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Group 1 Shares Drop as Earnings Lag

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Group 1 Automotive Inc.’s (GPI - Free Report) share price declined 5.8% to $64.86 on Oct 24 and dropped 0.4% to $64.57 on Oct 25 after the company posted a 9.1% year-on-year decline in adjusted earnings per share to $1.20 in the third quarter of 2013. Reported earnings also missed the Zacks Consensus Estimate by 28 cents.

Meanwhile, net income grew 4.9% to $32.9 million from $31.3 million in the year-ago quarter.

Revenues increased 18.4% year over year to $2.34 billion, beating the Zacks Consensus Estimate of $2.31 billion. The year-over-year improvement was driven by strong performances across its business with higher retail new vehicle sales and better revenues from Finance and Insurance business.

Revenues from new vehicle sales escalated 21.5% to $1.4 billion on a 22.5% increase in unit sales to 42,311 vehicles. Revenues from retailed used vehicles improved 14.6% to $529.8 million on a 16.2% increase in unit sales to 26,059 vehicles.

Revenues from wholesale used vehicles went up 9.4% to $85.8 million. Used vehicles wholesale volume increased 11.6% to 13,445 units.

Revenues from Parts and Service business increased 13.5% to $255.3 million. The company’s Finance and Insurance business witnessed an 18.8% rise in revenues to $82.5 million.

Gross profit increased 13.1% to $329.5 million from $291.2 million in the year-ago quarter. Operating income improved 8.8% to $72.9 million from $67.1 million in the third quarter of 2012.

Segment Details

Revenues in the U.S. business increased 4.1% to $1.9 billion due to better performance in all operations and a 3.3% increase in unit sales to 32,661 vehicles. The increase was partially offset by decrease in used vehicle wholesale volume/revenue.

Revenues in the U.K. augmented 44.7% to $234.9 million from $162.4 million in the year-ago quarter due to higher new vehicle retail and used vehicle sales together with better performance by the Parts and service business. Unit sales improved 60.5% to 4,588 units, benefiting the results of the company.

Revenues from the Brazil business, which was acquired in February this year, were $215.9 million in the quarter. New vehicle retail sales were 5,139 units, while total used vehicle sales were 2,255 units.

Financial Details

Group 1’s cash and cash equivalents surged to $26.3 million as of Sep 30, 2013, from $4.7 million as of Dec 31, 2012. Total debt amounted $255.3 million as of Sep 30, 2013, compared with $263.6 million as of Dec 31, 2012. Debt to capitalization ratio was 20% versus 23.5% as of Dec 31, 2012.

Share Repurchase

Group 1 announced a 50% increase in its share repurchase authorization to $75 million. The company will purchase the shares from time to time depending on the market conditions, legal requirements and other corporate considerations. The company intends to finance this repurchase program using the cash from operations.


On Sep 30, 2013, Group 1 Automotive acquired one franchise of Honda Motor Co., Ltd. (HMC - Free Report) in Tulsa, OK. Annual revenues from the franchise is estimated to be $60 million. In the first nine months of 2013, Group 1 Automotive disposed 7 dealerships that generated $318.9 million in revenues. It also acquired 29 franchises worldwide in the period, which is expected to generate $967 million annual revenues.

Our Take

Group 1 Automotive is one of the largest automotive retailers in the U.S., which provides 33 automotive brands. It has 141 automotive dealerships, 179 franchises and 35 collision centers in the U.S., U.K and Brazil. Currently, the company retains a Zacks Rank #3 (Hold).

Some other stocks that are performing well in the industry where Group 1 Automotive operates include Lithia Motors Inc. (LAD - Free Report) and Penske Automotive Group, Inc. (PAG - Free Report) , both carrying a Zacks Rank #2 (Buy).

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