AutoNation Inc. (AN) announced that it would release its results for the third quarter of 2011 before the market opens on October 20, 2011. Fort Lauderdale, Florida-based AutoNation realized earnings per share of 49 cents in the second quarter, which were slightly higher than the Zacks Consensus Estimates of 47 cents.
In the upcoming quarter, the Zacks Consensus Estimate for AutoNation is pegged at a profit of 48 cents per share, reflecting an annualized growth of 23.08%. The upside potential of the estimate, essentially a proxy for future earnings surprises, is 2.08%.
With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters which is reflected in the average earnings surprise of 8.17%. Three of the concerned quarters exceeded the estimates while the remaining one quarter missed the Zacks Consensus Estimate.
Second Quarter Recap
Revenues in the quarter scaled up 7.5% to $3.34 billion, driven by an increased retail new and used vehicle average selling prices. However, it was lower than the Zacks Consensus Estimate of $3.40 billion.
Gross profit rose 10% to $583 million from $529 million in the year-ago period due to an increase in retail new and used vehicle gross profit as well as an increase in finance and insurance gross profit. It was favorably impacted by $1.4 million related to incentives on premium luxury vehicles previously sold.
Gross profit per new vehicle retailed increased $539 or 25.7% to $2,638 while gross profit per used vehicle retailed rose $174 or 10.7% to $1,800 from the year-ago levels. Operating profit increased to $144.4 million from $126.0 million in the year-ago quarter.
New vehicle revenues rose 5.4% to $1.75 billion. This translated into revenue per vehicle of $33,703, an increase of 5.5% from the year ago level. The retailer’s new vehicle sales remained flat at 51,824 units compared with 51,840 units a year ago.
Used vehicle (retail and wholesale) revenues went up13.2% to $887.3 million. Used vehicle sales rose 5.9% to 42,833 units, resulting in revenue per vehicle of $18,350, an increase of 5.6%. Revenues in the parts and services business grew 4.5% to $572 million while that in the finance and insurance business rose 11.7% to $117 million.
Revenues in the Domestic segment advanced 10.5% to $1.15 billion, revenues in the Import segment rose 3.1% to $1.21 billion and revenues in the Premium Luxury segment gained 9.4% to $941.6 million.
Estimate Revisions Trend
Earnings estimate for the third quarter of 2011 is currently pegged at a profit of 48 cents per share. The analysts are slightly cautious about the stock given its deteriorating cash position and growing debt balance.
Agreement of Estimate Revisions
Out of the 10 analysts covering the stock for the third quarter, only two have downgraded the stock in the past 30 days, whereas another analyst has upgraded it in the given period.
Magnitude of Estimate Revisions
Following the second quarter earnings release in July, third quarter earnings per share were projected at 46 cents. However, over the last 60 days, the estimate increased to 49 cents. But in the last 7 days the estimate came down by a penny and since then remained at 48 cents.
Our Take
AutoNation is the largest automotive retailer in the U.S. and is about twice the size of its nearest competitor. As of June 30, 2011, the company owned and operated 254 new vehicle franchises located in major metropolitan markets in 15 states, with about 75% of sales emanating in the Sunbelt region of the U.S. (with 50% in Florida and California).
The company sells 32 different brands of new vehicles, its core brands being Ford Motor Co.(F), General Motors Company(GM), Chrysler, Toyota Motor Corp. (TM),Nissan Motor Co. Ltd. (NSANY), Honda Motor Co. Ltd. (HMC) and BMW. These core brands represented 93% of sales in 2010.
AutoNation’s effort to expand its dealer network by investing in existing stores and service centers will help outgrow its peers. 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 rating of Hold and we reiterate our long-term recommendation of Neutral for the long term.
