O'Reilly's (ORLY) Q2 Earnings & Revenues Miss Estimates

O’Reilly Automotive Inc. (NASDAQ:ORLY) reported a 16% increase in earnings to $2.65 per share in the second quarter of 2016 from $2.29 in the year-ago quarter. However, earnings missed the Zacks Consensus Estimate of $2.67. Net income improved 10% to $258 million (11.8% of sales) from $234 million (11.5% of sales) in the second quarter of 2015.

Quarterly revenues went up 7% to $2.18 billion from $2.04 billion a year ago. Revenues, however, fell marginally short of the Zacks Consensus Estimate of $2.19 billion. Comparable store sales increased 4.3% in the reported quarter compared with a 7.2% rise in the prior-year quarter.

Gross profit improved 6% to $1.13 billion (51.8% of sales) from $1.06 billion (52% of sales) a year ago. Selling, general and administrative expenses increased 4% year over year to $702 million (32.3% of sales) from $673 million (33.1% of sales). Operating income went up 10% to $425 million (19.5% of sales) from $386 million (19% of sales) a year ago.

Store Information

During the first half of 2016, O’Reilly opened 90 stores across the country. The total store count across 44 states was 4,660 as of Jun 30, 2016. Sales per weighted average-store increased to $466,000 from $454,000 in the second quarter of 2015.

Share Repurchases

During the first half of 2016, O’Reilly repurchased 3.3 million shares for $857 million, reflecting an average price of $259.14. From Jun 30, 2016 through Jul 27, it bought back less than 0.1 million shares for $4 million, implying an average price of $269.33.

Since the inception of the share repurchase program in Jan 2011, O’Reilly has repurchased a total of 54.6 million shares for $6.22 billion, indicating an average price of $113.94. As of Jul 27, 2016, the company had $782 million remaining under its current share repurchase authorization.

Financial Position

O’Reilly had cash and cash equivalents of $398.3 million as of Jun 30, 2016, compared with $260.04 million as of Jun 30, 2015. Long-term debt was $1.9 billion as of Jun 30, 2016, compared with $1.4 billion as of Jun 30, 2015.

In the first half of 2016, net cash flow from operations increased to $798.4 million from $698.5 million in the prior-year period. Meanwhile, capital expenditures rose to $218.4 million from $184.9 million in the first half of 2015. Free cash flow in the period was $577.9 million compared with $511.9 million in the first half of 2015.

Guidance

For third-quarter 2016, O’Reilly projects earnings per share in the range of $2.77–$2.87. The company expects consolidated comparable store sales to increase 3%–5%.

For full-year 2016, the company expects earnings per share in the range of $10.30–$10.70, up from the prior guidance of $10.10–$10.50. O’Reilly projects consolidated comparable store sales to increase in the range of 3%–5% during the year. The company anticipates revenues in the band of $8.4–$8.6 billion. For 2016, the gross margin guidance is pegged at 52.3%–52.7%, and operating margin is expected to be 19.5%–19.9%.

O’Reilly expects capital expenditures of $460–$490 million, and free cash flow between $800 million and $850 million for the year.

Zacks Rank

O'Reilly is a prominent player in the automotive replacement parts and accessories industry. The company currently carries a Zacks Rank #4 (Sell).

Some better-ranked automobile stocks include Spartan Motors Inc. (NASDAQ:SPAR) , Johnson Controls Inc. (NYSE:JCI) and Gentex Corp. (NASDAQ:GNTX) , each carrying a Zacks Rank #2 (Buy).

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