AutoCanada Inc (AOCIF) reported a 12.8% year-over-year increase in adjusted EBITDA for its Canadian operations in Q4 2024.
The company realized $7.9 million in savings from its transformation plan, with an annualized run rate savings of $9 million as of December 31, 2024.
New vehicle unit sales grew by 4.7% year over year, supported by OEM incentives and lower interest rates.
Operating expenses as a percentage of gross profit decreased by 13.2 percentage points, aided by lower inventory and floor plan rates.
AutoCanada Inc (AOCIF) is targeting $100 million in annual run rate cost savings by the end of 2025 through its transformation plan.
Negative Points
Total sales from continuing operations decreased by 1.2% year over year in Q4 2024.
Used vehicle unit sales fell by 8.4% due to inventory mix challenges and post-COVID normalization of the used car market.
New and used vehicle gross profit per unit dropped by 14.3% and 5.4% respectively.
The Canadian market has cooled in early 2025, with new light vehicle sales declining by 2.8% year over year.
AutoCanada Inc (AOCIF) faces risks from US tariffs, escalating trade tensions, and inflationary pressures, which could impact market stability and demand.
Q & A Highlights
Q: How is AutoCanada handling the current tariff situation, and what is the base case for its impact on the business? A: Paul Antony, Executive Chairman, stated that the company is focusing on controllable factors, such as cost management, due to the unpredictability of tariffs. They are preparing for various scenarios by optimizing operations and maintaining a strong balance sheet, similar to their approach during COVID-19.
Q: What is the rationale behind selling the US business, and how does it relate to tariffs? A: Paul Antony explained that AutoCanada lacks a clear view of normalized earnings for its US operations and believes other entities might manage these assets better. The decision to sell is not directly influenced by tariffs, but the company is committed to divesting these assets due to their strategic focus on Canadian operations.
Q: Can you explain the $15 million and $16 million repayments related to a subsidiary? A: Samuel Cochrane, CFO, clarified that these repayments are related to a dealership structure where AutoCanada did not have full ownership but had control through a loan. The funds are expected to be reflected on the balance sheet in Q1 2025.
Q: Has AutoCanada altered its inventory mix in response to tariff uncertainties? A: Paul Antony mentioned that the company has reduced its used car inventory to avoid overpaying for vehicles in the face of potential tariffs. They are strategically managing inventory to mitigate risks associated with tariff changes.
Q: What is the timeline for selling the US operations, and is there a possibility of terminating franchise agreements? A: Paul Antony confirmed that AutoCanada is committed to selling its US operations within the next 12 months and has engaged a banker for the process. Terminating franchise agreements is not currently planned, except for specific cases like Volvo, where market presence was no longer desired.
Q: Is there potential for cost savings beyond the $100 million target from the transformation plan? A: Paul Antony stated that while there might be additional savings opportunities, the focus is on achieving the $100 million target. The company is confident in reaching this goal through disciplined execution of their transformation plan.
Q: How should leverage be expected to trend throughout the year, considering the US business sale? A: Samuel Cochrane indicated that leverage might remain elevated until the US businesses are sold. Once the sales are completed, leverage is expected to decrease as the US losses will no longer impact bank EBITDA calculations.
Q: Can you quantify the inventory adjustment on the used side? A: Samuel Cochrane noted a new inventory provision of $2.6 million for older new vehicles, while the used inventory provision was minimal for the quarter.
Q: Does the macroeconomic environment need to remain stable to achieve the $100 million cost savings? A: Paul Antony confirmed that a stable macro environment is assumed for achieving the cost savings. However, even in a downturn, the company believes it can still reach the $100 million target by adjusting operational strategies.
