Copart reported its financial results for its fiscal third quarter ending April 30 on Wednesday, highlighting the impact of how the strengthening U.S. dollar and lower scrap values affected its year-over-year results.
The company experienced a year-over-year decrease in revenue and gross margin along with a substantial increase in net income for the quarter.
Third quarter revenue came in at $297.1 million, a 4.1 percent year-over-year decrease, while gross margin fell 3.7 percent to $127.4 million. One notable jump, a 40.8-percent increase, came in the form of net income, which sprang to $57.6 million, or a $16.7 million increase.
Will Franklin, the company’s chief financial officer, attributed the fall in revenue to a decline in auction average selling price during Copart’s earnings conference call on Thursday.
“The decline in ASPs resulted from lower commodity pricing and the impact of the stronger dollar,” Franklin said. “In April 2014, the index for crushed car bodies, as issued by American Recycler, stood at $273 per ton. That same index was at $143 per ton at the end of April 2015. We believe this index to be highly correlated to dismantler and junk buyers behavior.”
Franklin went on to explain that the increased value of the dollar has contributed to weaker sales internationally.
“The strengthening dollar suppress participation of our international buyers as the percentage of units sold to international buyers was the lowest since our third quarter of fiscal 2009,” Franklin said. “And the percentage of value sold to international buyers was lowest since our first quarter for 2005.”
Jay Adair, the company’s chief executive officer, expects that the drop in average selling prices is just about as low as it should go, but expects them to stay low for a while.
“Looking at May data, average selling price has dropped again, but we believe we are currently at the bottom in terms of where salvage values will end up for the fourth quarter,” Adair said. “Additionally, we expect this trend of low ASPs to continue into our future quarters and do not anticipate that average selling price will bounce back in the next couple of quarters. We believe the cause of this lower ASP or average selling price is due primarily to lower scrap prices and softer international bidding.”