Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

For auto retailers, pandemic-era profit boost in rear-view mirror

Stock Markets Jul 19, 2022 04:16PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: Vehicles for sale are pictured on the lot at AutoNation Toyota dealership in Cerritos, California December 9, 2015. REUTERS/Mario Anzuoni/File Photo 2/2
 
GM
-5.08%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
F
-3.60%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AN
-0.03%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ABG
-0.82%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GPI
-1.94%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Kannaki Deka

(Reuters) - Profit growth at U.S. car dealers is likely to lose momentum in the second quarter, as the auto industry struggles to ramp up production due to parts shortage, while inflation-fueled price hikes keep buyers out of the market.

Preference for personal transport from cash-flushed Americans during the pandemic turbo-charged auto sales last year, despite price hikes, helping retailers such as AutoNation Inc (NYSE:AN), Lithia & Driveway, Group 1 Automotive (NYSE:GPI) Inc and Asbury (NYSE:ABG) Automotive Group Inc.

However, with inflation posing a threat to overall consumer spending, auto dealers will find it tough to match their performance in the comparable period as vehicle prices are set to fall from record highs.

"Prices are still hitting record highs but there's concern that there could be a decline in the second half of the year with a recession looking more and more likely," CFRA analyst Garrett Nelson said.

Retailer margins are set to moderate "pretty materially" in the second half, Nelson added.

American's affordability of new vehicles slipped in June from a year earlier, when prices were lower and incentives higher, according to the Cox Automotive/Moody's Analytics Vehicle Affordability Index.

The industry's struggles with chip shortage and supply chain disruptions have also led to a 25% drop in inventory at the start of June, which is a third of the pre-pandemic level, according to analytics firm Wards Intelligence.

Investors will be watching for comments from industry executives for warning signs on consumer behavior in a hyper-inflationary environment. (https://reut.rs/3INok32)

AutoNation Inc, the largest U.S. retailer, is expected to report its slowest quarterly profit growth since 2020 when it reports results on Thursday.

Other dealers such as Lithia & Driveway, Group 1 Automotive Inc and Asbury Automotive Inc are also expected to report weak earnings over the next few weeks.

(Graphic: Slowing profit growth: https://graphics.reuters.com/USA-AUTOS/akpezwnjjvr/chart.png)

THE CONTEXT

Industry executives and analysts say demand for vehicles has been strong so far, despite price hikes, which have also protected profits at retailers and automakers such as General Motors Co (NYSE:GM) and Ford Motor (NYSE:F) Co.

However, recent data and industry analysis show that inflation is slowly eating into sales.

"Channel checks suggest demand has softened, particularly in mid- to low-priced vehicles, and we are assuming some step-down in GPUs and unit sales," Stephens analyst Daniel Imbro said.

Retail sales of new vehicles in June fell 18.2%, a report from auto industry consultants J.D. Power and LMC Automotive showed.

However, demand for high-end cars is strong, J.P. Morgan analysts say, and should cushion falling sales of lower- and mid-range cars.

FUNDAMENTALS

AutoNation:

* Analysts estimate Q2 revenue to grow 0.3% to $7 billion when it reports results on July 21

* Earnings per share (EPS) estimated at $6.22

* The stock has gained about 0.3% of its value this year

Lithia & Driveway:

* Analysts estimate Q2 revenue to grow 21.1% to $7.279 billion

* EPS estimated at $12.05

* The stock has lost about 4.4% of its value this year

Group 1 Automotive:

* Q2 revenue is expected to grow 10.8% to $4.1 billion

* EPS estimated at $10.74

* The stock has lost about 13% of its value this year

Asbury Automotive:

* Asbury Automotive Q2 revenue is expected to grow 51% to $3.9 billion

* EPS estimated at $8.82

* The stock has lost about 3.9% of its value this year

WALL STREET SENTIMENT

* For AN, 6 out of 11 analysts rate the stock "buy" or higher, while 5 have a "hold" rating

* The median price target is $147

* For LAD, 11 out of 13 analysts rate the stock "buy" or higher, while one has a "hold" rating and one "sell" rating

* The median price target is $450

* For GPI, 5 out of 8 analysts rate the stock "buy" or higher, while 2 have a "hold" rating and one "sell" rating

* The median price target is $300

* For ABG, 4 out of 8 analysts rate the stock "buy" or higher, while 3 have a "hold" rating and one "sell" rating

* The median price target is $232.5

For auto retailers, pandemic-era profit boost in rear-view mirror
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email