Why Is O'Reilly Automotive (ORLY) Down 9.2% Since Last Earnings Report?

It has been about a month since the last earnings report for O'Reilly Automotive (ORLY). Shares have lost about 9.2% in that time frame, outperforming the S&P 500.

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

O'Reilly's Q4 Earnings Miss,  Up Y/Y

O’Reilly reported earnings per share of $4.25 in fourth-quarter 2019, lagging the Zacks Consensus Estimate by a penny. High selling, general and administrative expenses led to the underperformance.

Nonetheless, the bottom line was up 14.2% from $3.72 in the prior-year quarter. Net income amounted to $324.9 million in the quarter, up from $300.3 million recorded in the year-ago period. Higher year-over-year revenues and solid comps growth resulted in the improved results.

O’Reilly’s quarterly revenues came in at $2,482.9 million, topping the consensus mark of $2,473 million. Moreover, the top line was higher than the prior-year level of $2,314.9 million. The auto-parts retailer’s comparable store sales growth was 4.4% in the quarter ended Dec 31, 2019 compared with 3.3% rise in the comparable year-ago period.

Key Takeaways

Gross profit grew 7% to $1.32 billion from $1.23 billion in the year-ago quarter. SG&A expenses increased 10% to $883 million from $806 million in fourth-quarter 2018. Operating income grew 3% to $442 million from $428 million reported in the prior-year quarter.

During the reported quarter, O’Reilly repurchased 0.3 million shares for $125 million at an average price of $427.33 per share. From the quarter-end to the date of the earnings release, the company repurchased an additional 0.2 million shares of its common stock for $88 million at an average price of $428.29 per share. Bringing in pleasant news for its shareholders, it approved additional buyback worth $1 billion, raising the aggregate authorization to $13.75 billion.

The company had cash and cash equivalents of $40.4 million as of Dec 31, 2019. Its long-term debt increased to $3.9 billion as of Dec 31, 2019 from $3.41 billion in the corresponding period of 2018. Debt-to-capital ratio stands at 90.7%.

At the end of the fourth quarter, O’Reilly generated $218.8 million in cash from operating activities compared with $385.5 million in the comparable year-ago period. During the quarter, capital expenditure amounted to $146.8 million compared with $153.8 million in the year-ago period. Free cash flow totaled $43.2 million compared with $230 million a year ago. Store count as of Dec 31, 2019 was 5,460.

Looking Forward

For first-quarter 2020, O’Reilly projects earnings within $4.37-$4.47 per share. Further, the company expects 2-4% rise in consolidated comparable store sales.

For full-year 2020, O’Reilly expects revenue between $10.7 billion and $11 billion. EPS is forecast within $19.03-$19.13. Capital expenditure is anticipated in the band of $625-$675 million. For the year, the company estimates free cash flow in the range of $1.1-$1.2 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, O'Reilly Automotive has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise 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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