NSANY Nissan Motor Company Ltd (PK)

AutoNation Inc. (AN) witnessed an 18% rise in profits to $73 million or 49 cents per share in the second quarter of 2011 from $62 million or 38 cents per share in the prior-year quarter. With this, the automotive retailer has inched past the Zacks Consensus Estimate of 47 cents per share.

The second quarter profits excluded an adjustment related to debt-refinancing costs of $12 million (after-tax) or 7 cents per share.

Revenues in the quarter scaled up 7.5% to $3.34 billion, driven by an increased retail new and used vehicle average selling prices. However, it was lower than the Zacks Consensus Estimate of $3.40 billion.

Gross profit rose 10% to $583 million from $529 million in the year-ago period due to an increase in retail new and used vehicle gross profit as well as an increase in finance and insurance gross profit.  It was favorably impacted by $1.4 million related to incentives on premium luxury vehicles previously sold. 

Gross profit per new vehicle retailed increased $539 or 25.7% to $2,638 while gross profit per used vehicle retailed rose $174 or 10.7% to $1,800 from the year-ago levels.

Operating profit increased to $144.4 million from $126.0 million in the year-ago quarter.

New vehicle revenues rose 5.4% to $1.75 billion. This translated into revenue per vehicle of $33,703, an increase of 5.5% from the year ago level. The retailer’s new vehicle sales remained flat at 51,824 units compared with 51,840 units a year ago.

On a same-store basis, AutoNation’s new vehicle unit sales dipped 4% to 49,892 units. Based on CNW Research data, industry new retail vehicle unit sales in the U.S. decreased 2% during the quarter under study.

Used vehicle (retail and wholesale) revenues went up13.2% to $887.3 million. Used vehicle sales rose 5.9% to 42,833 units, transforming into per vehicle revenue of $18,350, an increase of 5.6%. On a same-store basis, used vehicle unit sales increased 3% to 41,658 units

Revenues in the parts and services business grew 4.5% to $572 million while that in the finance and insurance business rose 11.7% to $117 million.

Segment Results

Revenues in the Domestic segment – comprising stores that sell vehicles manufactured by General Motors Company (GM), Ford Motor Co. (F) and Chrysler – advanced 10.5% to $1.15 billion. Unit sales rose 13.5% to 18,751 vehicles. Segment operating income increased to $46.4 million from $41.5 million in the second quarter of 2010.

Revenues in the Import segment – comprising stores that sell vehicles manufactured primarily by Toyota Motor Corp. (TM), Honda Motor Co. (HMC) and Nissan Motor Co. (NSANY) – rose 3.1% to $1.21 billion. Unit sales decreased 11.5% to 23,854 vehicles. Segment operating income improved to $65.7 million from $52.4 million in the year ago quarter.

Revenues in the Premium Luxury segment – comprising stores that sell vehicles manufactured primarily by Daimler AG’s (DDAIF) Mercedes, and BMW and Lexus – gained 9.4% to $941.6 million. Unit sales rose 10% to 9,219 vehicles. Segment operating income rose to $56.6 million from $48.5 million in the second quarter of 2010.

Financials

AutoNation’s cash and cash equivalents declined to $81.8 million as of June 30, 2011 from $101.6 million as of June 30, 2010. Non-vehicle debt increased to $1.45 billion from $1.37 billion as of June 30, 2010.

In the first half of 2010, capital expenditures increased to $63.6 million from $40.3 million in the prior year.

During the quarter, AutoNation repurchased 3.4 million shares of its common stock for $110.9 million, reflecting an average purchase price of $32.62. This has brought the total share repurchase to 5.1 million for $169.7 million for the first half of the year.

Our Take

AutoNation is the largest automotive retailer in the U.S. and is about twice the size of its nearest competitor. As of June 30, 2011, the company owned and operated 254 new vehicle franchises located in major metropolitan markets in 15 states, with about 75% of sales being focused on the Sunbelt region of the U.S. (with 50% in Florida and California).

The company sells 31 different brands of new vehicles, its core brands being Ford, General Motors, Chrysler, Toyota, Nissan, Honda and BMW. These core brands represented 93% of the sales in 2010.

AutoNation’s effort to expand its dealer network by investing in existing stores and service centers will help it to outgrow peers. However, tough competition and rising interest rates are some of the threats faced by the company.

As a result, the shares of the company currently retain a Zacks #3 Rank, which translates to a short-term rating of Hold and we reiterate our long-term recommendation of Neutral for the long term.

 
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