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Copart ($CPRT): FY2023 Q1 Earnings
CPRT is a company we analyzed back in September and it reported a profit on 11/16 for the above period that decreased from last year.

The company's earnings came in at $245.85m, or $0.51 per share. This compares with $260.36m, or $0.54 per share, in last year's first quarter and is c.10% lower than the $0.56 expected by consensus.

For the first quarter, global revenue increased $83.2 million or 10.3% ($893.37m from $810.13m last year), in line with WS estimates, including a $23.6 million headwind due to currency. Global service revenue increased $59 million or 8.8% for the first quarter, primarily due to higher average selling prices and increased volume.

Global gross profits in the first quarter decreased by $15.5m or 4%, and gross margin percentage decreased by approximately 600bps to 41.4%. The YoY margin decline was primarily attributable to 2 factors.
  • 200-250bps of the quarter decline was due to elevated Hurricane Ian costs being directly expensed in the quarter.
  • The balance of the margin contraction is attributable to a mix shift to purchased vehicles, a modest reduction in purchased vehicle margins and cost inflation in both towing and labor, offset partially by higher revenue per unit and volume growth.

However, the management believes they can continue to increase margin and returns on capital over time as they benefit from scale and find further operational efficiencies through technology and innovation.

GAAP operating income decreased by 5.6% from $330.1 million to $311.5 million for the first quarter, including a $4.1 million headwind due to currency. Excluding catastrophic events from both periods, operating income decreased by 3.3%.

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As of October 31, 2022, CPRT had $2.8bn of liquidity, comprised of $1.5bn in cash and cash equivalents and an undrawn revolving credit facility with capacity of over $1.2bn. CFO for the quarter decreased by $1m YoY to $311.6m, driven by lower earnings due to the additional expenses incurred in the quarter from Hurricane Ian.

Global inventory at the end of October decreased 3.6% from last year. For the first time in recent history, the number of total losses as a percentage of overall accidents has been declining. As a result, inventory levels are lower than they were a year ago despite incremental inventory attributable to unsold vehicles picked up during the quarter from Hurricane Ian.

Management comments regarding the total loss frequency downward sloping trend over the last 2 years:
  • "While total loss frequency has declined over the course of the last 2 years, we still believe this to be a relatively short-term scenario. We appear to be observing some stabilization in total loss frequency based on the past 2 sequential quarters. Regardless, it is our view that the market will inevitably revert to its 40-year historical norm of steadily rising total loss frequency. Accident severity, repair complexity and duration, repair labor costs and rental car costs will contribute to said reversion, buoyed by Copart's best-in-class auction liquidity and global buyer base as we continue with significant resource investment into member recruitment, registration, retention, et cetera."

To conclude, we remain optimistic about CPRT, which has a lasting and distinctive competitive advantage. The current macroeconomic environment and the headwinds associated with it are not of much concern to us. We are confident that over the long term, management will continue to execute and improve both margins and return on capital.

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