equivalents and long-term debt of $4.12 billion, both of which were up more than $1.4 billion compared to the end of September 2019 as the company upped the liquidity on its balance sheet.
The company repurchased approximately $443 million worth of its own shares during the quarter, representing one million shares bought at an average price per share of $458.70. The board of directors has authorized another $1 billion to be allotted to future share repurchases.
Valuation
On Oct. 28, shares of O'Reilly traded around $444 after losing 1.38% throughout the day's trading for a market cap of $32.77 billion and a price-earnings ratio of 21.68. According to the GuruFocus Value chart, the stock is fairly valued.
The latest improvement in the operating margin is a continuation of O'Reilly's overall trend, as the company has managed to increase its operating and net margins throughout its history.
On the other hand, investors should take note that the company has done so largely by consistently increasing its leverage. This approach may not be sustainable forever, though the length of time over which the company can keep it up may be increased due to lower interest rates.
Looking forward
The company continues to avoid providing specific guidance numbers due to its inability to predict what direction business will take during the pandemic. However, its general strategy seems to include increasing credit lines, focusing on share buybacks to help prop up the stock price for investors and increasing the accessibility of online shopping for customers.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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