KAR Global had worse-than-expected results for the third quarter, and it has adjusted its outlook for the year downward as a result. KAR CEO Jim Hallett said the disappointment came down to getting costs in line, some of which had to do with the spinoff of Insurance Auto Auctions.
"We knew these costs had to go," Hallett told Automotive News. "We couldn't continue to carry the cost. And we just didn't get it done fast enough."
KAR's operating revenue grew 15 percent in the period to $701.9 million, while adjusted earnings before interest, taxes, depreciation and amortization from continuing operations increased 2 percent to $129.2 million. But the company's net income dropped 54 percent to $35.3 million. Net income from continuing operations was up 11 percent to $34.4 million.
KAR's revised outlook for 2019 calls for net income from continuing operations of $101.8 million to $115.8 million, down from a previous outlook of $123 million to $137 million. Projected EBITDA has been revised downward to $512.8 million to $532.8 million from $555 million to $575 million.
KAR continues to deal with costs related to the rollout of TradeRev, its mobile trading platform. TradeRev's operating loss was $18.8 million in the quarter, compared with an operating loss of $14.8 million in the year-ago period. Its total loss for the year is expected to be about $60 million.
KAR has since adjusted its sales force to share both ADESA auction and TradeRev duties, essentially preventing overlap. The company expects to break even on TradeRev in 2021.
During the third quarter, 45 percent of all ADESA sales were completed through online channels, compared with 40 percent in the year-ago period. Online sales typically have lower margins.
Hallett said there appeared to be general softness at retail during the period. The company should be positively affected by a high rate of off-lease vehicles returning to the market this year and into next.