AutoNation (AN) Misses Q3 Earnings, Acquires 3 Franchises

AutoNation Inc. (NYSE:AN) reported record adjusted earnings of $1.11 per share in the third quarter of 2016, which increased from $1.05 in the third quarter of 2015. However, adjusted earnings missed the Zacks Consensus Estimate of $1.14. Adjusted earnings exclude 6 cents per share negative impact related to the Takata airbag recall.

Net income fell to $108 million from $119 million in third-quarter 2015. Operating income declined 7.1% to $219 million from $235.7 million a year ago.

AutoNation reported revenues of $5.57 billion, up 4% year over year. However, revenues fell short of the Zacks Consensus Estimate of $5.62 billion. The year-over-year improvement in the top line can be attributed to better performance across all the businesses, including new vehicles, parts and service, used vehicles, and finance and insurance.

New vehicle revenues escalated 2.6% to $3.2 billion despite a 1.4% fall in new vehicle unit sales to 88,322 vehicles. Revenues per vehicle retailed went up 4.1% to $36,185. On a same-store basis, new vehicle revenues dropped 2.9% to $2.95 billion. Various marketing and sales incentives by automakers adversely affected AutoNation’s new vehicle volume and gross profit per new vehicle retailed.

Used vehicle (retail and wholesale) revenues increased 5.9% to $1.28 billion on a 2.2% and 45.6% revenue rise in the retail sector and wholesale sector, respectively. Retail unit sales slipped 2.8% to 55,760 vehicles, while revenues per vehicle retailed rose 5.2% to $20,228. On a same-store basis, used vehicle revenues improved 1% to $1.18 billion.

Revenues at the parts and service business advanced 7.7% to $843.8 million in the reported quarter. Meanwhile, the finance and insurance business recorded a 1.1% increase in revenues to $229.6 million.

AUTONATION INC Price, Consensus and EPS Surprise

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Segment Details

Revenues at the Domestic segment – comprising stores that sell vehicles manufactured by General Motors Co. (NYSE:GM) , Ford Motor Co. (NYSE:F) and others – increased 9.4% to $2 billion as retail new vehicle unit sales rose 4.1% to 31,749 vehicles. The segment’s income fell 11% to $84 million in the quarter under review.

Revenues at the Import segment – consisting of stores that sell vehicles manufactured primarily by Toyota Motor Corp. (NYSE:TM) and other Japanese automakers – dropped 3.2% to $1.78 billion owing to a 6.3% fall in retail new vehicle unit sales to 39,390 automobiles. Segment income decreased 7% to $79 million in the reported quarter.

Revenues at the Premium Luxury segment – consisting of stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus – went up 4.6% to $1.68 billion. Retail new vehicle sales increased 1.1% to 17,183 luxury vehicles. The segment's income declined 5% to $81 million in the reported quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents fell to $62.2 million as of Sep 30, 2016, from $74.1 million as of Dec 31, 2015. The company’s inventory was valued at $3.45 billion as of Sep 30, 2016, compared with $3.61 billion as of Dec 31, 2015.

Non-vehicle debt increased to $2.76 billion from $2.36 billion as of Dec 31, 2015. Capital expenditures were $181.7 million in the first nine months of 2016 compared with $188.2 million in the prior-year period.

Share Repurchases

AutoNation announced a $250 million increase in its share repurchase authorization.

During the third quarter of 2016, the company repurchased 1 million shares for $50 million.

As of Oct 26, 2016, AutoNation had approximately $316 million remaining under its share repurchase program and around 101 million shares outstanding.

Acquisitions

AutoNation announced the acquisition of three Premium Luxury franchises and one collision center as well as the award of three Premium Luxury franchise add-points. The incremental annual revenue from these is expected to be around $430 million, once the add-points are fully operational.

Branding Extension

AutoNation announced the next phase of its comprehensive brand extension rollout, which was initially announced in 2013. The new phase includes AutoNation USA stand-alone pre-owned vehicle sales and service centers, AutoNation branded parts and accessories, the expansion of AutoNation branded collision centers as well as AutoNation Auto Auctions.

Zacks Rank

AutoNation currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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