How AutoZone’s Key Ratios Look before Its Fiscal 1Q18 Results


Dec. 1 2017, Updated 9:03 a.m. ET

AutoZone’s fiscal 1Q18 results

So far in this series, we have covered analysts’ estimates for AutoZone’s (AZO) fiscal 4Q17 earnings, revenues, and profit margins. Analyst estimates suggest that AZO could report positive year-over-year growth in its fiscal 1Q18 earnings and revenues, but its profitability might weaken marginally.

Now, let’s look at the company’s key metric and ratios before it reports its fiscal 1Q18 results on December 5.

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Net-debt-to-EBITDA ratio

At the end of fiscal 4Q17, AutoZone’s net-debt-to-EBITDA[1. earnings before interest, taxes, depreciation, and amortization] ratio stood at ~9.2x. This reflected a significant rise from 5.9x at the end of fiscal 3Q17.

At the end of fiscal 4Q17, the company’s net debt stood at ~$4.9 billion, higher than ~$4.8 billion at the end of fiscal 3Q17. These ratios were calculated based on AZO’s adjusted EBITDA for the most recent two quarters.

AutoZone’s latest net-debt-to-EBITDA ratio was much higher than that of its direct peers. Advance Auto Parts’ (AAP) net-debt-to-EBITDA ratio was ~3.0x, and O’Reilly Auto Parts’ (ORLY) net-debt-to-EBITDA ratio was 5.5x.

High debt levels can increase the risk profile of companies, as debt is a contractual obligation that the company must fulfill regardless of market conditions. As a result, it’s important for investors to be aware of a company’s leverage position.

AZO’s cash-cycle ratio

In terms of its cash-conversion-cycle ratio, AutoZone leads AAP. At the end of the most recent reported quarters, the cash-conversion-cycle ratio of AZO, AAP, and ORLY stood at -10.3, 116.5, and -1.3 days, respectively.

This implies that AutoZone receives its cash in hand much earlier than when it must pay its suppliers and other parties. The cash-conversion cycle also depends on efficiently managing a company’s inventory.

In the auto industry, Ferrari (RACE) also maintains a negative cash-conversion cycle. This means Ferrari’s receivables arrive much earlier than when it needs to pay its suppliers and other parties. However, legacy automakers (XLY) Fiat Chrysler (FCAU), General Motors (GM), and Ford (F) have high cash-cycle ratios, unlike RACE.

Next, we’ll find out what analysts are recommending for AutoZone stock ahead of its fiscal 1Q18 earnings announcement.


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