Sonic Automotive Meets Estimates

Sonic Automotive (SAH - Snapshot Report) has reported a profit of 21 cents per share (excluding special items) for the third quarter of the year compared to 15 cents per share in the year-ago period. The profit was attributed to increased customer traffic due to the U.S. Government’s "Cash for Clunkers" cash incentive fuel-efficient vehicle exchange program and the continued execution of the company’s e-commerce strategies. The earnings were almost at par with the Zacks Consensus Estimate of 22 cents per share.

Total revenue for the quarter slipped 6% to $1.5 billion. Of this, revenue from vehicle trade declined 7% to $1.2 billion. Meanwhile, revenue from parts, service and collision repair remained flat at $255 million and from finance, insurance and other services decreased 5% to $41 million.

New Vehicle Retail

Revenue from new vehicles retail (including fleet vehicles) fell 12% to $825 million. New vehicle retail units declined 9% to 26,276. However, retail margins improved 70 basis points to 7.6% due to "Cash for Clunkers" program as well as Sonic’s e-commerce strategies.

Used Vehicles Retail

Revenue from used vehicles retail rose 19% to $365.5 million. Used vehicle unit volume was up 25% to 19,360, despite the heavy emphasis on new vehicle sales stemming from the "Cash for Clunkers" program. The company was able to achieve this by expanding its presence across the entire spectrum of the used vehicle market. However, gross margin deteriorated to 7.8% from 8.4% in the year ago period.

Financial Position

Sonic had cash and cash equivalents of $614,000 as on Sep 30, 2009. Long-term debt amounted to $556 million as on that date. The long-term debt to capitalization ratio stood at 61%.

Sonic Automotive operates as an automotive retailer, based in Charlotte, North Carolina. Its dealerships provide various services, including the sale of new and used cars, besides light trucks and replacement parts. It is the nation’s third-largest automotive retailer, with 153 dealership franchises.

We recommend the shares of Sonic Automotive as Neutral.

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