National Tyre & Wheel (ASX:NTD) share price plunges 24% on half-year earnings

The National Tyre & Wheel Ltd (ASX: NTD) share price is plummeting today on the back of its earnings for the first half of financial year 2022.

At the time of writing, the National Tyre & Wheel share price is $1.33, 16.75% lower than its previous close.

Though, that’s an improvement on its intraday low of $1.21 – representing a 24% drop.

National Tyre & Wheel share price tumbles on as profit slides

• Revenue of $251.5 million ­– up from $212.4 million in the first half of financial year 2021
• Net profit after tax (NPAT) of $5.56 million – down from $9.83 million
• Earnings before interest, tax, depreciation, and amortisation (EBITDA) of $17.44 million – down from $20.76 million
• 4.7 cents of earnings per share (EPS) – down from 8.7 cents
• Operating cash flow came to a loss of $4.3 million – down from $10.7 million
• 3 cent interim dividend ­– flat with its previous interim dividend

National Tyre & Wheel’s diversified earnings streams offset some of the COVID-19 and supply chain disruptions experienced by the company in the last half.

Demand for the independent tyre and wheel importer and distributor bore the impact of lockdowns and outbreaks that saw staff availability, customer fulfilment, and sales volumes fall.

Sales volumes were also hampered by supply chain issues that saw shipping capacity impacted while delays in overland transport increased.

As a result, the company’s inventory levels in December were around $15 million higher than normal.

Additionally, associated costs saw most of the company’s business units pushing two or more price rises last half, with more expected to come.

However, two months of earnings from its newly-acquired Black Rubber business offset some of the pandemic-related expenses.

Expenses were also higher than the prior comparable period due to the company’s ownership of new acquisitions, employment costs born from extra staff, and marketing costs.

The company ended the period with $90.3 million of debt and $45 million of cash.

What else happened during the half?

During the first half, National Tyre & Wheel acquired Black Rubber ­– sending its share price surging 6.5% in November.

The purchase cost the company $26.3 million. It bolstered National Tyre & Wheel’s commercial truck and bus tyre offerings, value-add services, and provided tyre recycling abilities.

It also acquired Access Alloys for $1.121 million last half.

The purchase saw National Tyre & Wheel’s subsidiary, Dynamic Wheel Co, with exclusive Australian distribution rights for brands American Outlaw and Elite Off Road.

The company expects the brands to bring annualised earnings before interest and tax of at least $500,000 from annual revenue of more than $3 million.

What’s next?

The company expects its surplus inventory to reduce this quarter. It also expects COVID-19 impacts to lessen over the current half.

National Tyre & Wheel expects its revenue to strengthen over the remainder of the financial year, driven by promotional activities, cross-selling opportunities, and organisational changes at its subsidiary, Tyres4U.

Earnings could also be bolstered by recently acquired businesses (the company also acquired Carters Tyre Service in January, conducting a share purchase plan to do so), ­along with cost savings.

Additionally, the fourth quarter is normally National Tyre & Wheel’s strongest. It’s expected to be stronger this year, partly due to more stable trading conditions.

However, its factory and shipping costs are expected to peak this year, while employment costs could increase due to low rates of unemployment.

The company’s now focusing on improving margins in its existing businesses rather than more merger and acquisition activity.

National Tyre & Wheel is confident organic revenue and earnings growth will continue from financial year 2023, with warehouse consolidations in Sydney and Melbourne completed and new purpose-built leased premises in Brisbane and Perth to be completed in the December quarter.

That puts the company on track for occupancy savings and logistic synergies of around $3 million annually.

National Tyre & Wheel share price snapshot

Today’s slip has plunged the National Tyre & Wheel share price into the year-to-date red.

It’s now trading for 9% less than it was at the start of 2022.

However, it’s still 56% higher than it was this time last year.

The post National Tyre & Wheel (ASX:NTD) share price plunges 24% on half-year earnings appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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