Oil prices side-swipe AutoCanada
As a photographer beckons AutoCanada chief Tom Orysiuk to pop out of his office for a quick showroom photo, I offer to take charge of the Edmonton-based auto dealership network until he’s finished.
“I wish you would,” Orysiuk says with a rueful laugh. He makes the comment in jest, of course. Orysiuk is an informal, friendly guy with a quick wit. But it’s a telling comment nonetheless.
It’s been that kind of year — not only for AutoCanada, but for the entire Alberta economy and many businesses. With oil prices mired below $45 US a barrel, virtually every sector is feeling the pinch, from energy to housing to banking and retailing.
The oil-price crash has left plenty of collateral damage in its wake, including slumping auto sales in what is usually Canada’s hottest market.
Through July, total passenger car and light-duty truck sales in Alberta, where AutoCanada generated almost half of its sales last year, were down 15.1 per cent.
Nationally, industry sales continue to rip along at a record clip, helped by strong sales in Ontario and British Columbia. After a torrid August, Carlos Gomes, senior economist at Scotia Capital, is forecasting total Canadian sales of 1.855 million units this year, slightly above last year’s record tally.
But that’s where the good news ends. For AutoCanada, now in its 10th year as the country’s largest publicly traded auto dealership network, the buoyant industrywide sales figures have yielded little joy.
With sales at its 25 Alberta dealerships under pressure and the debacle at Volkswagen adding to the gloom, AutoCanada’s once lofty share price has stumbled badly. It closed Wednesday at $25.85 on the Toronto Stock Exchange, about $3.70 above its 52-week low in August but more than 70 per cent below its June 2014 record high of $90-plus.
The plunge reflects a pullback in the company’s once-torrid earnings growth rate. Through the first half of 2015, AutoCanada earned 76 cents a share, down from 99 cents in the prior-year period, as samestore new vehicle sales revenue suffered a double-digit decline. Investors fear the downtrend will continue as long as oil prices remain depressed.
Although Orysiuk says the monthly sales picture has gradually improved since the beginning of the year, it won’t be enough to stem the tide. As a result, the consensus estimate among analysts is for AutoCanada to generate a profit of $1.90 a share for 2015. That’s down from $2.30 last year, but up slightly from 2013 earnings of $1.83 a share when AutoCanada’s shares tripled in value, from $15 to $45.
“I think we’re largely viewed ( by investors) as an oil stock because we’ve got a lot of dealerships in Western Canada,” Orysiuk says.
Two dozen of the company’s 49 dealers are in energy-rich Alberta. Four others are in Saskatchewan and the remaining 27 are sprinkled across the country, including 12 in B.C.
The fiasco at Volkswagen — which has admitted to rigging emissions test results for several of its diesel-powered vehicles, prompting a sales halt of affected vehicles — has also side-swiped AutoCanada, which operates six Volkswagen dealerships and a related Audi dealership.
Orysiuk says the impact is likely to be muted. Most of the company’s six Volkswagen dealers are small, accounting for less than five per cent of annual sales revenue. The diesel-powered models subject to the sales halt account for barely one per cent of sales.
Auto-Canada has announced plans to add four to six new dealers by May of next year.