AutoNation Misses Estimates

AutoNation Inc. ( AN - Analyst Report ) witnessed a 37.5% increase in earnings per share to 66 cents in the third quarter of 2012 from 48 cents in the corresponding quarter last year. However, profits missed the Zacks Consensus Estimate by a penny. In absolute terms, profits escalated 15.8% to $81.9 million from $70.7 million in the year-ago quarter.

Revenues for the quarter increased 12.2% to $3.93 billion from $3.51 billion in the year-ago quarter. The growth in revenues was driven by strong retail new vehicle sales. Revenues marginally missed the Zacks Consensus Estimate of $3.95 billion.

Revenues from new vehicle sales improved 19.1% to $2.2 billion in the quarter. New vehicle retail sales increased 21.4% to 68,350 units. However, revenues per vehicle dipped 1.9% to $32,780. On a same-store basis, new vehicle retail sales went up 21.2% to 68,251 units.

Revenues from used vehicle (retail and wholesale) crept up 2.7% to $936.4 million in the quarter. Used vehicle retail sales improved 3.2% to 45,643 units with revenues per vehicle increasing marginally by $131.0 to $17,779. Same-store used vehicle sales rose 2.7% to 45,434 units with a $160 increase in per-vehicle same-store revenues to $17,808.

Revenues from parts and services went up 3.3% to $596.8 million. Meanwhile, the company’s finance and insurance business witnessed a 20.6% growth in revenues to $147.0 million.

Gross profit increased 8.2% to $622.6 million from $575.2 million in the year-ago quarter. The improvement was driven by higher gross profit earned from the finance and insurance and used vehicle businesses. Operating income improved 13.6% to $163.7 million from $144.1 million in the third quarter of 2011.

Gross profit per new vehicle retailed decreased 13.7% to $2,117 while gross profit per used vehicle retailed rose 4.2% to $1,588. Gross profit from finance and insurance per vehicle retailed swelled 6.3% to $1,290.

Segment Detail

The Domestic segment comprises stores selling vehicles manufactured by General Motors Company ( GM - Analyst Report ) , Ford Motor Co. ( F - Analyst Report ) and Chrysler. Revenues in this segment improved 6.7% to $1.3 billion. Unit sales augmented 9% to 21,579 vehicles. Segment operating income improved 11.1% to $51.9 million from $46.7 million in the third quarter of 2011.

Revenues from the Import segment – comprising stores that sell vehicles, manufactured primarily by Toyota Motor Corporation ( TM - Analyst Report ) , Honda Motor Co. ( HMC - Analyst Report ) and Nissan Motor Co. ( NSANY ) – increased 20.1% to $1.5 billion. Unit sales surged 34.7% to 35,578 automobiles. Segment operating income increased 12.9% to $69.0 million from $61.1 million a year ago.

Revenues in the Premium Luxury segment – comprising stores that sell vehicles manufactured primarily by Daimler AG’s ( DDAIF ) Mercedes, BMW and Lexus – went up 8.8% to $1.1 billion. Unit sales rose 10.6% to 11,193 vehicles. Segment operating income climbed 17.8% to $62.9 million from $53.4 million in the corresponding quarter last year.

Financial Details

AutoNation’s cash and cash equivalents increased to $98.6 million as of September 30, 2012 from $67.3 million as of September 30, 2011. The company’s inventory was valued at $2.1 billion as of September 30, 2012 versus $1.6 billion as of September 30, 2011. Meanwhile, capital expenditures increased to $122.8 million during the first nine months of 2012 from $113.6 million in the same period last year.

Our Take

Headquartered in Fort Lauderdale, Florida, AutoNation is the largest automotive retailer in the U.S. The company owns and operates about 261 new vehicle franchises that sell 32 brands located in the major metropolitan markets across 15 states.

The company offers an array of automotive products and services, ranging from new vehicles, used vehicles, vehicle maintenance and repair services, vehicle parts, vehicle protection products to other aftermarket products.

Currently, AutoNation retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating and we have a long-term (more than 6 months) Outperform recommendation on the stock.