CDK's revenue climbs, earnings drop in Q2

A strong performance in CDK Global Inc.'s North American retail business helped the dealership software giant boost revenue in its fiscal second quarter, though net earnings tumbled during the period.

CDK on Tuesday reported revenue of $590.4 million and net earnings of $89 million in the quarter that ended Dec. 31. Earnings before income taxes rose to $121.3 million, while adjusted earnings before income taxes grew to $168.2 million.

The second-quarter numbers were generated using a different accounting standard adopted by the company as of July 1. Public companies are moving to the different standard, which reflects revised revenue recognition rules. While CDK said it is not restating prior-year results for comparative purposes, it provided current-year results calculated under the old standard so comparisons could be made.

Taking those into account, second-quarter revenue rose 7 percent; net earnings declined 10 percent; adjusted earnings before income taxes rose 6 percent; and earnings before income taxes rose 6 percent.

CDK's stock opened at $50.10 Tuesday after closing Monday at $49.34, and was up 9.7 percent to $54.11 at 3:32 p.m. EST.

In a conference call with analysts and investors, CEO Brian Krzanich, who joined CDK in November, said the company posted growth of 9 percent in its core auto software business. Overall, he said, the growth was largely attributable to a strong quarter for CDK's North America retail business, which was up 12 percent thanks in part to the company's September acquisition of ELEAD1ONE.

"We are encouraged by this performance and will continue to build on this momentum with the many revenue initiatives we have in the pipeline," Krzanich said.

He told analysts about customer-service changes taking place at CDK, which he said dealers seemed receptive to last month at the National Automobile Dealers Association Show in San Francisco.

"It was my first time attending the conference, and I was astonished by the level of excitement surrounding recent developments at CDK," said Krzanich, formerly CEO at Intel. "As a company, our number one focus is in improving customer satisfaction."

The improvements in part include expanding customer service hours by 30 percent to include weekends and some holidays -- a move meant to bring CDK representatives' availability more in line with the hours that dealerships are open. Krzanich noted that CDK will field about the same number of calls and will not necessarily have to hire more people to staff the expanded service hours.

CDK may add a small number of engineers to speed product rollouts. The company previously said it is hiring 100 more people to fill some specialist roles on its customer service team and expects to complete that process by June.

Executives were asked about rumblings that CDK could make an offer to buy Cars.com, which has said it's exploring a potential sale. "Clearly we can never comment directly on rumors and speculations," Krzanich said. "On that specific one, there's no comment."

Speaking generally about attractive acquisition prospects, Krzanich said the company would look to fill gaps in its portfolio or add key technology or leadership. The company is focused on taking advantage of its purchase of ELEAD1ONE and making core software improvements, he said.

CDK's relationship with major customer General Motors also came up. The automaker told dealers at the NADA Show that they would be given options other than CDK to use as a website provider and manager.

"We welcome that," Krzanich said. "We're going to continue to provide great services, and we think as we make improvements in our Web services we'll continue to be a key player there as well."