AutoNation Profit Slumps on Incentives, Hail Costs -- Update

By Jeff Bennett 

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.

"If there had not been dramatic increases in incentives, there would have been a decline in sales [during the first quarter] and, by the way, incentives are reaching the danger level of almost 10% of the asking price," Mr. Jackson said during an interview on CNBC Friday morning.

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.

Investors sent shares down as much as 2.2%, or $1.05, to $47 in premarket trading. AutoNation's stock has dropped more than 20% since the start of the year when Mr. Jackson first warned the industry that overall sales were slowing.

Industry forecasters still expect overall U.S. auto sales to reach 17.8 million for 2016, marking a new milestone and breaking last year's record of 17.5 million. The new level will be reached by auto makers selling more of their vehicles to fleet operators.

A fuller picture of the health of the automotive industry will come into focus over the next week with Penske Automotive Group Inc. set to deliver its results on Tuesday followed by Group 1 Automotive Inc. reporting sales on Wednesday.

Write to Jeff Bennett at [e-mail]

(END) Dow Jones Newswires

April 22, 2016 08:35 ET (12:35 GMT)

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