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Analyst Blog

AutoNation Inc. (AN - Analyst Report) posted a 13.7% rise in earnings per share to 83 cents in the second quarter of 2014 from 73 cents in the same quarter of 2013. However, earnings per share missed the Zacks Consensus Estimate of 87 cents.

Net income improved 11.7% to $100.4 million from $89.9 million in the second quarter of 2013. Operating income increased 9.3% to $197.8 million or 4.1% of sales from $180.9 million or 4.1% a year ago.

Revenues increased 8.2% to $4.79 billion, marginally beating the Zacks Consensus Estimate of $4.77 billion. The upside can be attributed to strong performance in new vehicles, parts and service, and finance and insurance business sectors. The company’s Premium Luxury segment gained the most in the quarter.

New vehicle revenues escalated 9.8% to $2.7 billion on an 8.3% rise in new vehicle unit sales to 80,554 vehicles. Revenues per vehicle increased 1.3% to $33,976. On a same-store basis, new vehicle revenues augmented 8% to $2.7 billion.

Used vehicle (retail and wholesale) revenues spiked 2.4% to $1.08 billion on a 3.7% revenue rise in the retail sector, which was partially offset by a 9.1% decline in wholesale revenues. Unit sales increased 1% to 52,656 vehicles while revenues per vehicle rose 2.6% to $18,784. On a same-store basis, used vehicle revenues increased 1.1% to $1.07 billion.

Revenues in the Parts and Service business grew 7.5% to $704.8 million in the second quarter. Meanwhile, Finance and insurance business recorded a 6.6% increase in revenues to $185.4 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 5.9% to $1.6 billion as unit sales rose 3.9% to 26,182 vehicles. The segment’s operating income improved 6.7% to $70.5 million in the second quarter of 2014.

Revenues in the Import segment – consisting of stores that sell vehicles manufactured primarily by Toyota Motor Corp. (TM - Analyst Report) and other Japanese automakers – increased 5.4% to $1.72 billion on an 8.9% rise in unit sales to 39,685 automobiles. Operating income at the segment improved 6.3% to $77.5 million in the quarter.

Revenues in the Premium Luxury segment – consisting of stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus – advanced 15.3% to $1.4 billion. Unit sales rose 15.5% to 14,687 vehicles. Meanwhile, the segment's operating income improved 13.3% to $85.8 million in the quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents decreased to $68.5 million as of Jun 30, 2014 from $69.7 million as of Jun 30, 2013. The company’s inventory was valued at $2.8 billion as of Jun 30, 2014 versus $2.6 billion as of Jun 30, 2013.

Non-vehicle debt decreased to $1.88 billion from $1.94 billion as of Jun 30, 2013. Capital expenditures increased to $87.8 million in the first half of 2014 from $54.6 million in the same period a year ago.

Share Repurchase Program

AutoNation repurchased 1.1 million shares for an aggregate price of $64.1 million in the second quarter. As of Jul 16, 2014, AutoNation had around $336 million worth of shares remaining for share repurchase and 119 million shares outstanding.

Acquisition

In Jul 2014, AutoNation completed the acquisition of Roundtree Chrysler Dodge Jeep Ram in the Mobile, Alabama market. The expected annual revenue from this store is approximately $95 million.

Our Take

AutoNation expects new vehicle sales in the U.S. to increase 3–5% to above 16 million units in 2014.

AutoNation is the largest automotive retailer in the U.S. and is headquartered in Fort Lauderdale, FL. As of Jul 16, 2014, the company owned and operated 273 new vehicle franchises that sell 33 brands across 15 major metropolitan states. Currently, the company sports a Zacks Rank #1 (Strong Buy).