On Friday, the S&P 500 was up 0.1% while Toronto was about flat (it was down marginally).
AutoCanada was down another 0.1% to $15.32. Earlier in the day it was as low as $14.74.
Reviewing its press releases I took notice that in addition to Arlene Dickenson’s resignation, which I had mentioned, it had also announced two other director resignations on June 20. Overall, combined with the replacement of a key operating executive that it announced on July 3, it certainly appears that there had been considerable dissension at the Board and perhaps management level. My suspicion is that those directors who may not have fully supported the current strategy are gone and that the CEO likely has the full support of the remaining Board. However, I could be wrong given that they went ahead with the Special Committee to look at strategic alternatives. The CEO has only been with the company for two years. It is possible that he would not be against selling the company if a buyer could be found at a reasonable price that gives the CEO an ample payout. But that is all speculation.
One of their largest and longest held dealers is in Edmonton – Crosstown Motors is a huge Chrysler, Dodge, Jeep dealer which also sells Fiats as well. I went to visit the dealership on Friday. Everything seemed good and prosperous looking there. They admitted that they are not as busy as they were a few years ago. But they seemed relatively busy and the staff I talked to certainly seemed upbeat.
They will report Q2 earnings on August 9. My suspicion is that the numbers won’t be great. But the market will also focus on their future outlook. With the new executive in charge of operations and with the Board member resignations plus the Special Committee it would certainly seem that management will be very focused at this time in improving profitability. Q2 will also include the new Chicago dealerships for most of the quarter. Hopefully there will not have been any unforeseen additional expenses in regards to that acquisition.
With the stock price falling, it is hard not to be worried about what is happening. But fundamentally, this should still be a profitable business and their growth by acquisition strategy does have merit. The banks have shown confidence by financing that recent large Chicago acquisition. Possibly the share price has over-reacted to the down side based on uncertainty.