AutoNation Profit Slumps on Incentives, Hail Costs

AutoNation Inc., the largest operator of automotive dealerships in the U.S., reported a 14% drop in its first-quarter profit as a slight uptick in incentives and costs associated with hail damage weighed on results.

Chief Executive Mike Jackson said automotive retail sales have plateaued as new vehicle purchases by consumers remained flat year-over-year during the quarter despite auto makers boosting their incentives by 14% compared with the same period a year earlier.

Dealers have called on auto makers to take more proactive steps to reduce small car production or face an incentive war that could undermine the entire industry at a time when consumers are paying more to buy higher-end sport-utility vehicles and pickup trucks. General Motors Co., on Thursday, posted a $1.95 billion first-quarter profit due in part to sales of pickup trucks and SUVs in the U.S.

For the quarter, AutoNation said net income dropped to $96 million, or 89 cents a share, compared with $112 million or 97 cents a share a year earlier.

The company's operating profit of 90 cents a share trailed analyst expectations of 93 cents but included a 3-cent charge for hail damage caused by storms in Texas and a 3-cent stock-based compensation expense. Excluding those costs, the company generated 96 cents a share.

Revenue during the period came in at $5.12 billion, a 3.6% increase over the same period a year earlier but trailing analyst expectations of $5.29 billion.

AutoNation dealers handed out more manufacturer incentives, driving costs of new vehicle sales up 2% to $2.65 billion. As a result, the gross profit per new vehicle sold slipped 8% to $1,888.

Separately, the company said it repurchased 7.9 million shares of common stock for an aggregate purchase price of $371 million. The company has $175 million remaining on its share repurchasing authorization.

Write to Jeff Bennett at [e-mail]

(END) Dow Jones Newswires

April 22, 2016 08:05 ET (12:05 GMT)

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