ADESA Faced 'Challenging' Fourth Quarter

ADESA faced a “challenging” fourth quarter in 2016, CEO of KAR Auction Services Jim Hallet said during the company’s fourth quarter earnings call.

The second-largest provider of used vehicle auction services in North America saw a 6% uptick in same-store commercial volumes and an increase in average revenue per unit at physical auction during the quarter.

However, these gains were offset by a 7% decline in dealer consignment at physical auction on a same-store basis. Due to this, overall same-store physical auction volume was flat year-over-year during the quarter.

Eric Loughmiller, CFO of ADESA, also attributed one-time expenses during the fourth quarter, such as a customer of CarsArrive filing for bankruptcy with approximately $4 million owed to ADESA and the acquisition of Flint Auto Auction as factors leading to a challenging quarter.

“We saw our activity slow in October and early November. Conversion rates dropped at the physical auction despite the shift in the mix to more commercial vehicles,” said Hallet during the earnings call. “And we saw consignors become very price sensitive during that period of time where conversion rates fell and ADESA's performance, I believe, was consistent with the uncertainty in the retail space that was centered around the election.”

December provided relief and performed “extremely strong,” but the single month could not make up for the poor performance in October and November, Hallet said. ADESA sold 700,000 vehicles during the quarter for an increase of 4% on a same-store basis. Physical vehicle sales amounted to 523,000, which was flat year-over-year. Online sales amounted to 177,000, 16% more than in the same quarter in 2015.

Looking at profit, ADESA generated 52.5 million in operating profit during the fourth quarter, down 0.4% from the same quarter in 2015 on a same-store basis.

Dealer consignment for 2016 fell 2%. This was in line with company expectations. Looking at 2016 as a whole, ADESA generated $728.8 million in profit and sold approximately 2.9 million vehicles. Of those vehicles, 2.1 million were sold at physical auctions while 743,000 were sold through online sales.

Looking toward ADESA’s performance in 2017, Hallet is optimistic.

“Most of the vehicles that we have on the ground at the end of 2016 are what we refer to as the captive finance vehicles whereas if I compare that to year-end 2015, most of those vehicles on the ground were what we refer to as OEM vehicles or factory buybacks,” said Hallet.

According to Hallet, ADESA typically generates more profit and more revenue opportunity from captive finance cars as opposed to factory buybacks. This fact, he noted, is fueling his optimism for ADESA in 2017.

Earnings call transcript courtesy of Seeking Alpha.