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AutoNation Beats Estimates

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AutoNation Inc. (AN - Free Report) witnessed a 35% boost in adjusted earnings per share to 66 cents in the second quarter of 2012 compared to 49 cents per share in the corresponding quarter last year. With this, the profit surpassed the Zacks Consensus Estimate of 59 cents per share.

In absolute terms, profits escalated 12% to $81.6 million from $73.3 million in the year-ago quarter. Meanwhile, reported earnings were $78.6 million or 64 cents per share compared with $71.9 million or 49 cents per share.

The company’s revenues for the quarter came in at $3.9 billion, up 17% compared with $3.3 billion in the year-ago quarter. The growth in revenues was driven by strong retail new vehicle unit sales. Revenues were higher than the Zacks Consensus Estimate of $3.7 billion.    

Revenues from new vehicle sales surged 26% to $2.2 billion. New vehicle retail sales increased 29.3% to 66,987 units. However, revenues per vehicle fell $919 to $32,784. On a same-store basis, new vehicle retail sales went up 29% to 66,828 units, however, revenues per vehicle decreased $887 to $32,816.

Revenues from used vehicle (retail and wholesale) went up 6.8% to $947.4 million. Used vehicle retail sales improved 7.9% to 46,236 units with revenues declining 2.2% to $17,941. Same-store used vehicle sales rose 7.5% to 46,029 units with a 2.1% fall in per vehicle same store revenues to $17,971.

Revenues from parts and service went up 5.3% to $602.5 million. Meanwhile, the company’s finance and insurance business witnessed a 24% growth in revenues to $145.1 million.

Gross profit increased 7.6% to $628.0 million from $583.4 million in the year ago quarter. The improvement was driven by higher gross profit earned from the finance and insurance and parts and service businesses. However, a loss in the used vehicle business had adverse effect on the overall gross profit.

Gross profit per new vehicle retailed decreased 17.7% to $2,172 while gross profit per used vehicle retailed declined 9.8% to $1,624. However, finance and insurance gross profit per vehicle retailed rose 3.7% to $1,282.
Operating income swelled 13.7% to $164.2 million from $144.4 million recorded in the second quarter of 2011. However, operating margin went down marginally to 4.2% from 4.3% in the last year.

Segment Detail

The Domestic segment comprises stores selling vehicles manufactured by General Motors Company (GM - Free Report) , Ford Motor Co. (F - Free Report) and Chrysler. Revenues in this segment boosted 13.1% to $1,295.1 million. Unit sales augmented 17.3% to 21,993 vehicles. Segment operating income improved 15.5% to $53.6 million from $46.4 million in the second quarter of 2011.

Revenues in the Import segment – comprising stores that sell vehicles, manufactured primarily by Toyota Motor Corporation (TM - Free Report) , Honda Motor Co. (HMC - Free Report) and Nissan Motor Co. (NSANY - Free Report) went up 26.6% to $1.5 billion. Unit sales increased 44.3% to 33,715 automobiles. Segment operating income increased 7.5% to $67.2 million from $62.5 million a year ago.

Revenues in the Premium Luxury segment – comprising stores that sell vehicles manufactured primarily by Daimler AG’s (DDAIF - Free Report) Mercedes, BMW and Lexus – went up 10.5% to $1.1 billion. Unit sales rose 16.2% to 11,279 vehicles. Segment operating income rose 14.2% to $68.3 million from $59.8 million in the corresponding quarter last year.

Share Repurchase

During the quarter, AutoNation repurchased 3.7 million shares for $126.2 million. The company has 121 million shares outstanding as of June 30, 2012. The company’s Board of Directors authorized an additional repurchase of $250 million shares. As a result, the company has approximately $368 million worth of shares remaining for repurchase.

Financial Details

AutoNation’s cash and cash equivalents declined to $62.1 million as of June 30, 2012 from $81.8 million as of June 30, 2011. The company’s inventory was valued at $2.1 billion as of June 30, 2012 versus $1.8 billion as of June 30, 2011. Meanwhile, capital expenditure increased to $47.9 million in the quarter from $38.9 million 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 260 new vehicle franchises that sell 32 brands located in the major metropolitan markets in 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.

Recovery in auto sales owing to improved customer confidence and introduction of new products will boost the company’s earnings. In addition, revamped models of Civic and Accord as well as stabilization of inventory are expected to help AutoNation outperform the growth in U.S. light vehicle market. However, the company’s sales were adversely affected by higher fuel prices and lower availability of sub prime loans.

Currently, AutoNation retains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) Buy rating and we have a long-term (more than 6 months) Neutral recommendation on the stock.

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