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AutoNation's Earnings Miss Estimates

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AutoNation Inc. (AN - Analyst Report) reported all-time record earnings from operations in the second quarter of 2013. The company posted a 10.6% rise in earnings per share to 73 cents in the second quarter from 66 cents in the same quarter of 2012. However, earnings per share missed the Zacks Consensus Estimate by a penny.

Net income improved 10.4% to $90.1 million from $81.6 million in the second quarter of 2012. Operating income increased 10.2% to $180.9 million or 4.1% of sales from $164.2 million or 4.2% a year ago. Improvement in operating income was driven by better gross profit earned in all business sectors.

Revenues increased 13.4% to $4.43 billion, beating the Zacks Consensus Estimate of $4.35 billion. The revenue growth was attributable to strong performance in all business sectors along with higher revenues from retailed used vehicle and Finance and Insurance buisnesses. The company’s Domestic segment was the biggest gainer in the quarter.

New vehicle revenues escalated 13.5% to $2.5 billion with new vehicle unit sales rising 11% to 74,352 vehicles - translating into a 2.3% hike in revenues per vehicle to $33,538. On same-store basis, new vehicle revenues increased 9.2% to $2.4 billion.

Used vehicle (retail and wholesale) revenues increased 11.5% to $1.1 billion as used vehicle retail revenues rose 15%, which was partially offset by a 13.1% decline in revenues in wholesale section. Unit sales zoomed 12.7% to 52,116 vehicles, reflecting a 2% rise in revenues per vehicle to $18.305. On same-store basis, used vehicle revenues increased 7.6% to $1.0 billion.

Revenues in the Parts and Service business grew 8.9% to $655.9 million in the quarter. Meanwhile, Finance and insurance business recorded a 19.8% increase in revenues to $173.9 million.

Segment Details

Revenues in the Domestic segment – comprising stores that sell vehicles manufactured by General Motors Company (GM - Analyst Report), Ford Motor Co. (F - Analyst Report) and Chrysler – increased 17% to $1.5 billion as unit sales rose 14.5% to 25,191 vehicles. Segment operating income improved 12.5% to $66.1 million in the second quarter of 2013.

Revenues in the Import segment – comprising stores that sell vehicles manufactured primarily by Toyota Motor Corp. (TM - Analyst Report) and other Japanese automakers – increased 10.4% to $1.6 billion on an 8.1% rise in unit sales to 36,444 automobiles. Segment operating income escalated 8.5% to $72.9 million in the quarter.

Revenues in the Premium Luxury segment – comprising stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus – advanced 13.6% to $1.2 billion. Unit sales improved 12.7% to 12,717 vehicles. Segment operating income grew 10.8% to $75.7 million in the quarter.

Share Repurchases

During the quarter, AutoNation repurchased 0.1 million shares for $2.7 million compared with 3.7 million shares for $126.2 million in the second quarter of 2012. The company had 121.3 million shares outstanding as of Jun 30, 2013.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents increased to $69.7 million as of Jun 30, 2013 from $62.1 million as of Jun 30, 2012. The company’s inventory was valued at $2.6 billion as of Jun 30, 2013 versus $2.1 billion as of Jun 30, 2012.

Non-vehicle debt decreased to $1.9 billion from $2.0 billion as of Jun 30, 2012. Capital expenditures decreased to $54.6 million in the first half of 2013 from $77.0 million in the same period in 2012.

Acquisitions

During the quarter, AutoNation completed the acquisitions of three notable stores. They include SanTan Honda Superstore and Hyundai of Tempe in Phoenix, and Don Davis Toyota Scion in Dallas. They will now operate as AutoNation Honda Chandler, AutoNation Hyundai Tempe and AutoNation Toyota North Arlington, respectively.

AutoNation has acquired 10 franchises and awarded 4 new franchises by manufacturers during the last 12 months. The company expects roughly $1 billion in revenues from these stores once they are fully operational.

Our Take

AutoNation is the largest automotive retailer in the U.S. and has its headquarter in Fort Lauderdale, FL. As of Jun 30, 2013, the company owned and operated 266 new vehicle franchises that sell 32 brands located in the major metropolitan markets in 15 states. Currently, the company retains a Zacks Rank #3 (Hold).

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