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AutoNation Beats on Earnings, Misses Revs

F AN TM GM

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AutoNation Inc. (AN - Analyst Report) reported all-time record high adjusted earnings from operations in the fourth quarter of 2013. The company posted a 24% rise in earnings per share to 83 cents in the fourth quarter from 67 cents in the same quarter of 2012. Earnings per share surpassed the Zacks Consensus Estimate by 6 cents.

Net income improved 22.8% to $101.8 million from $82.9 million in the fourth quarter of 2012. Operating income increased 20.2% to $202.8 million or 4.5% of sales from $168.7 million or 4% a year ago. Improvement in operating income and earnings per share was driven by better gross profit earned in all business sectors.

Revenues increased 8.4% to $4.5 billion, marginally missing the Zacks Consensus Estimate of $4.6 billion. The revenue growth was attributable to strong performance in all business sectors. The company’s Premium Luxury segment was the biggest gainer in the quarter.

New vehicle revenues escalated 6.5% to $2.6 billion with new vehicle unit sales rising 5% to 74,468 vehicles. Revenues per vehicle increased 1.5% to $35,407. On same-store basis, new vehicle revenues increased 2.2% to $2.5 billion.

Used vehicle (retail and wholesale) revenues increased 11.5% to $1 billion as revenues rose 15.7% in the retail section, which was partially offset by a 15.3% decline in the wholesale revenues. Unit sales increased 14.7% to 49,292 vehicles, revenues per vehicle rose 0.9% to $18,496. On same-store basis, used vehicle revenues increased 7.1% to $972.4 million.

Revenues in the Parts and Service business grew 8.5% to $651.1 million in the quarter. Meanwhile, Finance and insurance business recorded a 13.9% increase in revenues to $169.6 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 9.7% to $1.5 billion as unit sales rose 7% to 23,387 vehicles. Segment operating income improved 6.5% to $57.7 million in the fourth 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 5.8% to $1.5 billion on a 4.1% rise in unit sales to 34,943 automobiles. Segment's operating income escalated 6.2% to $63.5 million in the quarter.

Revenues in the Premium Luxury segment – consisting of stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus – advanced 10.2% to $1.5 billion. Unit sales rose 4.2% to 16,138 vehicles. Segment's operating income grew 27.7% to $102.7 million in the quarter.

Fiscal 2013 Performance

AutoNation posted adjusted earnings rise of 17% year over year to $2.98 per share for full-year 2013, beating the Zacks Consensus Estimate of $2.94. Revenues for full-year 2013 increased 11.8% to roughly $17.5 billion from $15.7 billion in 2012, marginally missing the Zacks Consensus Estimate of $17.6 billion.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents decreased to $69.2 million as of Dec 31, 2013 from $69.7 million as of Dec 31, 2012. The company’s inventory was valued at $2.8 billion as of Dec 31, 2013 versus $2.4 billion as of Dec 31, 2012.

Non-vehicle debt decreased to $1.8 billion from $2.1 billion as of Dec 31, 2012. Capital expenditures increased to $207.2 million in 2013 from $183.6 million in 2012.

Acquisitions

During the quarter, AutoNation completed the acquisition of 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.

Share Repurchase Program

AutoNation repurchased 1.0 million shares for an aggregate price of $49 million in the fourth quarter of 2013. From Jan 1 – Jan 29, 2014, the company repurchased 2.3 million shares for an aggregate price of $111 million.

In addition, the board of directors of the company authorized an additional repurchase of up to $250 million of shares. As of Jan 29, 2014, AutoNation had around $405 million remaining for share repurchase and 119 million shares outstanding.

Our Take

AutoNation expects its new vehicle sales to exceed 16 million units in 2014 based on its innovative array of products and better access to affordable credit.

AutoNation is the largest automotive retailer in the U.S. and is headquartered in Fort Lauderdale, Fla. As of Jan 30, 2013, the company owned and operated 269 new vehicle franchises that sell 33 brands in the major metropolitan markets of 15 states. Currently, the company retains a Zacks Rank #4 (Sell).

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