O'Reilly execs sell off shares in fourth quarter

According to documents filed with the Securities and Exchange Commission, four O'Reilly insiders sold a total of 287,500 shares of the retailer's stock. All but one of the $6.5 million dollars in trades occurred during the latter part of November 1999 while the stock was trading in the low to mid $20s.

Springfield-based O'Reilly trades on the NASDAQ market under the symbol ORLY. The stock closed trading Feb. 16 at $11.50.

The largest seller, according to SEC filings, was David O'Reilly. The co-chairman and chief executive officer took in $3.6 million by parting with 160,000 shares. Co-president Ted Wise was also an active seller. Wise parted with 70,000 shares worth $1.6 million. Chief Financial Officer James Batten's 27,500 option-related sales totaled $642,055. Co-chairman and Chief Operating Officer Larry O'Reilly sold 30,000 shares for $709,480.

Federal law defines an insider as an officer or director of a public company or an individual or entity that owns 10 percent or more of class of a company's common stock.

Because insiders are close to the action, many investors watch their buying and selling for any clues to the company's future.

According to O'Reilly CFO Batten, the selling was nothing unusual. Batten said the year-end sales were simply portfolio diversifications and also moving stock out of children's trusts.

Jonathan Moreland, director of research for InsiderTrader, a division of Individual Investor Group, said he is not bothered by the fact that insiders chose to sell, but the timing of those sales concerns him.

Moreland, who closely monitors insider activity, said to him "the red flag" in O'Reilly's case is that insiders sold at the end of the year in spite of the tax consequences. He said that by waiting, insiders could "sit on profits" all year before being taxed.

"It is not like they ran for the exits, but when you put it all together, it doesn't look good," Moreland said.

According to Batten, the sales occurred during one of the company's four self-imposed trading windows. O'Reilly officials wait 45 days after quarterly earnings figures are released before they can make a transaction. Batten said this assures investors of a level playing field.

Batten said the November trades were originally filed for March, but when the price sagged, the insiders held off.

"If you sell at a low price it looks bad," Batten said.

Instead the executives waited and were able to capitalize on a higher price in November.

Dean Ramos, an analyst with George K. Baum and Company in Minneapolis, said the trading activity of company insiders is something to watch.

"We look at it, but we certainly don't focus on it," Ramos said.

When evaluating an investment, "it is just another piece of the pie."

A.G. Edwards analyst Mark Johnson expressed a different view. Johnson said the buying and selling of company executives is "nobody's business." He said that if insiders choose to sell then, "so be it."

While O'Reilly insiders were primarily selling, institutions were in the buying mood with the auto parts retailer.

According to the latest documents filed with the SEC, two institutions took advantage of the stock's declining price. T. Rowe Price and Associates added 983,200 shares to its core holdings. Price now holds 4.7 million shares of O'Reilly. Northwest Mutual Life Insurance Company added 675,000 shares and now owns 1.9 million shares.

The institutional buying doesn't surprise Batten. The CFO said, since the stock price dropped, "my phone has been ringing off the hook." Batten said he has fielded questions from mutual fund managers about the fundamentals of the retailer.

A.G. Edwards' Johnson said mild weather in November and December caused same-store sales to be soft. "The aftermarket parts business likes cold and icy weather," Johnson said.

The analyst expects both the stock price and the same-store sales to rebound. Johnson said growth looks good for the next five to 10 years and he thinks the stock is "attractive" in the near term.

Ramos, of Baum and Company, said O'Reilly's latest stock-price setback is not just company specific, but rather the retail auto parts segment as a whole. Ramos said "stocks move in groups" and the auto sector is out of favor right now because of "investor disinterest."

Despite the downturn, Ramos said he believes O'Reilly is one of the better positioned companies in the sector. He added, "we are still positive on the stock and think it is a good value" at the current price levels.