Hard truth: Soft aftermarket demand in 2Q

July 3, 2012

Soft aftermarket demand for parts and services in the second quarter of 2012 will impact Monro Muffler Brake Inc.'s first-quarter results, according to BB&T Capital Markets.

However, BB&T says it has maintained its Buy (1) rating on Monro Muffler shares, "given the company's history of industry-leading operating metrics and continued focus on the consolidation of the aftermarket service and tire business."

In part due to its size, it "remains well-positioned to integrate smaller regional chains and to further leverage already meaningful scale in purchasing and distribution."

BB&T believes the aftermarket is poised for a rebound in July.

"Following softness in June, we believe lowered expectations coupled with a potential perfect storm of short-term tailwinds could lead to a snap-back in industry volumes and relative industry outperformance for July and August.

"With significant heat waves across the country -- 20 states hit triple-digit temperatures (from June 29 to July 2) -- we expect recent maintenance deferral could lead to a spike in failure rates in the aged vehicle fleet. Throwing in declining fuel prices, July 4th holiday travel and forecasts for continued above-average temperatures throughout the July 4th week, we believe the industry could face a boost in near-term demand."

Monro posted record net income of $54.6 million on record net sales of $686.6 million for its fiscal year ended March 31, 2012. It's income-to-sales ratio was nearly 8%.

BB&T Capital Markets is a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.