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Lithia Motors (LAD - Free Report) has been brutally impacted by coronavirus-induced lockdown, as is evident from dismal preliminary first-quarter 2020 results. The auto dealership chain anticipates first-quarter net income in the band of $45.5-$47 million, indicating a decline from the year-ago figure of $56 million. Net income is forecast in the range of $1.95-$2 a share, indicating a 18.3% year-over-year drop from the midpoint of the guided range.
Key Takeaways From Preliminary Results
While same store new vehicle sales for the quarter are likely to fall 10-11% year over year, same store used vehicle retail sales are anticipated to grow 2-3%. Same store F&I per retail unit is expected between $1,525 and $1,575, indicating an increase from the prior-year figure of $1,485. Same store service, body and parts sales are likely to nominally increase up to 1%. Same store SG&A, as a percentage of gross profit, is projected in the range of 74-76%.
Revenues from new vehicles, used vehicles, F&I and service, and body and parts increased 4%, 22%, 18% and 6%, respectively, in the first two months of 2020. However, lockdown measures to contain the spread of coronavirus hit the company hard in March, which in turn is likely to dent overall financial and operating results for the first quarter.
With ‘shelter-in-place’ policies implemented in March, vehicle unit sales tumbled 50%, dealing a blow to both used and new vehicle sales. Sales from service, body and parts sank 30% in March. Amid the lockdown, vehicle sales fell as little as 15% in some places to as much as 75%, or even to “virtually no sales” in states like Pennsylvania and Vermont, where automotive sales were deemed non-essential businesses. This is indeed an alarming sign for the auto retail industry, more so as the second quarter began with ‘stay-at-home’ orders in full swing.
Lithia Motors has $550 million in cash and available credit. The Zacks Rank #5 (Strong Sell) firm has more than $1 billion in total liquidity, factoring in additional liquidity potential.
Cost-Cutting Measures to Keep Lithia Motors Afloat
Lithia Motors announced the implementation of a number of cost-containment actions in a bid to sail through the coronavirus crisis. Anticipating bleak scenario ahead, the company has reduced its headcount by 37%, mainly through furloughs. It also slashed or put controls on spending for marketing, vendors and inventory. The firm has suspended approximately $65 million in planned discretionary capex. All acquisitions have also been deferred until the second half of 2020. In a bid to preserve financial flexibility, Lithia Motors has also suspended stock buybacks. With uncertainty over liquidity at the highest since the 2008 financial crisis, many auto companies including AutoZone (AZO - Free Report) , CarMax (KMX - Free Report) and Lear Corporation (LEA - Free Report) have called off their buyback programs.
Uncertainty Looms Large
The COVID-19 pandemic has resulted in unprecedented challenges for the auto sector, thereby creating a demand shock as consumers’ confidence has dropped significantly. Companies across the globe are facing unprecedented challenges and taking stringent measures to tackle the crisis. Suspension of production, forced leaves/layoffs and cost cutting are becoming commonplace. Despite policymakers’ best efforts, companies are finding it difficult to stay afloat amid such trying times.
Given the rising possibility of a recession in 2020, cash is the king for businesses. As such, companies are undertaking constructive measures to boost their cash position and preserve financial flexibility in the face of rising global market uncertainty due to the coronavirus-induced crisis.Market watchers are cautious about the industry’s outlook due to ambiguity associated with the spread and duration of the health hazard.
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Lithia Motors Q1 Preliminary Results Reflect Coronavirus Woes
Lithia Motors (LAD - Free Report) has been brutally impacted by coronavirus-induced lockdown, as is evident from dismal preliminary first-quarter 2020 results. The auto dealership chain anticipates first-quarter net income in the band of $45.5-$47 million, indicating a decline from the year-ago figure of $56 million. Net income is forecast in the range of $1.95-$2 a share, indicating a 18.3% year-over-year drop from the midpoint of the guided range.
Key Takeaways From Preliminary Results
While same store new vehicle sales for the quarter are likely to fall 10-11% year over year, same store used vehicle retail sales are anticipated to grow 2-3%. Same store F&I per retail unit is expected between $1,525 and $1,575, indicating an increase from the prior-year figure of $1,485. Same store service, body and parts sales are likely to nominally increase up to 1%. Same store SG&A, as a percentage of gross profit, is projected in the range of 74-76%.
Revenues from new vehicles, used vehicles, F&I and service, and body and parts increased 4%, 22%, 18% and 6%, respectively, in the first two months of 2020. However, lockdown measures to contain the spread of coronavirus hit the company hard in March, which in turn is likely to dent overall financial and operating results for the first quarter.
With ‘shelter-in-place’ policies implemented in March, vehicle unit sales tumbled 50%, dealing a blow to both used and new vehicle sales. Sales from service, body and parts sank 30% in March. Amid the lockdown, vehicle sales fell as little as 15% in some places to as much as 75%, or even to “virtually no sales” in states like Pennsylvania and Vermont, where automotive sales were deemed non-essential businesses. This is indeed an alarming sign for the auto retail industry, more so as the second quarter began with ‘stay-at-home’ orders in full swing.
Lithia Motors has $550 million in cash and available credit. The Zacks Rank #5 (Strong Sell) firm has more than $1 billion in total liquidity, factoring in additional liquidity potential.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cost-Cutting Measures to Keep Lithia Motors Afloat
Lithia Motors announced the implementation of a number of cost-containment actions in a bid to sail through the coronavirus crisis. Anticipating bleak scenario ahead, the company has reduced its headcount by 37%, mainly through furloughs. It also slashed or put controls on spending for marketing, vendors and inventory. The firm has suspended approximately $65 million in planned discretionary capex. All acquisitions have also been deferred until the second half of 2020. In a bid to preserve financial flexibility, Lithia Motors has also suspended stock buybacks. With uncertainty over liquidity at the highest since the 2008 financial crisis, many auto companies including AutoZone (AZO - Free Report) , CarMax (KMX - Free Report) and Lear Corporation (LEA - Free Report) have called off their buyback programs.
Uncertainty Looms Large
The COVID-19 pandemic has resulted in unprecedented challenges for the auto sector, thereby creating a demand shock as consumers’ confidence has dropped significantly. Companies across the globe are facing unprecedented challenges and taking stringent measures to tackle the crisis. Suspension of production, forced leaves/layoffs and cost cutting are becoming commonplace. Despite policymakers’ best efforts, companies are finding it difficult to stay afloat amid such trying times.
Given the rising possibility of a recession in 2020, cash is the king for businesses. As such, companies are undertaking constructive measures to boost their cash position and preserve financial flexibility in the face of rising global market uncertainty due to the coronavirus-induced crisis.Market watchers are cautious about the industry’s outlook due to ambiguity associated with the spread and duration of the health hazard.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>