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Why Is O'Reilly Automotive (ORLY) Up 1.6% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for O'Reilly Automotive (ORLY). Shares have added about 1.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is O'Reilly Automotive due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

O'Reilly's Q2 Earnings and Revenues Lag Estimates

O’Reilly Automotive Inc.’s diluted earnings per share were $4.51 in second-quarter 2019, up 5.4% from $4.28 in the prior-year quarter. However, the figure missed the Zacks Consensus Estimate of $4.67.

During the reported quarter, net income amounted to $354 million (13.7% of sales), up from $353 million (14.4% of sales) recorded in the year-ago quarter.

The company’s quarterly revenues rose 5.2% year over year to $2.59 billion. However, the figure missed the Zacks Consensus Estimate of $2.6 billion. O’Reilly’s comparable store sales increased 3.4% in the quarter ended Jun 30, 2019 compared with 4.6% in the year- ago quarter.

Gross profit went up 6% to $1.37 billion (or 52.8% of sales) from $1.29 billion (or 52.5% of sales) reported in the year-ago quarter. Selling, general and administrative expenses rose 8% year over year to $870 million (33.6% of sales) from $809 million (33% of sales) in second-quarter 2018. Operating income increased 4% to $498 million (or 19.2% of sales) from $479 million (or 19.5% of sales) reported in the prior-year quarter.

Store Information

O’Reilly opened 43 stores across 15 states in the quarter under review. The total store count was 5,344 as of Jun 30 compared with 5,147 a year ago. Sales per weighted-average store increased to $483,000 from $476,000 in the prior-year quarter.

Share Repurchases

During the reported quarter, O’Reilly repurchased 1.6 million shares for $599 million at an average price of $366.76 per share. From the end of the quarter to the date of earnings release, the company repurchased an additional 0.2 million shares of its common stock for $63 million at an average price of $380.79 per share.

Financial Position

The company had cash and cash equivalents of $55.8 million at the end of the second quarter compared with $36.9 million in the year-ago period. Its long-term debt increased to $3.8 billion as of Jun 30 from $3.2 billion as of Jun 30, 2018.

At the end of the second quarter, O’Reilly generated $406.3 million in cash from operating activities compared with $443 million recorded a year ago. During the period, capital expenditure amounted to $142.6 million compared with $109.2 million in the year-ago period. Further, free cash flow declined to $261.4 million from $320.3 million a year ago.

Outlook

For third-quarter 2019, O’Reilly projects earnings in the range of $4.73-$4.83 per share. Further, the company expects 3-5% rise in consolidated comparable store sales.

For 2019, O’Reilly reiterated total revenues projection in the range of $10-$10.3 billion and earnings per share in the band of $17.37-$17.47.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, O'Reilly Automotive has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, O'Reilly Automotive has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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