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Group 1 Automotive Inc. (GPI - Snapshot Report) witnessed a 21.4% rise in adjusted earnings per share to $1.25 in the second quarter of 2012 compared to $1.03 in the corresponding quarter last year and surpassed the Zacks Consensus Estimate of $1.16.

Profits escalated 20.1% to $29.7 million from $24.8 million in the year-ago quarter. Meanwhile, reported earnings were $28.6 million or $1.20 per share compared with $24.7 million or $1.03 in the second quarter of 2011.

The company’s revenues for the quarter came in at $1.9 billion, up 28.6% compared with $1.5 billion in the year-ago quarter and higher than the Zacks Consensus Estimate of $1.7 billion. The growth in revenues was driven by strong retail new vehicle and used vehicle unit sales.

Revenues from new vehicle sales surged 33.4% to $1.1 billion on a 36.6% increase in unit sales to 32,924 vehicles. However, revenue per vehicle fell 2.3% to $32,824 in the quarter.

Revenues from retailed used vehicles boosted 29.2% to $456.2 million. Used vehicle unit sales improved 27.9% to 22,004 vehicles, reflecting a marginal 1% increase in revenue per vehicle to $20,734. Revenues from wholesaled used vehicles went up 20.7% to $73.1 million. Used vehicles wholesaled increased 32.4% to 11,244 units.

Revenues from parts and service went up 7.9% to $220.3 million. Meanwhile, the company’s finance and insurance business witnessed a 40.7% growth in revenues to $65.4 million.

Gross profit increased 16.8% to $285.3 million from $244.2 million in the year-ago quarter. The improvement was driven by higher gross profit earned from the finance and insurance and new vehicle retail sales. However, a loss in the used vehicle wholesale business had an adverse effect on the overall gross profit.

Gross margin declined to 15.1% from 16.6% recorded in the year-ago quarter. Adjusted SG&A expenses increased 16.2% to $212.7 million in the quarter.

Operating income swelled 15.9% to $63.1 million from $54.4 million recorded in the second quarter of 2011. However, adjusted operating margin went down marginally to 3.4% from 3.7% in the last year quarter.

Share Repurchase

During the quarter, Group 1 Automotive repurchased 241,991 shares for an average price of $46.75. The company’s Board of Directors authorized a repurchase of $50 million shares during the quarter, replacing the remaining $5.4 million shares as of June 30, 2012 under the prior authorization.

Financial Details

Group 1 Automotive had cash and cash equivalents of $9.5 million as of June 30, 2012, declining from $14.9 million in the corresponding period of the prior year. Total debt amounted to $224.5 million as of June 30, 2012 compared with $198.9 million as of December 31, 2011. In the quarter, the company had cash flow from operating activities of $42.9 million, declining from $53.8 million in the year-ago quarter.

Our Take

Headquartered in Memorial City of Houston, Texas, Group 1 Automotive was founded in 1997. The company is one of the largest automotive retailers in U.S., which provides 31 automotive brands. It has 122 automotive dealerships, 159 franchises and 28 collision centers in the U.S. and the U.K.  The company offers new and used cars, light trucks and is also engaged in sales financing activities.

In addition, the company provides insurance contracts, maintenance and repair services along with vehicle parts to its customers. It competes with AutoNation Inc. (AN - Analyst Report) and Penske Automotive Group Inc. (PAG - Analyst Report). Currently, the company retains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) Buy rating.

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