Shares of Ritchie Bros. Auctioneers (NYSE: RBA), the world's largest auctioneer of heavy industrial and agricultural equipment, soared 12% on Tuesday after the company put the finishing touches on a solid 2016. Despite pricing volatility and multiple acquisitions, the company managed to top Wall Street estimates on both the top and bottom lines. Here are some of the highlights from RBA's fourth quarter and full year.
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Starting with RBA's top-line revenue, the company generated $146.77 million during the fourth quarter, which was higher than analysts' estimates calling for $133.92 million, and an 8% increase over the prior year's fourth quarter. RBA's fourth-quarter adjusted earnings per share checked in at $0.30, higher than analysts' estimates calling for $0.27 per share.
If you're looking solely at the net income figure, it's wise to take it with some context. Fourth-quarter net income dropped 40%, primarily due to one-time charges associated with the pending acquisition of IronPlanet. Adjusted net income increased 5% compared to the prior year's fourth quarter.
Image source: Ritchie Bros. Auctioneers.
What management had to say
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As the dust settles on its slew of acquisitions, management remains upbeat about the company's prospects going forward.CEO Ravi Saligram said in a press release:
In 2016, we laid a strong foundation to accelerate Ritchie Bros.' growth trajectory through several acquisitions, including Mascus, the premier listing service in Europe; Kramer Auctions, a regional agricultural auctioneer in Canada; Petrowsky Auctioneers, an industrial auctioneer in the U.S. North East; and acquired 100% ownership of Ritchie Bros. Financial Services. Importantly, we announced the landmark acquisition of IronPlanet, a leading online equipment marketplace and a strategic alliance with Caterpillar. Collectively, these initiatives are transforming Ritchie Bros. into a significant multichannel player with the unique ability to be a one-stop-shop solution provider to customers for their various asset management and disposition needs.
One of RBA's most compelling developments in recent years has been its increased focus on growing its online presence. It makes business sense, because why not reach a massive amount of potential buyers online while it's already executing its live-site auction?
Image source: Ritchie Bros. Auctioneers Q4 2016 earnings presentation, Feb. 21, 2017. GAP = gross auction proceeds.
Not only will the IronPlanet acquisition help drive RBA's online presence, but the company's mobile bidding app is worth watching for investors. The app was launched on July 11, 2016, and since then it's logged more than 22,290 users from 132 countries, with roughly half of those users active on a monthly basis. It has generated 5,207 auction registrations and 10,552 bids that have generated about 2% of total online gross auction proceeds. It's difficult to predict how much of gross auction proceeds the mobile app will eventually generate, but this month will see releases of the app in Spanish, French, Italian, and German, which could at least boost its near-term productivity.
RBA and its investors are embarking on a 2017 with different priorities than in the prior year. Rather than using cash to hold fully diluted shares flat, management is expected to focus on paying down a portion of short-term debt with the intention to lower net debt-to-EBITDA to a ratio of 2.5 times as quickly as possible. Also, the company will continue to pick and choose excellent, small bolt-on acquisitions outside of North America, but don't expect another major transaction similar to IronPlanet until that company is fully absorbed and debt levels are reduced.
If RBA can pay down debt, create additional cost synergies from its acquisition spree, and increase its online presence, 2017 should be another solid year for the company.
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