Uni-Select Inc. has reported strong numbers for the second quarter ended June 30, 2018, primarily on the performance of The Pars Alliance business, though the Canadian business saw some softening.
Highlights:
- Sales up 35.6% to $461.6 million of which The Parts Alliance contribution represented $111.0 million or 32.6%;
- Positive organic growth (1) of 0.7% at FinishMaster US segment, 8.6% at The Parts Alliance on a stand-alone basis and negative organic growth of 3% for the Canadian Automotive Group;
- EBITDA (1) of $35.4 million up 20.0%; Adjusted EBITDA (1) of $35.6 million up 9.5%;
- EPS up 27.3% to $0.42, Adjusted EPS (1) up 12.8% to $0.44; and
- Free cash flows (1) of $27.7 million up 72.3%
“We are very pleased by our results for the FinishMaster US segment (FinishMaster), as organic growth resumed, in line with our expectations. The Part Alliance UK segment (TPA) provided another solid quarter of sales growth and strong margins which fuelled adjusted EBITDA and free cash flows,” said Henry Buckley, President and Chief Executive Officer of Uni-Select.
“We intensified our sales and marketing efforts at FinishMaster which translated in new business wins and a return to positive organic growth. TPA is exceeding our expectations supported by solid momentum in greenfield store openings and operational performance. However, the Canadian Automotive Group segment faced headwinds this quarter primarily as a result of soft market conditions. Given our overall performance and outlook, we are reiterating our annual consolidated guidance but have adjusted our segments to consider a stronger performance in TPA and a more conservative view for Canadian operations. Looking forward, we are confident that we have turned the corner at FinishMaster and that our TPA acquisition represents a great asset on which we can build and grow our network. Furthermore, we are confident that the Canadian business strategy will gain momentum with the growing traction of the BUMPER TO BUMPER brand,” concluded Mr. Buckley.
SECOND QUARTER RESULTS
Consolidated sales for the second quarter were $461.6 million, a 35.6% increase compared to the same quarter last year, driven by the sales generated from recent business acquisitions, adding sales of $115.4 million or 33.9%, of which The Parts Alliance UK segment represents $111.0 million or 32.6%.
The FinishMaster US segment is reporting a positive organic growth of 0.7% and overcoming recent headwinds.
The Canadian Automotive Group segment is reporting a negative organic growth for the quarter compared to a record organic growth in 2017, navigating through a softer market in 2018.
The Corporation generated an EBITDA and EBITDA margin of $35.4 million and 7.7%, respectively, compared to $29.5 million and 8.7% in 2017. Once adjusted for net transaction charges related to The Parts Alliance acquisition, EBITDA was $35.6 million (7.7% of sales) for the quarter, compared to $32.5 million (9.5% of sales) in 2017, an increase of 9.5%. The adjusted EBITDA margin decreased by 180 basis points and was affected by an evolving customer mix in the FinishMaster US segment, integration efforts to optimize the growing network of company-owned stores in the Canadian Automotive Group segment and losses on foreign exchange currencies.
These impacts are partially compensated by savings resulting from the 20/20 initiative and an improved gross margin in the Canadian Automotive Group segment.
Net earnings and adjusted earnings were respectively $17.9 million and $18.4 million, compared to $13.7 million and $16.6 million in 2017. Adjusted earnings increased by 10.6% compared to the same quarter last year, resulting from The Parts Alliance UK segment’s contribution and the reduction of the income tax rate for the US operations.
These elements were partially offset by additional finance costs as well as depreciation and amortization, all related to recent business acquisitions and investments in capital. Segmented Results The FinishMaster US segment is rebuilding sales momentum with sales of $211.0 million, up 0.7% from the same quarter in 2017, entirely arising from organic growth. This performance is attributable to the sales team efforts on driving growth and business volume. EBITDA for this segment was $21.5 million, compared to $24.0 million in 2017. The EBITDA margin decrease of 130 basis points is impacted by a growing percentage of national and regional accounts, for which discounts are more significant.
This segment is also aggressively reinforcing its leadership position against competition. These elements were partially compensated by savings arising from the 20/20 initiative, which include the integration of one store and the alignment of employee benefits to its evolving cost-to-serve model. Sales for the Canadian Automotive Group segment were $139.6 million, compared to $130.8 million in 2017, an increase of 6.7%, the result of the impact of the Canadian dollar on its conversion to US dollar, the recent business acquisitions and the impact of billing days.
This segment reported a negative organic growth of 3.0%, compared to a record second quarter in 2017 due, for the most part, to softness in the market. The EBITDA margin decrease of 140 basis points compared to the same quarter in 2017, is mainly due to the undertaken integration efforts to optimize the company-owned stores, including the 20/20 initiative, store rebranding, store processes and implementation of the new point of sales (POS) system. These elements are partially compensated by higher volume rebates and contribution from the acquired stores, improving the gross margin of the current quarter compared to the corresponding quarter last year.
The Parts Alliance UK segment recorded sales of $111.0 million and EBITDA of $8.6 million (7.8% of sales). The peak season of this segment, which typically covers the first and the second quarters, is enabling the leverage of its cost base. Further supported by cost actions taken during the last quarter of 2017, the result was an EBITDA margin of 7.8% for the current quarter, in contrast to the 4.0% recorded in the fourth quarter of 2017. As part of its growth strategy, 3 greenfields were opened during the quarter.
