CDK quarterly profit slides while revenue, DMS sites rise

CDK Global Inc.'s plan to discontinue its digital marketing operations contributed to a smaller profit in the fiscal second quarter, even as revenue rose and the company's dealership management system added customers.

The Hoffman Estates, Ill., DMS giant reported Tuesday that net income attributable to CDK for the quarter that ended Dec. 31 was $22.3 million, down 75 percent from the same quarter a year ago.

Fiscal second-quarter revenue, however, rose 4.4 percent to $499.6 million, as CDK says it achieved a record number of North American DMS customer sites, at 14,776. It was the fourth consecutive quarter that CDK added automotive DMS customer sites in the region. 

CDK shares fell 3.5 percent to close at $53.93 on Wednesday.

“I’m quite happy with what we’ve accomplished,” CEO Brian Krzanich told analysts Tuesday on an earnings call, reiterating a focus within CDK on improving service and support for DMS customers.

“How we serve our customers is critical,” he said, “because it’s the foundation for customer satisfaction and for building the solid relationships that drive our customer retention, as well as new sales.”

CDK's profit from continuing operations, which do not include the digital marketing business up for sale, dipped about 4 percent to $69.8 million in the quarter. The company reported a $45.7 million net loss in its digital marketing business.

CDK last summer announced plans to sell the digital business, which includes advertising and dealership websites. The company lost an exclusivity deal with General Motors, which will give dealers the choice of four website providers — including CDK — starting this year.

In November, Krzanich told analysts on a fiscal first-quarter earnings call that CDK received "a great deal of interest" in the digital marketing business and hoped to close on a transaction by the end of 2019.

CFO Joseph Tautges, in the conference call Tuesday, said a sale hasn't happened yet.

"We're making very good progress in finalizing the sale of the business," he said.

CDK said it is lowering its guidance on net income attributable to CDK for the 2020 fiscal year to $290 million to $310 million, down from a previous range of $340 million to $370 million, "primarily due to changes in assumptions regarding the planned divestiture of our digital marketing business."

The company reaffirmed its 2020 fiscal year revenue projections Tuesday, with expectations between $2 billion and $2.05 billion.