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Why Is AutoNation (AN) Down 1.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for AutoNation (AN - Free Report) . Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AutoNation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AutoNation’s Q2 Earnings Beat Estimates, Revenues Miss

AutoNation reported adjusted earnings of $1.14 per share in second-quarter 2018, surpassing the Zacks Consensus Estimate of $1.13. Excluding the after-tax non-cash franchise rights impairment charge of $6 million, earnings were $1.07 per share. In the year-ago quarter, the bottom line was 86 cents.

Net income from continuing operations was $97.6 million compared with $87.7 million in second-quarter 2017.

During the quarter under review, AutoNation reported revenues of $5.39 billion, rising 2% year over year. However, the top line missed the Zacks Consensus Estimate of $5.41 billion.

During the reported quarter, new-vehicle revenues increased 0.6% year over year to $2.9 billion in second-quarter 2018. Used-vehicle revenues rose 8.1% year over year to $1.3 billion. Parts and service business revenues were $857 million, almost in line with the prior-year quarter. Net revenues from finance and insurance business were $248 million, reflecting an 8.3% increase.

Segmental Details

Revenues at the Domestic segment — comprising stores that sell vehicles manufactured by General Motors, Ford and FCA US — declined 1% to $1.8 billion. The segment’s income increased 12% to $60 million in the quarter under review.

Revenues at the Import segment — consisting of outlets that sell vehicles manufactured primarily by Toyota, Honda, Nissan and Hyundai — increased 0.9% to $1.7 billion. However, the segment’s income gained 4% to $78 million in the reported quarter.

Revenues at the Premium Luxury segment comprise of stores that retail vehicles manufactured by Mercedes-Benz, BMW, Lexus and Audi. The sales figure rose 5.2% to $1.7 billion. Segmental income grew 1% to $84 million in the reported quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents were $53.1 million as of Jun 30, 2018, declining from $69.2 million as of Dec 31, 2017. The company’s inventory was valued at $3.6 billion as of Jun 30, 2018, compared with $3.4 billion as of Dec 31, 2017.

As of Mar 31, 2018, the non-vehicle debt was $2.7 billion compared with $2.6 billion in the prior-year quarter. At the end of second-quarter 2018, capital expenditure was $103.2 million compared with $82 million in the prior year.

Share Repurchases

During the reported quarter, the company repurchased 1.6 million shares for $73 million. As of Jul 30, 2018, AutoNation had roughly $264 million authorization for share repurchase and around 90 million shares outstanding.

Acquisition

The company announced the acquisition of Shelly BMW store in the Southern California market. With retail sales of roughly 2,600 new and used vehicles, the annual revenues of the store were approximately $140 million. Further, it has also signed an agreement to acquire Trade Secret Auto Care, a collision center in the Dallas, TX. This acquisition will mark the 81st collision and repair center for AutoNation.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, AutoNation has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, AutoNation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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