Does AutoZone Need a Tune Up?

When AutoZone Inc. (NYSE: AZO) released its fiscal second-quarter financial results before the markets opened on Tuesday, the auto parts retailer said that it had $4.23 in earnings per share (EPS) on $2.41 billion in revenue. That compares with consensus estimates from Thomson Reuters of $8.93 in EPS on revenue of $2.39 billion. The same period of last year reportedly had EPS of $8.08 and $2.29 billion in revenue.

During the quarter, tax reform increased net income by $171.4 million, consisting of benefits from both revaluation of net deferred taxes of $136.7 million and a lower corporate tax rate of $59.5 million, partially offset by $24.8 million of tax expense related to repatriation taxes for accumulated earnings of foreign subsidiaries.

Separately, the firm recorded about $193.2 million in intangible and other assets impairment charges within operating expenses related to its IMC and AutoAnything businesses. Note that both businesses are being sold.

The company did not issue any guidance for the fiscal third quarter. However, the consensus estimates from Thomson Reuters call for $13.60 in EPS and $2.74 billion in revenue for the coming quarter.

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On the books, AutoZone’s cash and cash equivalents totaled $288.5 million at the end of the quarter, up from $210.6 million in the same period last year.

Bill Rhodes, board chair, president and CEO, commented:

Based on the results of a strategic review of our business priorities, we have determined IMC and AutoAnything serve niche markets that are not core to our strategic priorities going forward and those two businesses are being sold. We thank all the employees of IMC and AutoAnything for their contributions to our success and wish them well in the future. Exiting these two businesses will allow us to intensify our focus on our core DIY and DIFM operations both domestically and internationally, which we continue to believe are very attractive markets. As we continue to invest capital in our business, we will remain committed to our disciplined approach of increasing operating earnings and utilizing our capital effectively.

Shares of AutoZone were last seen down about 11% at $657.01 on Tuesday, with a consensus analyst price target of $812.29 and a 52-week range of $491.13 to $797.89.

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