AutoNation Extends Per-Share Growth as Vehicle Profits Weaken
Parts-and-service gross profit reached a record $607.1 million as vehicle sales declined.
AutoNation (AN), the auto retailer, extended adjusted earnings growth to a sixth consecutive quarter as share repurchases offset lower vehicle volumes and net income. Adjusted earnings rose 2% from a year earlier and 19% sequentially to $5.56 a share, while the diluted share count fell 12%.
Second-quarter revenue fell 1% to $6.93 billion, easing from a 2% contraction in the first quarter and rising about 6% sequentially. Gross profit declined 3% to $1.23 billion, and gross margin narrowed to 17.8% from 18.3% a year earlier.
Adjusted operating income fell 7% to $343.1 million, matching the first quarter’s rate of decline, while adjusted net income dropped 10% to $187.8 million. Adjusted selling, general and administrative expenses rose to 68.2% of gross profit from 66.2%, reflecting weaker expense absorption.
GAAP operating income increased 47% to $319.0 million, and GAAP earnings climbed 138% to $5.39 a share. The comparison benefited from $141.3 million of goodwill, franchise-rights and other asset impairments in the year-earlier quarter, while the decline in adjusted operating income showed continued pressure in the underlying business.
Same-store new-vehicle unit sales fell 5%, improving from a 9% decline in the first quarter, while used-vehicle unit sales dropped 8% after falling 5% in the prior period. Higher selling prices provided a partial offset, though new-vehicle gross profit per unit declined 15.5% to $2,359 and used-vehicle gross profit per unit fell 2.2% to $1,588.
Parts-and-service accounted for 49.3% of gross profit, up from 46.9% a year earlier, as its gross profit increased 1.4% to a record $607.1 million. Variable-operations gross profit fell 7.9% to $623.3 million, and finance-and-insurance gross profit declined 3.8% as retail volumes contracted. AutoNation Finance income rose to $10.7 million from $2.0 million, while its loan portfolio reached $2.7 billion.
First-half adjusted free cash flow increased 12% to $439.2 million, supporting $157 million of second-quarter share repurchases and $316.5 million of acquisitions. The four acquired dealerships add about $600 million in annual revenue, while non-vehicle debt rose to $4.43 billion and its covenant leverage ratio increased to 2.77 times.