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Why Kar Auction Services Stock Popped 11% Today

Motley Fool - Thu Feb 17, 2022

What happened

Shares of Carmel, Indiana-based Kar Auction Services (NYSE: KAR), which provides -- spoiler alert! -- auction services to the used car industry, reported bang-up earnings last night. Adjusted earnings that were expected to be no more than $0.02 per share came in at a strong $0.11 per share instead, and sales of $549.4 million easily beat analyst predictions of $511.7 million for the fourth quarter of 2021.

As of 10:30 a.m. ET, Kar stock is up 10.8% in response.

Hand draws rising stock chart in red colored pencil.

Image source: Getty Images.

So what

The news wasn't all good. In contrast to the adjusted earnings number analysts often highlight, Kar's actual profits as calculated according to generally accepted accounting principles (GAAP) ran negative in the fourth quarter, with the company losing $0.04 per share. Then again, in Q4 2020 KAR lost $0.21 per share, so even this was an improvement.

Revenue grew 4% year over year in Q4, so a bit better than the overall 3% revenue growth enjoyed in 2021 ($2.2 billion). And earnings for the full year were positive, flipping 2020's $0.16-per-share loss to a $0.16-per-share profit in 2021.

Now what

Commenting on the results, CEO Peter Kelly observed that "commercial seller volumes remained constrained in the fourth quarter," which explains the muted sales growth. On the other hand, KAR says it has "focused on improving gross profit per unit sold ... and continue[s] to take meaningful, deliberate steps to reduce our labor and selling, general and administrative costs."

Although management didn't give specific guidance as to what to expect in 2022, together, these moves should enable KAR to keep slimming its losses and perhaps even grow earnings in the new year, even if revenue growth remains constrained.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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