Why ARB Corp shares were slammed

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.

Savvy investors are now seeking growth in smaller companies. Discover two stellar small-cap opportunities now, in our brand-new research report, “2 Small Cap Superstars” — simply click here to download your FREE copy.

More reading

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.