Tuesday, November 3rd, 2009
AutoNation Riding Towards Profits
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AutoNation, Inc. (AN), along with other automakers like Ford Motors (F), surprised analysts and investors in the third quarter quarter by posting a profit. Despite lackluster sales that continue to tread near depression levels, the company was able to lower its costs and ultimately improve its bottom line results and ultimately beat analyst and investor expectations.
Better-than-Expected Results…
AutoNation reported net income of $65 million, or $0.36 per share, on revenues that dropped 14.7% to $2.9 billion on lower vehicle sales. The improvement net income was driven by a recovery in the company’s profit margins, cost reductions, lower interest expenses, and more efficient operational and inventory management.
Not surprisingly, AutoNation saw its biggest decline in sales from its premium luxury models, which moved down 19% to $44 million versus the comparable period a year ago. Meanwhile, domestic sales declined 11% and import sales declined 12% during the quarter. Of course, the Cash for Clunkers program partially-offset sales declines in the latter two segments.
AutoNation’s board of directors also approved a 65% increase in capital expenditures in 2010 to $150 million, along with a $250 million for the repurchase of its common stock. The capital expenditures will be used to invest in facilities, repurchasing shares, and making strategic operations in order to create additional value for shareholders.
A Curvy Road Ahead…
The third quarter was a pivotal moment for the troubled auto industry. Following the one-year anniversary of the financial meltdown, AutoNation predicted that things would remain challenging through the remainder of 2009 with a gradual recovery beginning in 2010. However, the company remains bullish in the long-term given the much-needed industry restructuring.
New vehicle sales had reached a peak in August when 14.1 million units were sold with the help of the Cash for Clunkers program. Not surprisingly, sales took a nosedive in September to 9.2 million units when the program ended. However, many analysts are saying that automakers have increased incentives to drive sales in October.
Meanwhile, earnings out of car manufacturers show more promising signs now that many of them have worked through their inventories. Both Ford and GM surprised analysts to the upside with their earnings results, but tight credit and high unemployment makes it unlikely that any real demand will materialize for some time.
The Takeaway…
- AutoNation reported higher results due to bottom-line improvements in its profit margins from cost-cutting, streamlining, and similar efforts.
- AutoNation’s top-line results are still dropping, but should begin to stabilize in 2010 by its own and industry forecasts.
- Share repurchases should also help reduce the number of shares outstanding and thereby increase earnings per share going forward.
- Some popular investors, like Bill Gates’ Cascade Investment LLC, have begun to take a meaningful stake in the company and its competitors.
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-- Written by Simon Monger
