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AutoNation (AN) Q1 Earnings Beat, Revenues Miss Estimates

AutoNation Inc. AN reported adjusted earnings of 99 cents per share in the first quarter of 2016, which increased from 97 cents recorded in the first quarter of 2015. Moreover, adjusted earnings surpassed the Zacks Consensus Estimate of 93 cents.

Net income fell to $95.9 million from $111.5 million in first-quarter 2015. Operating income dropped 3.5% to $207.4 million or 4.1% of sales from $214.9 million or 4.3% of sales a year ago.

AutoNation reported revenues of $5.12 billion, up 4% year over year. However, revenues fell short of the Zacks Consensus Estimate of $5.24 billion. The year-over-year improvement in the top line can be attributed to better performance across all the business sectors, including new vehicles, parts and service, used vehicles, and finance and insurance.

New vehicle revenues escalated 1.1% to $2.8 billion on a 0.6% rise in new vehicle unit sales to 79,007 vehicles. Revenues per vehicle retailed inched up 0.5% to $35,442. On a same-store basis, new vehicle revenues went down 4.4% to $2.63 billion.

Used vehicle (retail and wholesale) revenues increased 4.1% to $1.24 billion on a 2.4% and 22.8% revenue rise in the retail sector and the wholesale sector, respectively. Retail unit sales dipped 0.9% to 58,103 vehicles, while revenues per vehicle retailed rose 3.3% to $19,274. On a same-store basis, used vehicle revenues fell 1.7% to $1.16 billion.

Revenues at the parts and service business advanced 10.4% to $820.4 million in the reported quarter. Meanwhile, the finance and insurance business recorded a 7.5% increase in revenues to $223.1 million.

Segment Details

Revenues at the Domestic segment – comprising stores that sell vehicles manufactured by General Motors Co. GM, Ford Motor Co. F and others – increased 11% to $1.85 billion as retail new vehicle unit sales rose 7.7% to 27,736 vehicles. The segment’s operating income declined 2% to $77 million in the quarter under review.

Revenues at the Import segment – consisting of stores that sell vehicles manufactured primarily by Toyota Motor Corp. TM and other Japanese automakers – dipped 0.2% to $1.68 billion on a 3.1% fall in retail new vehicle unit sales to 35,781 automobiles. Operating income at the segment improved 1% to $76 million in the reported quarter.

Revenues at the Premium Luxury segment – consisting of stores that sell vehicles manufactured primarily by Mercedes, BMW and Lexus – dropped 1.5% to $1.54 billion. Retail new vehicle sales fell 2.6% to 15,490 luxury vehicles. Meanwhile, the segment's operating income declined 12% to $83 million in the quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents fell to $47.8 million as of Mar 31, 2016, from $74.1 million as of Dec 31, 2015. The company’s inventory was valued at $3.93 billion as of Mar 31, 2016 compared with $3.61 billion as of Dec 31, 2015.

Non-vehicle debt increased to $2.68 billion from $2.36 billion as of Dec 31, 2015. Capital expenditures were $50.7 million in the first quarter of 2016 compared with $62.9 million in the prior-year period.

Share Repurchases

In Feb 2016, AutoNation announced that its board of directors has increased its share repurchase authorization by $250 million.

During the first quarter of 2016, AutoNation repurchased 7.9 million shares for $371 million. As of Apr 21, 2016, the company had approximately $175 million remaining under its share repurchase program and around 103 million shares outstanding.

Acquisitions

AutoNation continues to expand its business through acquisitions. In Feb 2016, the company completed the acquisition of 12 stores in Texas including Chrysler, Dodge, Jeep, Ram, Chevrolet, Hyundai, Mercedes-Benz, and Sprinter franchises. These stores are expected to generate additional revenue of $800 million, and sell 19,500 new and used vehicles every year.

Outlook

AutoNation, which currently carries a Zacks Rank #2 (Buy), expects industry new vehicle sales to be above 17 million units in 2016.

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AUTONATION INC (AN): Free Stock Analysis Report
 
FORD MOTOR CO (F): Free Stock Analysis Report
 
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
 
GENERAL MOTORS (GM): Free Stock Analysis Report
 
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