Ritchie Bros. Earnings: First-Quarter Earnings Were in Line With Our Expectations

We elected to leave our $58 fair value estimate for Ritchie Bros. RBA unchanged, given first-quarter earnings were in line with our expectations. The company’s shares also trade on the Toronto Stock Exchange, and recent movements in the USD/CAD exchange rate led us to reduce our fair value estimate for Canadian shares, which is now CAD 78 (down from CAD 79.50 previously). Overall, we view Ritchie Bros.’ shares as fairly valued.

Ritchie Bros. started incorporating IAA’s results. The IAA deal closed on March 20, meaning there were only 11 days’ worth of results included in first-quarter earnings. Management’s commentary around the integration of IAA was constructive. In 2023, the company is expecting to realize approximately $28 million in cost synergies. We continue to believe Ritchie Bros. will be able to meet its 2025 cost synergy target, $110 million, which is the midpoint of guidance. That said, we’re not currently baking in any incremental revenue as a result of the acquisition. We’d like to see Ritchie Bros. first reconcile the market share losses at IAA. Recall, the company had recently lost a large insurance customer due to challenges in its catastrophic events business. We believe the company can win share among the top 15 insurers, but it’ll take time to win back the larger player.

Excluding IAA, GTV increased approximately 10% year on year in the quarter. Volumes continue to increase, showing supply chains are starting to improve. Short supply has allowed Ritchie Bros. to raise prices on its auctions, but we expect that dynamic to moderate in the balance of the year. GAAP net income did come in negative during the quarter (negative $28 million), but that was partly due to one-time acquisition and integrations costs related to the IAA deal. We expect improved volumes and better sales mix to drive profitability in the balance of the year. Recall, higher valued equipment had been hard to come by due to supply shortages.