AutoNation Meets, Profits Up - Analyst Blog

AutoNation Inc. (AN) reported a 21% rise in profits to $70.7 million in the third quarter of 2011 from $58.5 million in the same quarter of 2010. On per-share basis, profit was 48 cents and in line with the Zacks Consensus Estimate compared with 39 cents in the third quarter of 2010.

Total revenue increased 7% to $3.5 billion, driven mainly by increases in new and used vehicle average selling prices. It was also in line with the Zacks Consensus Estimate.

Gross profit rose 5% to $575 million from $545 million in the year-ago period. The increase was attributable to an increase in retail new vehicle gross profit, as well as an increase in finance and insurance gross profit. Operating profit was $144.1 million, up 19% from $120.9 million a year ago. 

New vehicle revenues scaled up 6% to $1.88 billion. However, new vehicle sales slid 2% to 54,844 units on a same store basis due to shortage in supply of Japanese vehicles on the back of the earthquake in Japan. As per CNW Research data, total U.S. industry new retail vehicle unit sales increased 1% in the quarter under study.

Used vehicles revenues escalated 12% to $911.9 million. Used vehicle sales inched up 1% to 43,414 units on a same-store basis.

Revenues in the parts and services business rose 2.5% to $578.0 million while that in the finance and insurance business rose 9% to $121.9 million.

Segment Performance

Revenues in the Domestic segment – comprising stores that sell vehicles manufactured by General Motors (GM), Ford Motor (F) and Chrysler –improved 9% to $1.20 billion from $905.6 million, driven mainly by strong performance of Ford and Lincoln lineups.

The segment sold 19,789 new vehicles during the quarter, an increase of 12% from the year-ago level. Segment income was $46.7 million versus $42.5 million in the third quarter of 2010.

Revenues in the Import segment – comprising stores that sell vehicles manufactured primarily by Toyota Motor (TM), Honda Motor (HMC) and Nissan Motor (NSANY) – went up marginally 3% to $1.32 billion, driven by higher average selling prices.

Unit sales dipped 10% to 26,914 vehicles due to the shortage in supply of Japanese vehicles. Segment income rose to $65.0 million from $51.3 million in the year ago quarter.

Revenues in the Premium Luxury segment – comprising stores that sell vehicles manufactured primarily by Daimler’s (DDAIF) Mercedes-Benz, and BMW and Lexus – appreciated 10% to $948.7 million driven by strong sales of Mercedes-Benz and BMW vehicles. Unit sales rose 11% to 9,606 vehicles. Segment income was $49.5 million compared with $47.7 million in the third quarter of 2010.

Share Repurchase

AutoNation repurchased 7.2 million shares from July 1, 2011 to October 19, 2011 for an aggregate price of $247.7 million. Today, the company’s Board of Directors authorized the repurchase of an additional $250 million of common stock. Including the new share repurchase authorization, AutoNation had approximately $316 million worth of shares remaining for repurchase as of October 19, 2011.

Financial Position

AutoNation had cash and cash equivalents of $67.3 million as of September 30, 2011, down from $84.5 million as of September 30, 2010. Non-vehicle debt stood at $1.49 billion as of September 30, 2011 compared with $1.38 billion as of September 30, 2010.

During the first nine months of the year, capital expenditure totaled $113.6 million compared with $80.3 million during the same period of 2010.

Our Take

AutoNation is the largest automotive retailer in the U.S. and is about twice the size of its nearest competitor. As of September 30, 2011, the company owned and operated 257 new vehicle franchises located in major metropolitan markets in 15 states, with about 75% of sales being focused on the Sunbelt region of the U.S. (with 50% in Florida and California).

AutoNation’s effort to expand its dealer network by investing in existing stores and service centers will help it to outgrow peers. The company believes new vehicle sales will continue to improve with the long-term recovery of the U.S.market.

However, tough competition and rising interest rates are some of the threats faced by the company. As a result, the shares of the company currently retain a Zacks #3 Rank, which translates into a short-term (1 to 3 months) rating of Hold and we reiterate our long-term recommendation of Neutral for the long term (more than 6 months).

AUTONATION INC (AN): Free Stock Analysis Report

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