Copart (CPRT, Financial) reported +8% growth in operating income driven by a +5% increase in volume of totaled vehicles processed and an +8% increase in the value of those units. Although overhead expenses outstripped revenues in the face of persistent wage inflation, Copart can contain these costs over a multi-year time horizon. The Company maintains an effective duopoly in U.S. salvage vehicle auctions (along with IAA Inc.) and has been able to flex is salvage business to conform to the changes filtering through from the unprecedented supply (and demand) challenges of the new and used vehicle market. This is due to Copart’s unique, two-sided network platform that consists of the largest North American P&C insurance carriers and automobile dealerships, which are getting increasing access to foreign salvage buyers. As automobiles are becoming more sophisticated with hard-to-repair electronics and computers on-board, we think Copart is helping insurance partners find a life “after salvage” with consumers, particularly outside the U.S., that place a higher value on these vehicles, often simply due to different regulatory regimes. Copart can grow at attractive double-digit rates as this phenomenon continues for the foreseeable future.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners third-quarter 2022 shareholder letter.
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