O’Reilly Auto Crashes After Cutting Outlook

by Jeff Reeves | June 27, 2012 9:06 am

O’Reilly Automotive (NASDAQ:ORLY[1]) cut its outlook after the bell Tuesday, and as a result, Wall Street cut the auto parts retailer’s shares by 14% in early trading Wednesday.

Competitors AutoZone (NYSE:AZO[2]), Pep Boys (NYSE:PBY[3]) and Advance Auto Parts (NYSE:AAP[4]) are selling off this morning, too.

O’Reilly said it expects its second-quarter earnings to be at the low end of its prior estimates, which ranged $1.13 to $1.17 — short of Thomson Reuters-polled analyst estimates for $1.19. ORLY also projected same-store sales growth of just 2% to 2.5% for the quarter, down from its prior view of 3% to 5%.

June sales also will miss expectations, according to company officials.

Adding to the pessimism was that old canard about weather moving the numbers. CEO David E. O’Reilly said early spring weather shifted business into the first quarter, possibly as more folks changed their brake pads in their driveways or went on sunny drives that required tune-ups.

But that seems a little naïve, if you ask me.

O’Reilly will report its second-quarter results on July 25, so look for the actual numbers then.

The auto parts sector has been one of the bright spots (if you can call it that) of the new economy. Folks continue to drive older cars longer and delay new vehicle sales, leading to more maintenance needs and thus better auto parts sales.

O’Reilly stock gave up all its gains so far in 2012, but remains up more than 30% from January 2011, compared with just 8% for the Dow Jones. AutoZone is up by about the same amount even after today’s declines.

So is the growth over for these auto parts stocks? Maybe, but maybe not. In April, O’Reilly said its first-quarter earnings rose 44% as revenue growth topped analyst expectations. The company has enjoyed over year-over-year revenue increases for 12 straight quarters, and sales have soared from $3.58 billion in fiscal 2008 to a projected $6.26 billion in fiscal 2012. That’s a nearly 75% jump in four rather depressing years for the global economy.

Of course, growth is only part of the equation. Expectations are the most important thing — and right now investors are uncertain because of the obvious troubles in Europe, fears of a China slowdown[5] and persistent unemployment at home.

O’Reilly is indeed growing. But if it’s not growing fast enough to meet the very high expectations of investors right now, expect this stock to stumble for a while.

Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[6] Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the stocks named here.

Endnotes:
  1. ORLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=ORLY
  2. AZO: http://studio-5.financialcontent.com/investplace/quote?Symbol=AZO
  3. PBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=PBY
  4. AAP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAP
  5. fears of a China slowdown: http://investorplace.com/2012/02/china-investors-year-of-the-draggin/
  6. “The Frugal Investor’s Guide to Finding Great Stocks.”: http://www.amazon.com/Frugal-Investors-Finding-Stocks-ebook/dp/B007KB9CSI/ref=sr_1_1?ie=UTF8&qid=1331819172&sr=8-1

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