Why ARB Corp shares were slammed

4WD accessories manufacturer reports slowing sales and profit downgrade

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 17, 2013 12:25 pm AEDT

4WD accessories manufacturer ARB Corporation (ASX: ARP) has seen its shares slammed down more than 6% in trading today, after the company reported disappointing sales results for the most recent quarter.

In a trading update at its annual AGM, ARB noted that sales for the first quarter to end of September are less than 1% ahead of the same period last year. Operating costs have also continued to rise in most areas, and management expect profits to fall by as much as 10% for the quarter.

Sales to original equipment manufacturers (OEMs) such as Toyota, Isuzu and Suzuki have dropped a whopping 50% in the September quarter, over last year, while other divisions have reported positive growth. Exports in particular, have seen double digit growth compared to the corresponding period in 2013.

The company also noted that sales were slowing in the Australian aftermarket segment, which represents around 70% of revenues. A slowdown in the mining focused states of Western Australia and Queensland, as the resources industry looks to cut costs is being blamed for slow growth in sales.

ARB sells a lot of bullbars and other 4WD accessories for vehicles used by miners and their contractors. As those miners strive for more efficient operations, it seems ARB accessories are on the target list, as could be the trailers, tippers and other truck and semi-trailer accessories made by MaxiTRANS Industries (ASX: MXI), and potentially, spare parts provided by Supply Network (ASX: SNL).

ARB's sales have also been hit by the recent uncertainty created by lengthy Federal election campaign, falling mining demand and the adverse impact on fleet sales thanks to proposed changes to Fringe Benefits Tax rules on motor vehicles.

Those tax changes have since been scrapped, but it seems the uncertainty has remained. McMillan Shakespeare (ASX: MMS), a company that provides salary packaging and vehicle leasing administration, saw its shares more than halve, and the share price is still trading at a significant discount to the levels before the FBT changes were announced.

Foolish takeaway

ARB has traded at a premium price for many years, mainly thanks to strong growth in Australia on the back of the resources boom. As it wanes, ARB is likely to struggle to maintain the growth, and financial year 2014 could see the company report its first decline in profits in many years.

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Motley Fool writer/analyst Mike King owns shares in McMillan Shakespeare.

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