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O’Reilly Automotive Inc. (ORLY - Analyst Report) reported a 22.6% rise in adjusted earnings to $1.14 per share in the fourth quarter of 2012 from 93 cents in the prior-year quarter, surpassing the Zacks Consensus Estimate by $1.08. Adjusted net income rose 10% to $133 million compared with $121 million in the fourth quarter of 2011.

Revenues in the quarter grew 7.2% to $1.5 billion, meeting the Zacks Consensus Estimate. Comparable store sales (sales for stores open for at least one year) rose 4.2% for the quarter versus 3.3% in the same quarter a year ago.

Adjusted operating income went up 9.3% to $223 million from $204 million in the fourth quarter of 2011. Adjusted operating margin was 15.0% versus 14.7% in the year-ago quarter.

2012 Results

O’Reilly’s adjusted earnings in the year zoomed 24.7% to $4.75 per share from $3.81 in 2011, outperforming the Zacks Consensus Estimate of $4.69. Adjusted net income scaled up 12.3% to $586 million from $522 million in 2011.

Revenues soared 7% to $6.2 billion in the year. Comparable store sales for the year increased 3.8% compared with 4.6% in 2011.

Store Update

During the quarter, O’Reilly opened 24 new stores as planned, bringing total store openings to 185 for 2012. As of Dec 31, 2012, the company has operated 3,976 stores. The company reiterated its guidance to open a total of 190 new stores in 2013.

Share Repurchase

During the quarter under study, O’Reilly repurchased 3.6 million shares of its common stock at an average price of $87.71, reflecting a total investment of $312 million. For the full year, the company has repurchased 16.2 million shares at $89.20 per share, implying a total investment of $1.45 billion.

Subsequent to the end of the fourth quarter until the release date of fourth quarter results, the company has repurchased an additional 1.9 million shares at an average price of $89.84, which means a total investment of $170 million.

Since the inception of the program in Jan 2011 through the date of the fourth quarter earnings release, O’Reilly repurchased a total of 34.0 million shares of its common stock under its share repurchase program at $76.28 per share, implying an aggregate investment of $2.6 billion.

On Nov 12, 2012, the company’s Board of Directors increased the repurchase authorization under its share repurchase program by an additional $500 million, raising the cumulative authorization to $3.0 billion. As of Feb 6, 2013, O’Reilly had approximately $409 million remaining under its share repurchase program.

Financial Position

O’Reilly had cash and cash equivalents of $248.1 million as of Dec 31, 2012, a decrease from $361.6 million as of Dec 31, 2011. Long-term debt was $1.1 billion at year end, up from $797.6 million as of Dec 31, 2011. This translated into a long-term debt-to-capitalization ratio of 34.2%, significantly up from 21.9% at the end of 2011.

In 2012, cash flow from operations improved to $1.3 billion from $1.1 billion in the previous year, driven mainly by higher profits and increases in income taxes and accounts payable. Free cash flow increased 20.3% to $950.8 million from $790.7 million a year ago as capital expenditures reduced 8.4% to $300.7 million from $328.3 million in 2011.


O’Reilly has projected earnings per share in the range of $1.30–$1.34 and consolidated comparable store sales to increase in a band of 0% to 2% for the first quarter of 2013.

For full year 2013, the company anticipates higher earnings per share in the range of $5.57 to $5.67 compared with 2012 and consolidated comparable store sales to increase by 3% to 5%. The company also expects higher revenues of $6.6 billion to $6.7 billion compared with 2012, gross margin in the vicinity of 49.9% to 50.3%, and operating margin between 15.8% and 16.2% for the year.

O’Reilly expects capital expenditures in the range of $385 million to $415 million and free cash flow between $450 million and $500 million for the year.

Our Take

O'Reilly Automotive is the third largest specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the U.S., selling products to both Do-it-Yourself (DIY) customers and Do-it-for-Me (DIFM) or professional installers.

The company sells an extensive line of products consisting of new and remanufactured automotive hard parts (such as mufflers, brakes, and shock absorbers), maintenance items, accessories, a complete range of auto body paint and related materials, automotive tools and professional service equipment. The company currently retains a Zacks Rank #3, which translates into a short-term rating of Hold.

Few stocks that are performing well in the industry where the company operates include Lithia Motors Inc. (LAD - Analyst Report) and Rush Enterprises, Inc. with a Zacks Rank #1 (Strong Buy) and CarMax Inc. (KMX - Analyst Report) with a Zacks Rank #2 (Buy).