The ARB share price has dropped sharply on H1 FY20 earnings release

The ARB Corporation Ltd (ASX: ARB) share price dropped sharply on H1 FY20 earnings release.

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The ARB Corporation Ltd (ASX: ARB) share price has taken a dive today following the release of its half year results for the period ending 31 December 2019. ARB shares are currently down by 5.16% at the time of writing to be trading at $19.40.

What does ARB do?

ARB designs, manufactures, distributes and sells four-wheel drive vehicle accessories and light metal engineering works. The company's main warehouse is based in Melbourne, but ARB has a broad geographic presence across Australia, USA, Thailand and the Middle East and Europe. 

What did ARB announce?

In its release to the market this morning, ARB stated that it recorded a profit after tax of $25.3 million for the half year ended 31 December 2019, which was a  7.4% decline on the prior corresponding period (pcp).

ARB has attributed this decline to a significant strengthening of the Thai baht, which resulted in increased costs on a range of products manufactured in ARB's Thai factories and therefore impacted its bottom line.

On a more positive note, ARB's sales for the half year came in at $233 million, which was an increase of 7.3% on pcp

An interim fully franked dividend of 18.5 cents per share was declared, which was in line with last year.

Aftermarket Australian sales challenging

ARB announced that its sales to is Australian aftermarket grew by 2.8%, citing challenging circumstances with new motor vehicle sales in Australia recently posting their 22nd consecutive month of declines.

This trend was not helped with sales of new vehicles in ARB's target market remaining relatively flat over the period.

However, ARB did positively note that sales growth was achieved in its markets in Queensland, South Australia, Tasmania and Western Australia, whilst sales in the New South Wales and Victoria markets were only marginally behind.

Strong Export Sales

ARB revealed strong export sales growth of around 22%. Contributing to this pleasing growth ARB cited strong export sales and distribution operations in Australia, the USA, the Czech Republic, the UAE, Thailand and New Zealand. Export sales, it pointed out, now represent around 31% of the Group's total sales, up from 27.% in the corresponding period last year.

Decline in Original Equipment Manufacturer Sales

ARB noted that its sales to original equipment manufacturers declined by 6.1% during the six month period and this contributed to strong growth of 21.5% in the corresponding period last year.

The company commented that its original equipment products are exclusively sold on new vehicles. With a slow-down in new vehicle sales observed in Australia in recent times, the company has felt a direct impact of this. The company does anticipate small improvements in original equipment sales in the second half of the financial year, however.

Outlook

ARB pleasingly announced sales growth has been maintained in the first six weeks of the second half of FY20.

However, the company noted that the economic and currency headwinds that it has experienced by in the first half of FY20 have so far continued into the second half, which could make profit growth more difficult to achieve in the short term.

Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ARB Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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