Uni-Select Inc. has reported its financial results for the second quarter ended June 30, 2018.
“We are very pleased by our results for the FinishMaster U.S. segment, as organic growth resumed, in line with our expectations. The Parts Alliance U.K segment (TPA) provided another solid quarter of sales growth and strong margins which fuelled Adjusted EBITDA and free cash flows,” said Henry Buckley, president and CEO of Uni-Select.
“We intensified our sales and marketing efforts at FinishMaster, which translated in new business wins and a return to positive organic growth. TPA is exceeding our expectations supported by solid momentum in greenfield store openings and operational performance. However, the Canadian Automotive Group segment faced headwinds this quarter primarily as a result of soft market conditions. Given our overall performance and outlook, we are reiterating our annual consolidated guidance but have adjusted our segments to consider a stronger performance in TPA and a more conservative view for Canadian operations.
“Looking forward, we are confident that we have turned the corner at FinishMaster and that our TPA acquisition represents a great asset on which we can build and grow our network. Furthermore, we are confident that the Canadian business strategy will gain momentum with the growing traction of the Bumper to Bumper brand,” concluded Buckley.
Consolidated sales for the second quarter were $461.6 million, a 35.6 percent increase compared to the same quarter last year, driven by the sales generated from recent business acquisitions, adding sales of $115.4 million or 33.9 percent, of which The Parts Alliance U.K. segment represents $111 million or 32.6 percent. The FinishMaster U.S. segment is reporting a positive organic growth of 0.7 percent and overcoming recent headwinds. The Canadian Automotive Group segment is reporting a negative organic growth for the quarter compared to a record organic growth in 2017, navigating through a softer market in 2018.
Net earnings and adjusted earnings were respectively $17.9 million and $18.4 million, compared to $13.7 million and $16.6 million in 2017. Adjusted earnings increased by 10.6 percent compared to the same quarter last year, resulting from The Parts Alliance U.K. segment’s contribution and the reduction of the income tax rate for the U.S. operations. These elements were partially offset by additional finance costs as well as depreciation and amortization, all related to recent business acquisitions and investments in capital.
Segmented Results
The FinishMaster U.S. segment is rebuilding sales momentum with sales of $211 million, up 0.7 percent from the same quarter in 2017, entirely arising from organic growth. This performance is attributable to the sales team efforts on driving growth and business volume. EBITDA for this segment was $21.5 million, compared to $24 million in 2017. The EBITDA margin decrease of 130 basis points is impacted by a growing percentage of national and regional accounts, for which discounts are more significant. This segment also is aggressively reinforcing its leadership position against competition. These elements were partially compensated by savings arising from the 20/20 initiative, which include the integration of one store and the alignment of employee benefits to its evolving cost-to-serve model.
Sales for the Canadian Automotive Group segment were $139.6 million, compared to $130.8 million in 2017, an increase of 6.7 percent, the result of the impact of the Canadian dollar on its conversion to U.S. dollar, the recent business acquisitions and the impact of billing days. This segment reported a negative organic growth of 3 percent, compared to a record second quarter in 2017 due, for the most part, to softness in the market. The EBITDA margin decrease of 140 basis points compared to the same quarter in 2017, is mainly due to the undertaken integration efforts to optimize the company-owned stores, including the 20/20 initiative, store rebranding, store processes and implementation of the new point of sales (POS) system. These elements are partially compensated by higher volume rebates and contribution from the acquired stores, improving the gross margin of the current quarter compared to the corresponding quarter last year.
The Parts Alliance UK segment recorded sales of $111 million and EBITDA of $8.6 million (7.8 percent of sales). The peak season of this segment, which typically covers the first and the second quarters, is enabling the leverage of its cost base. Further supported by cost actions taken during the last quarter of 2017, the result was an EBITDA margin of 7.8 percent for the current quarter, in contrast to the 4 percent recorded in the fourth quarter of 2017. As part of its growth strategy, three greenfields were opened during the quarter.
Six Month Results
Consolidated sales for the six-month period were $883.7 million, a 38.6 percent increase compared to the same period last year, driven by the sales generated from recent business acquisitions, adding sales of $237 million or 37.2 percent, of which The Parts Alliance UK segment represents $221.1 million or 34.7 percent. The Canadian Automotive Group segment delivered an organic growth of 1.1 percent compensating the performance of the FinishMaster US segment, which is reporting negative organic growth of 1 percent.
Net earnings and adjusted earnings were respectively $28.3 million and $30.5 million, compared to $24.7 million and $27.6 million last year. Adjusted earnings increased by 10.4 percent compared to the same period last year and mainly resulted from The Parts Alliance U.K. segment’s contribution and the reduction of the income tax rate for the U.S. operations. These elements were partially offset by additional finance costs as well as depreciation and amortization, all related to recent business acquisitions and investments in capital.
Segmented Results
The FinishMaster U.S. segment recorded sales of $412.3 million, up 0.8 percent from the same period in 2017, supported by recent business acquisitions representing a growth of $7.3 million or 1.8 percent. The momentum of sales emerging during the second quarter partially compensated headwinds faced until recently, reducing the negative organic growth to 1 percent. The company said these wins combined with ongoing growth initiatives are expected to progressively offset the impact of the first quarter and generate organic growth by the end of the year. EBITDA for this segment was $41.3 million, compared to $47.3 million in 2017. The EBITDA margin decrease of 160 basis points is the result of an evolving customer mix and lower special buys for the period. These elements were partially compensated by savings arising from the 20/20 initiative, with the integration of four stores and the alignment of employee benefits to its evolving cost-to-serve model.
Sales for the Canadian Automotive Group segment were $250.2 million, compared to $228.3 million in 2017, an increase of 9.6 percent, the result of the impact of the Canadian dollar on its conversion to U.S dollar and the recent business acquisitions. The organic growth of 1.1 percent for the period is principally from sales to current and new independent customers and onboarding our Canadian banners, programs and logos. The EBITDA margin decrease of 90 basis points is mainly due to the integration efforts undertaken to optimize its growing network of company-owned stores and the internalization of the servers, which was a favorable one-time saving in 2017. These elements were partially compensated by higher volume rebates, improving the gross margin of the current period compared to the corresponding period last year.
The Parts Alliance UK segment recorded sales of $221.1 million and EBITDA of $18.2 million (8.2 percent of sales). The peak season of this segment, which typically covers the first semester, is enabling the leverage of its cost base. Further supported by cost actions taken during the last quarter of 2017, the result was an EBITDA margin of 8.2 percent for the six-month period, in contrast to the 4 percent recorded for the five-month period in 2017, which included August and December, the two weakest months of the year. As part of its growth strategy, this segment opened seven greenfields since the beginning of the year, expanding the footprint in the U.K. and fostering a better service, notably for national accounts. In addition, The Parts Alliance UK segment is in the process of integrating the operations of its acquired stores and of maximizing its contribution with undertakings as part of the ongoing 20/20 initiative.
