More auctions, revenue lift profits at ADESA&'s parent

ADESA opened its latest site, ADESA Chicago, on Oct. 28.

An increase in the number of vehicles sold and in the revenue from each lifted ADESA’s revenue and helped boost its parent company’s net income in the third quarter.

KAR Auction Services Inc.’s net income increased 4 percent to $ 54.4 million, as revenue rose 16 percent to $ 773.8 million, the company said today.

Revenue at ADESA increased 26 percent to $ 441.6 million aided by business generated by the acquisition of Brasher’s Auto Auctions, which added eight auction sites in Idaho, Nevada, Utah and California to ADESA’s holdings. Businesses acquired in the last 12 months accounted for $ 35.4 million of the revenue increase, KAR Auction said.

ADESA acquired Brasher’s last spring and opened its latest site, ADESA Chicago, on Oct. 28.

Jim Hallett, KAR Auction CEO, said the auction acquisitions and the opening of the Chicago site have made 2016 a “land mark” year for both KAR Auction and ADESA. He said the company is still in acquisition mode.

‘Acquisition pipeline’

“Our acquisition pipeline remains active,” he told analysts and reporters during the company’s earnings conference call today. “We have a number of targets at various stages of development. We will continue working on these targets and continue our efforts with patience and discipline around our valuations.”

Hallett also said the news that AutoNation Inc., the nation’s largest new-vehicle retailer, plans to expand its auction business is not a new thing and that other dealer groups have their own auction operations. He said ADESA’s broad physical auction footprint, its online capabilities, “its extensive technology portfolio that continues to grow,’’ and its global buyer base are its strengths.

“I think it’s really immaterial in the big scheme of things,” said Hallett. “It’s not like other dealers are feeding into their [AutoNation’s] auctions. They’re primarily doing this for their own inventory.

“In some cases they are auctioning these vehicles among their own locations, but in other cases they are auctioning to outside dealers as well. But they’re not taking inventory from other dealers to sell.”

The revenue increase at ADESA was primarily a result of a 17 percent increase in the number of vehicles sold as well as a 7 percent increase in the revenue per vehicle sold.

Online sales volume rose 2 percentage points to 40 percent of total sales at ADESA in the quarter, with physical auctions making up the rest.

During the latest quarter, revenue per vehicle sold at physical auctions rose 8 percent to $ 758; revenue per vehicle sold in online-only auctions increased $ 17 to $ 127.

Credit losses

Revenue at Automotive Finance Corp., KAR Auction’s inventory finance company, rose 3 percent to $ 71.2 million in the quarter and operating profit rose 1.1 percent to $ 34.8 million.

But the unit’s provisions for credit losses jumped to $ 8 million in the latest quarter, vs. $ 2.7 million set aside a year earlier, reflecting independent dealers defaulting on loans. That raised the provision for credit losses to 1.8 percent of average managed receivables, from 0.7 percent in the year-earlier quarter. In the current credit environment, the company said, provisions for credit losses are expected to be about 1.5 to 2 percent a year.

The company said its credit losses in the third quarter were neither unexpected nor alarming, but admitted that the losses were “greater than what we’ve experienced in any quarter since 2009.”

Salvage auctions

Revenue from the company’s salvage arm, Insurance Auto Auctions, increased 6 percent to $ 261 million in the quarter. IAA’s operating profit rose 5.5 percent to $ 43.9 million, even though the unit faced higher costs stemming from the need to store more vehicles following the floods in Louisiana in August.

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