Going once, going twice...sold!

Auction company Ritchie Bros. expected a surge in equipment volume, but that didn't exactly happen.

By Jim J. Jubak Mar 5, 2010 1:03PM

Jim JubakBefore the stock market opened March 4, Ritchie Bros. Auctioneers (RBA) reported earnings per share of 20 cents and revenue of $97.1 million. 


The earnings number matched Wall Street projections, but revenue was 1% above expectations of $95.8 million. Revenue was up 19% for the quarter from the fourth quarter of 2008.


The number to watch, though, if you want to understand what's going on at Ritchie Bros., is gross auction proceeds. That's the amount of money that Ritchie Bros. collects for buyers in selling their items. Ritchie Bros. earns a commission on gross auction proceeds.


Gross auction proceeds climbed 1% in the quarter from the fourth quarter of 2008, but fell 2% for all of 2009 from the 2008 level.


The problem was that while the number of items Ritchie sold grew by 12% in 2008, the average price of the equipment the company sold fell.


At the beginning of 2009, the company had expected a surge in the volume of equipment coming to auction as equipment owners, faced with the slowdown in the economy, sold idle equipment. The surge would be big enough, they figured, to more than offset any drop in price.


Well, the company got an increase in volume, but hardly a surge. As best as Ritchie chief executive Peter Blake can figure it, interest rates are so low and equipment lenders so willing to work out deals that many companies have decided to hold onto their equipment even though business is slow.


All this makes it very hard to predict Ritchie Bros. revenue and earnings in the rest of 2010. If the economy picks up, auction prices should rise, but the number of companies with currently idle equipment could well lead to fewer buyers at the company's auctions. 


And if the economy picks up, it's hard to see why the companies that have been holding onto their equipment through the slowdown would sell.


The shares have had a decent bounce off a low of $19.49 on February 18 -- that's about 10% as of the $21.57 close yesterday -- largely because every analyst on Wall Street was busy preparing for the company to deliver below-consensus earnings on March 4.


But I'd rather own a company where the trends in 2010 are more predictable -- the larger economy is unpredictable enough, thanks (see this recent post). 


So on March 5, I'm selling these shares out of Jubak's Picks with an 11.5% loss from my initial purchase price of $24.37 on December 3, 2009. This sell will build my cash position in Jubak's Picks to 11%.


At the time of this writing, Jim Jubak didn't own shares of any company mentioned in this post.

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

112
112 rated 1
270
270 rated 2
444
444 rated 3
693
693 rated 4
637
637 rated 5
692
692 rated 6
615
615 rated 7
498
498 rated 8
265
265 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.