Lithia Motors has the cash to snap up more stores
DETROIT -- Lithia Motors Inc.’s strong first-quarter earnings and a new five-year, $650 million line of credit have given it the financial muscle to shop aggressively for more dealerships.
“We have the ability to grow, and now we have the capital to grow if the right opportunity becomes available. So we’re out looking,” Lithia COO Bryan DeBoer said in an interview today.
Lithia posted first-quarter gains as U.S. vehicle sales gather momentum. The Medford, Ore., dealership group said its net income from continuing operations doubled to $16.8 million, or 63 cents a share, from $8.4 million, or 31 cents a share, in the first quarter last year.
The revolving line of credit will provide $500 million for new-vehicle inventory floorplan financing, $100 million for used-vehicle inventory financing and $50 million for general company purposes, which would include acquisitions.
Lithia ended the quarter with about $102 million in available liquidity; and with the new line of credit, it has increased that liquidity to about $150 million for acquisitions, DeBoer said.
“We still believe there are opportunities out there, and we’re pursuing larger groups as well as smaller,” DeBoer said. “Not all of the $150 million would be spent on acquisitions. We’d do internal investment, acquisitions and then stock buybacks last.”
Lithia is “actively pursuing” import brand, luxury brand and Chevrolet and Ford stores for possible acquisitions, DeBoer said.
He said Lithia is looking to snap up “mainstream” franchises in small-to-medium markets and luxury franchises in larger metropolitan areas. The criteria for a deal is that it has to yield an average 20 percent annual return on equity after taxes, DeBoer said.
Presently, more than a quarter of Lithia’s 83 U.S. stores carry Chrysler Group brands. And while Lithia is open to purchasing more Chrysler dealerships, it will do so only if the deal won’t add real estate costs, DeBoer said.
“Chrysler has a bright future,” he said. “What we won’t do is we won’t add to our risks if we buy a Chrysler store, which means we won’t add real estate costs. Right now we have less than 25 percent risk in real estate with Chrysler.”
Lithia, after reporting its quarterly results, raised its annual U.S. sales rate forecast to 14 million to 14.5 million units from a previous estimate of 13.5 million to 14 million.
Lithia also raised its full-year earnings outlook. The company forecast a profit between $2.45 and $2.53 a share for the full year, up from $2.06 to $2.16 a share. Analysts were expecting earnings of $2.18 a share, according to Thomson Reuters.
Lithia projects total revenue in the range of $2.9 to $3.1 billion, unchanged from its previous forecast.
Lithia's first-quarter revenue rose 34 percent to $404.3 million.
Lithia's earnings per share of 63 cents exceeded analysts' expectations of 42 cents a share, according to Thomson Reuters.
The company ranks No. 9 on the Automotive News list of the top 125 U.S. dealership groups with 2011 new-vehicles retail sales of 44,537 units.
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