Why Copart, Inc. Stock Plunged Today

MarketsMotley Fool

What happened

Shares of Copart (NASDAQ: CPRT) were down 14.7% as of 2:30 p.m. EDT Wednesday after the online vehicle auction specialist announced disappointing fiscal fourth-quarter 2018 earnings.

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More specifically, Copart's quarterly revenue climbed 18.7% year over year to $449.2 million, which translated to adjusted (non-GAAP) net income of $102.6 million, or $0.42 per diluted share. But most investors watching the stock were anticipating higher earnings of $0.48 per share on lower revenue of $444.2 million.

So what

Within Copart's top line, global service revenue grew 16.3%, while purchased car sales climbed 37.7%. And average selling prices in the U.S. climbed 11.9%, driven by the trend of newer, less-severely damaged vehicles being totaled, higher bidding activity, and favorable environments for both used car and scrap prices.

During the subsequent conference call, management also elaborated that the company spent roughly $1.7 million to prepare for Hurricane Florence, notably including both permanent and temporary storage facilities, tow trucks, loaders, dedicated catastrophic event teams and mobile command centers. Still, Copart believes the downgraded status of Florence to a tropical storm means it should require only "limited use" of its resources.

Copart CFO Jeff Liaw also explained that the company's net income was negatively impacted by around $20 million in one-time charges related to acquisitions and a change in depreciation and amortization. In particular, Copart's adjusted/non-GAAP net income does not exclude a non-cash depreciation charge of $10.5 million related to "assets newly placed into service as well as changes in the useful lives of fixed assets."

Now what

To be clear, those unusual charges should be non-recurring, and Copart's underlying business and long-term story otherwise appear to remain firmly intact. However, given its technical shortfall relative to expectations on the bottom line, and with shares already up nearly 50% so far in 2018 leading up to this report, it's no surprise to see the stock pulling back today.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Copart. The Motley Fool has a disclosure policy.