EUR 850.00 For Business Accounts Only

Morningstar | Ritchie Brothers Improves Operating Income on Relatively Flat Transaction Value

Ritchie Brothers improved gross transaction value 2% in the third quarter, increasing it to $1.04 billion from $1.02 billion in the same period in 2017. Revenue increased 8% to $245 million from $227 million year over year. Moreover, earnings per share increased an impressive 133% in the quarter to $0.21 from $0.09 in the prior year. Following solid third-quarter earnings and considering possible headwinds in North America, we are maintaining our fair value estimate of $30 (CAD 40).

In the quarter, the North American economy was particularly hot, which had the negative effect of constraining the volume of equipment available for auction. In the region, over-the-road truck sales increased while international auctions saw increased sales of agricultural equipment. In Brazil, Ritchie partnered with two Caterpillar dealers for a special Marketplace-E online event, which was particularly successful. Japan was also strong, in part due to the existing Caterpillar alliance. In contrast, European auctions were rather soft.

Operating income was up 84% year over year, which was especially impressive given the tight supply environment. This improvement can be ascribed to extensive cost management along with success in some of its newer, high-margin offerings. Its multichannel solutions continued to show success as Ritchie Brothers’ online marketplace was up 16% in gross transaction value. Innovation continues to be strong, as Ritchie Brothers has fully integrated IronPlanet, which was acquired in 2017. RB Asset Solutions was officially launched on Oct. 2. This software-as-a-service platform provides a flexible environment for customers to manage inventory, analyze market trends, and dispose of equipment through multiple channels. On the larger issue of data analytics, Ritchie recently started to use machine learning techniques to better analyze data and provide optimized price realization.

We remain positive on Ritchie Brothers, but we expect some headwinds as the firm will be constrained due to continued tightness in the North American market. Ongoing strategies such as providing 50% off commissions to first-time sellers, better leveraging of the Caterpillar relationship, and greater use of technology solutions should improve both top- and bottom-line performance.