ARB’s Profit Margins Squeeze Amid Aggressive US Acquisitions and Rising Costs

Revenue Growth Amidst Profit Pressure

ARB Corporation Limited has delivered a solid top-line performance for the half year ended 31 December 2024, with sales revenue climbing 5.9% to $361.7 million compared to the previous corresponding period. However, this revenue growth was accompanied by a slight contraction in profitability, with reported profit after tax dipping 0.6% to $51.0 million. When adjusting for non-operating items such as property sales gains and acquisition-related costs, underlying net profit declined by 4.6%, highlighting margin pressures despite robust sales.

Dividend Steadfast Despite Earnings Dip

Reflecting confidence in its financial position, ARB declared an interim dividend of 34.0 cents per share, fully franked at 30%, unchanged from the prior year. The dividend reinvestment and bonus share plans remain active, supporting shareholder participation and funding for ongoing expansion initiatives. This steady dividend signals management’s commitment to returning value while balancing investment needs.

Strategic US Expansion Takes Centre Stage

ARB’s half-year was marked by significant strategic moves in the United States. The company increased its ownership in Off Road Warehouse (ORW) from 30% to 50%, investing $25 million and providing an additional $11.2 million loan to facilitate ORW’s acquisition of 4 Wheel Parts (4WP), a major retail network with 42 stores. This acquisition, completed in October 2024, expands ARB’s US footprint to 53 stores and an e-commerce platform, positioning the company for long-term growth in a key export market. While the US associates reported a $1.5 million equity accounted loss in the half, management’s swift restructuring efforts have already yielded a profitable January 2025, underpinning cautious optimism.

Australasian Market and Product Innovation

Domestically, ARB’s Australian Aftermarket segment grew modestly by 1.9%, despite headwinds from declining new vehicle sales and inflationary pressures. The company expanded its retail presence with acquisitions of stores in Toowoomba, Queensland, and Christchurch, New Zealand, alongside the purchase of MITS Alloy, an aluminium canopy manufacturer, enhancing its product range. ARB’s flagship store rollout continues apace, with multiple store upgrades and new openings, reinforcing its market leadership. Product innovation remains a cornerstone, with launches including a brushless compressor and new accessories for Toyota models, maintaining ARB’s competitive edge.

Financial Discipline and Future Outlook

ARB maintained a strong balance sheet with $22.8 million in cash and no debt at period end. Operating cash flow was impacted by a $38.1 million inventory build, driven by currency headwinds and expanded product lines. Employee costs rose 18%, reflecting investments in talent to support growth initiatives. Despite a challenging global economic environment, ARB’s order book remains healthy, and management is encouraged by new vehicle model releases and sustained demand. The company’s diversified geographic footprint and strategic investments position it well for long-term growth.