Copart's Sales Return to Strong Growth and Earnings Pop in Q3

Chris Neiger, The Motley Fool

Copart (NASDAQ: CPRT), an online automotive auction company, reported its third-quarter results on May 22, with sales jumping 15.7% year over year to $553.1 million. That increase was an improvement from the 5% sales jump in the second quarter and the 10% increase in the first quarter of this year.

The company also reported impressive net income of $553.1 million in the third quarter, an increase of 51.3% year over year.

Copart results: The raw numbers

Metric Q3 2019 Q3 2018 Year-Over-Year Change
Sales $553.1 million $478.2 million 15.7%
Net income $192.7 million $127.4 million 51.3%
Diluted earnings per share $0.81 $0.52 55.8%

Data source: Copart.

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Image source: Getty Images.

What happened with Copart this quarter?

Copart's strong sales growth in the third quarter is a welcome change. The company had experienced a slowdown of its revenue growth over the past several quarters, and the third-quarter jump not only reversed that trend but also helped Copart achieve its highest revenue in at least the past two years.

Copart's increase in revenue is attributable to both an increase in the company's service revenue and vehicle sales in the quarter. Service sales jumped 15% year over year to $473.7 million, and vehicle sales popped 18% to $79.4 million.

Copart's management considers the company's service revenue (which is sales it collects from both vehicle sellers and buyers) the most "accurate indicator" of its underlying business. It accounts for about 86% of total sales, so it was good to see this revenue segment increase by 15% in the quarter.

Aside from increasing sales, Copart's operating income also jumped by 32% in the quarter to $207.5 million, and the company's gross profit increased by 15% to $251.6 million.

Copart's management mentioned in the third-quarter press release that the company's operating results are still being adversely affected by "abnormal costs" related to the impact of Hurricane Harvey. The hurricane has caused increases in spending for storage facilities, equipment rentals, increased overtime labor costs, and the like for the company that totaled $7.4 million in the quarter.

What investors can expect

Copart's share price has popped about 5% following the company's third-quarter results, which isn't all that surprising considering the company's strong sales and earnings growth.

The company's share price has been steadily increasing since the beginning of this year after taking a steep dive toward the end of 2018. Copart's share price climb this year has resulted in a 30% gain over the past 12 months, compared to the S&P 500's increase of just 3.5%.

Copart's management doesn't issue any forward guidance, but investors should be pleased with the fact that the company's sales are moving in the right direction again. Investors should continue to keep a close eye on sales to see if the current reversal of slowing revenue growth is indicative of a new trend or if it's a momentary blip. Either way, they should be pleased with the company's strong sales and earnings performance in the third quarter.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends Copart. The Motley Fool has a disclosure policy.