SIX-MONTH PERIOD RESULTS
Consolidated sales for the six-month period were $883.7 million, a 38.6% increase compared to the same period last year, driven by the sales generated from recent business acquisitions, adding sales of $237.0 million or 37.2%, of which The Parts Alliance UK segment represents $221.1 million or 34.7%. The Canadian Automotive Group segment delivered an organic growth of 1.1% compensating the performance of the FinishMaster US segment, which is reporting negative organic growth of 1.0%.
The Corporation generated an EBITDA and EBITDA margin of $62.4 million and 7.1%, respectively, compared to $52.7 million and 8.3% last year. Once adjusted for net transaction charges related to The Parts Alliance acquisition, EBITDA was $63.2 million (7.1% of sales) for the period, compared to $55.6 million (8.7% of sales) in 2017, an increase of 13.6%. The adjusted EBITDA margin decreased by 160 basis points and was affected by a customer mix impact and lower special buys in the FinishMaster US segment as well as by integration efforts to optimize the growing network of company-owned stores in the Canadian Automotive Group segment and losses on foreign exchange currencies.
These impacts were partially compensated by an improved cost absorption at The Parts Alliance UK segment benefiting from its peak season. Net earnings and adjusted earnings were respectively $28.3 million and $30.5 million, compared to $24.7 million and $27.6 million last year. Adjusted earnings increased by 10.4% compared to the same period last year and mainly resulted from The Parts Alliance UK segment’s contribution and the reduction of the income tax rate for the US operations. These elements were partially offset by additional finance costs as well as depreciation and amortization, all related to recent business acquisitions and investments in capital.
Segmented Results
The FinishMaster US segment recorded sales of $412.3 million, up 0.8% from the same period in 2017, supported by recent business acquisitions representing a growth of $7.3 million or 1.8%. The momentum of sales emerging during the second quarter partially compensated headwinds faced until recently, reducing the negative organic growth to 1.0%. These wins combined with ongoing growth initiatives are expected to progressively offset the impact of the first quarter and generate organic growth by the end of the year. EBITDA for this segment was $41.3 million, compared to $47.3 million in 2017.
The EBITDA margin decrease of 160 basis points is the result of an evolving customer mix and lower special buys for the period. These elements were partially compensated by savings arising from the 20/20 initiative, with the integration of 4 stores and the alignment of employee benefits to its evolving cost-to-serve model.
Sales for the Canadian Automotive Group segment were $250.2 million, compared to $228.3 million in 2017, an increase of 9.6%, the result of the impact of the Canadian dollar on its conversion to US dollar and the recent business acquisitions.
The organic growth of 1.1% for the period is principally from sales to current and new independent customers and onboarding our Canadian banners, programs and logos. The EBITDA margin decrease of 90 basis points is mainly due to the integration efforts undertaken to optimize its growing network of company-owned stores and the internalization of the servers, which was a favorable one-time saving in 2017.
These elements were partially compensated by higher volume rebates, improving the gross margin of the current period compared to the corresponding period last year.
The Parts Alliance UK segment recorded sales of $221.1 million and EBITDA of $18.2 million (8.2% of sales). The peak season of this segment, which typically covers the first semester, is enabling the leverage of its cost base. Further supported by cost actions taken during the last quarter of 2017, the result was an EBITDA margin of 8.2% for the six-month period, in contrast to the 4.0% recorded for the five-month period in 2017, which included August and December, the two weakest months of the year.
As part of its growth strategy, this segment opened 7 greenfields since the beginning of the year, expanding the footprint in the UK and fostering a better service, notably for national accounts. In addition, The Parts Alliance UK segment is in the process of integrating the operations of its acquired stores and of maximizing their contribution with undertakings as part of the ongoing 20/20 initiative.
DIVIDENDS
On August 10, 2018, the Uni-Select Board of Directors declared a quarterly dividend of C$0.0925 per share payable on October 16, 2018 to shareholders of record as at September 30, 2018. This dividend is an eligible dividend for income tax purposes. OUTLOOK The information included within this section contains guidance for Uni-Select in 2018: Uni-Select Consolidated adjusted EBITDA margin 7.2% – 8.2% Consolidated organic sales growth 2.25% – 4.0% Consolidated effective tax rate 22.0% – 24.0% Segment Organic Sales Growth FinishMaster US 2.0% – 4.0% Canadian Automotive Group 0.0% – 2.0% The Parts Alliance UK 5.0% – 7.0%
The above-mentioned information is related to the 2018 financial year and may differ from quarter to quarter due to seasonality.
Other
As well, Uni-Select anticipates investments between $26.0 million and $29.0 million on vehicle fleet, hardware equipment, software and others.
CONFERENCE CALL
Uni-Select will host a conference call to discuss its second quarter results for 2018 on August 10, 2018 at 8:00 AM Eastern. A recording of the conference call will be available from 11:00 AM Eastern on August 10, 2018 until 11:59 PM Eastern on September 10, 2018. To access the replay, dial 1 855 859-2056 followed by 6373029.
A live webcast of the quarterly results conference call will also be accessible through the “Investors” section of the Uni-Select website at www.uniselect.com where a replay will also be archived. Listeners should allow ample time to access the webcast and supporting slides.
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