As you know, four-wheel drive (4WD) aftermarket parts and accessories manufacturer, distributor and retailer ARB Corporation (ASX:ARB) is one of the highest A1-quality companies listed on the Australian Securities Exchange (ASX). As we have written here at the blog many times, I believe, over time, investors will transition from seeing it as being dominated by the cyclicality of its Australian business to a global, vertically integrated growth story with the U.S. ultimately generating vastly more revenue than its local operations.
The 2024 results just reported were largely in-line with expectations.
Sales revenue grew 3.3 per cent year on year to $693.15 million dollars. Consensus expectations were for $696 million. Importantly, and while off a low base, original equipment manufacturer (OEM) revenue, which encompasses the partnerships with Ford and Toyota in the U.S., grew 40.6 per cent year-on-year to $59.60 million. Revenue for the company’s aftermarket division – the products ARB Corporation is widely known for among 4WD enthusiasts, was 5.4 per cent higher than in 2023 at $404.14 million.
Profit before tax grew 17.7 per cent to $143 million, missing consensus estimates by about two per cent. The gross margin of 57.5 per cent recorded in the first half was roughly maintained at 57 per cent in the second half but a good beat of 54 per cent expectations.
The before-tax profit margin was 20.6 per cent, which is a decline suggesting higher costs but ARB Corporation stated inflationary pressures have eased over the course of the year. It’s worth noting consensus estimates are for equally-high profit before tax (PBT) margins in FY25. Meanwhile, operating cash flow grew 39 per cent year on year to $125 million, with cash conversion of over 90 per cent, and the final dividend was 35 cents per share.
As is usually the case, the company offered no formal guidance, but some hints were provided. For example, the company noted first quarter 2025 sales “have begun positively”. This is noteworthy, considering analysts expect sales growth to accelerate to nine per cent in 2025, up from 3.3 per cent in 2024. With respect to the bread-and-butter aftermarket business, the company noted it expected the; “improved workshop efficiency in recent months… to continue.” On the export side, ARB Corporation confirmed it had “overcome key supply issues” and that in FY25 it expects “to return to growth.” And on the all-important global expansion plans, the company talked about ‘acquisitions, said the “U.S. market outlook is positive” and in 2025 “additional Toyota U.S. programs will come online”, adding, “new contracts with Toyota U.S. will be announced during FY25.” ARB Corporation also did say that broadly, U.S. conditions are “challenging”.
The company continues to invest in growth. Domestically, four new stores are expected to open in 2025, and another five stores will be upgraded to the new flagship format. Overseas, a U.S. research and development facility will open in the first half and a planned Seattle store should open before Christmas. The distribution center in Texas will also be expanded.
This very high-quality business, which we have followed for decades, remains on track.
The Montgomery Fund and the Montgomery [Private] Fund owns shares in ARB Corporation This article was prepared 20 August 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade ARB Corporation, you should seek financial advice.