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AutoNation Inc. (AN - Analyst Report) reported all-time record earnings from operations in the third quarter of 2013. The company posted a 13.6% rise in earnings per share to 75 cents in the third quarter from 66 cents in the same quarter of 2012. However, earnings per share missed the Zacks Consensus Estimate by 3 cents. This was the fourth straight quarter in which the company reported record earnings.

Net income improved 13.5% to $92.6 million from $81.6 million in the third quarter of 2012. Operating income increased 14.4% to $187.2 million or 4.2% of sales from $163.7 million or 4.2% a year ago. Improvement in operating income and earnings per share was driven by better gross profit earned in all business sectors.

Revenues increased 13.7% to $4.47 billion, in line with the Zacks Consensus Estimate. The revenue growth was attributable to strong performance in all business sectors. The company’s Domestic segment was the biggest gainer in the quarter.

New vehicle revenues escalated 14.3% to $2.6 billion with new vehicle unit sales rising 12.6% to 76,943 vehicles - translating into a 1.6% hike in revenues per vehicle to $33,292. On same-store basis, new vehicle revenues increased 9.1% to $2.4 billion.

Used vehicle (retail and wholesale) revenues increased 11.6% to $1 billion as used vehicle retail revenues rose 15%, which was partially offset by a 10.6% decline in revenues in wholesale section. Unit sales increased 15.4% to 52,659 vehicles, while revenues per vehicle declined 0.3% to $17,718. On same-store basis, used vehicle revenues increased 6.7% to $998.9 million.

Revenues in the Parts and Service business grew 9.6% to $653.8 million in the quarter. Meanwhile, Finance and insurance business recorded a 19% increase in revenues to $174.9 million.

Segment Details

Revenues in the Domestic segment – comprising stores that sell vehicles manufactured by General Motors Co. (GM - Analyst Report), Ford Motor Co. (F - Analyst Report) and Chrysler – increased 16% to $1.5 billion as unit sales rose 16.3% to 25,107 vehicles. Segment operating income improved 23.7% to $64.2 million in the third 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 11.3% to $1.7 billion on a 9.4% rise in unit sales to 38,906 automobiles. Segment operating income escalated 5.4% to $72.7 million in the quarter.

Revenues in the Premium Luxury segment – comprising stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus – advanced 14.8% to $1.2 billion. Unit sales improved 15.5% to 12,930 vehicles. Segment operating income grew 18% to $74.2 million in the quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents increased to $68.3 million as of Sep 30, 2013 from $98.6 million as of Sep 30, 2012. The company’s inventory was valued at $2.5 billion as of Sep 30, 2013 versus $2.1 billion as of Sep 30, 2012.

Non-vehicle debt decreased to $1.86 billion from $1.89 billion as of Sep 30, 2012. Capital expenditures increased to $139.9 million in the first nine months of 2013 from $122.8 million in the same period in 2012.

Acquisitions

During the quarter, AutoNation announced that it will acquire O'Hare Honda and O'Hare Hyundai in Chicago, Ill. It is expected that these stores will generate annual revenues of $85 million with retail sales volume of 3,100 new and used vehicles.

AutoNation expects that the acquisition will be completed by the fourth quarter of 2013, subject to manufacturer approval and other customary closing conditions.

 Our Take

AutoNation is the largest automotive retailer in the U.S. and has its headquarter in Fort Lauderdale, FL. As of Sep 30, 2013, the company owned and operated 267 new vehicle franchises that sell 33 brands located in the major metropolitan markets in 15 states. Currently, the company retains a Zacks Rank #3 (Hold).

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