O'Reilly cruises into the Fortune 500

For the first time since it was founded in 1957, O’Reilly Automotive Inc. (Nasdaq: ORLY) made its way onto the Fortune 500.

The Springfield-based auto parts dealer clocked in at No. 429 on the 2010 list of the country’s largest corporations, published in the May magazine.

Heading in the other direction, Carthage-based Leggett & Platt Inc. (NYSE: LEG) slipped to No. 621, down from No. 493 on Fortune’s 2009 list. Leggett & Platt had seen its name appear on the ranking 22 times in its history before falling out this year.

Purchase pays off
O’Reilly Automotive moved into the Fortune 500 by pushing its revenues up 35.5 percent to $4.85 billion in 2009.

For that one-year revenue growth, Fortune ranked O’Reilly the 15th fastest-growing company, sandwiched between Springfield, Mass.-based Massachusetts Mutual Life and Jacksonville, Fla.-based Fidelity National Financial.

Of the top five corporations on the list, only two posted revenue gains: No. 1 Wal-Mart Stores went up 0.6 percent and No. 5 Bank of America Corp. increased 33 percent.

O’Reilly’s pace continues with the release of first-quarter 2010 earnings, when revenues of $1.28 billion came in 10 percent above first-quarter 2009.

That type of growth is not something Charlie O’Reilly, who is now retired from the family business but still serves on the board, thinks his father and grandfather would have envisioned when they started the company with one store at 403 Sherman in Springfield.

“I always laugh and kind of think we moved faster and faster as we went along, and it just got completely out of control,” said O’Reilly, who like most company officials talks nonchalantly about the Fortune ranking.

There was no in-house celebration, just an internal e-mail announcing the results.

The Fortune accolade wasn’t even formally discussed during O’Reilly Automotive’s May 4 shareholder meeting, O’Reilly said.

The pace picked up for O’Reilly Automotive after it purchased CSK Auto Corp. in July 2008, increasing its reach by approximately 1,300 stores to 3,397 stores. It now operates 3,469 stores in 38 states, putting it neck and neck with Advanced Auto Parts for the No. 2 spot in the U.S. behind AutoZone. While the CSK acquisition led to increased sales for the company in the last half of 2008, the full impact of the western concentrated stores on O’Reilly’s top line was felt in 2009.

“That added 40 percent more business to their existing infrastructure,” said Tony Cristello, senior vice president and automotive aftermarkets analyst at Richmond, Va.-based BB&T Capital Markets.

The CSK acquisition also puts O’Reilly in a better bargaining position.

“We were able to go back to our existing vendors and renegotiate contracts based on significantly higher volumes,” said O’Reilly spokesman Mark Merz.

Additional boosts to company revenues come from a steady stream of new O’Reilly stores.

In 2009, 150 new stores were added in 17 states, Merz said, with another 49 built in the first quarter of 2010. The plan is to open 150 stores in both 2010 and 2011, Henslee said.

This organic growth, coupled with an economy encouraging consumers toward auto repairs and maintenance, puts O’Reilly in a position to continue to grow, Cristello said.

He expects an 8.6 percent revenue increase for O’Reilly, and an even higher return for investors. O’Reilly increased its earnings per share by 50.7 percent between 2008 and 2009, according to Fortune research. O’Reilly’s 10-year annual EPS growth rate of 17.1 percent ranks it No. 46 among the Fortune 500.

“I’m looking for 22 percent earnings growth in 2010,” Cristello said.

Leggett at No. 621
Leggett & Platt officials say they anticipated the company getting bumped off the Fortune list.

“We changed strategic direction in November 2007 to focus on total shareholder return,” said David DeSonier, the manufacturer’s vice president of strategy and investor relations, noting Leggett’s TSR between Jan. 1, 2008, and April 30, 2010, is 61 percent, bringing it in the top 2 percent of the Standard & Poor’s 500.

To improve its returns, Leggett first improved its margins by selling off about 20 percent of its business in 2008, said financial analyst Michael Smith, partner at Kansas City Capital.

That move, along with a recession especially hard on Leggett’s key housing and automotive customers, is essentially what took Leggett off the list, DeSonier said. Between 2008 and 2009, the company’s revenues dropped to $3.05 billion from $4.7 billion.

“We divested nearly $1 billion of revenue and had another ($1 billion) taken away because of the economy,” he said.

Leggett used the sale to raise dividends and buy back 29 million shares, or 17 percent, of its stock. The company spent 2009 concentrating on ways to increase revenue, DeSonier said, and first-quarter 2010 earnings show it’s on track.

First-quarter sales were $816 million, a 14 percent increase compared to the same time in 2009. By the end of 2010, Leggett is projecting sales between $3.1 billion and $3.4 billion.

“They had a surprisingly good quarter,” analyst Smith said. “They came in at 29 cents above the consensus of all analysts. That’s a good quarter.”[[In-content Ad]]