As we discussed in the first part of this series, AutoZone’s (AZO) fiscal 4Q17 earnings triggered a selling trend on Wall Street. The company has a stable business model with low investment requirements to drive growth compared to the auto manufacturing business.
In this part, we’ll look at some key highlights of AutoZone’s fiscal 4Q17 earnings event and discuss some key risks that the company could face in the near term.
Commercial segment slowed in fiscal 4Q17
During the company’s fiscal 4Q17 earnings call, Bill Rhodes, AutoZone’s CEO, commented on the industry’s prospects. He noted that the slower commercial program openings contributed to a downtrend in its Commercial segment’s growth.
Overall, the company expects to continue face challenges as far as its Commercial segment is concerned in the near term. He noted that we shouldn’t expect any dramatic improvement in AZO’s Commercial segment.
However, Rhodes said that AutoZone’s fiscal 4Q17 results “were in line with our expectations and demonstrated steady improvement compared to our fiscal third quarter performance.”
AutoZone still has huge future growth potential for the long term with growing worldwide auto demand. However, the auto industry is cyclical in nature, and US auto sales have shown signs of weakness in the first eight months of 2017. Any slowdown in US auto sales could also affect medium-term growth prospects of auto part sellers such as AutoZone.
So far in 2017, the US sales of the majority of automakers (FXD) such as General Motors (GM), Ford (F), and Toyota (TM) have fallen. This could also be considered as a negative indicator for the future of the auto parts industry.
Next, we’ll take a look at AutoZone’s valuation multiples after its fiscal 4Q17 results.