Rebound in California, Florida fuels AutoNation profit growth
Some of the states hit hardest by the recession are among the biggest drivers of growth for AutoNation Inc.
In reporting a 9 percent gain in net income for the second quarter, the nation's largest automotive retailer cited in part the recovery in auto sales in states such as California, Florida and Texas.
"It was a very good quarter in almost every market where we operate with California, Colorado, Texas and Florida continuing to show strong year-over-year improvement," AutoNation COO Michael Maroone said today.
New-vehicle unit sales in California rose 39 percent. Colorado sales were up 35 percent. Florida sales jumped 28 percent and Texas sales increased 27 percent.
It's a dramatic turnaround from the depths of the recession in 2008 and 2009 when sales in some of those states plummeted more than the rest of the country. AutoNation's overall sales were disproportionately hurt at the time because of the company's geographic mix, CEO Mike Jackson said.
"We were ground zero for the housing meltdown in our big states of Florida, California, Arizona and Nevada," Jackson said. "What we now see is housing has stabilized in those markets, and there are the first indications of a housing recovery."
A strong housing market will be crucial to drive the next wave of growth in the U.S. economy, Jackson said. He described the recovery today as "weak and tepid" with automotive as a bright spot. Lots of economic uncertainty remains, he said, and customers often talk about high unemployment.
But auto sales will continue to grow, Jackson says, because of today's aging vehicle fleet. The average vehicle on the road is 11 years old. Many buyers have no choice but to replace their vehicles because they need reliable transportation, he said.
Jackson made the comments today after AutoNation reported second-quarter net income of $78.6 million, up from $71.9 million in the same period last year. That 9 percent gain in net profit came even though new-car margins slipped as supplies of Japanese-brand vehicles returned to normal levels.
Operating income rose 14 percent to $164.2 million.
Revenue increased 17 percent to $3.9 billion, driven primarily by a 29 percent increase in retail new-vehicle unit sales, the company said.
The gain in new-vehicle unit volume led to improved gross profit in AutoNation's new-vehicle, parts and service, and finance and insurance operations, Jackson said.
He also cited productivity gains and expense control. AutoNation's operating leverage -- expenses as a percentage of gross profit -- fell below 70 percent for the first time since the third quarter of 2005.
Jackson said the industry sales outlook is strong for the rest of the year.
"We believe that the improvement in new-vehicle sales will continue and have a planning assumption for 2012 industry new vehicle sales in the mid-14 million units," Jackson said in a statement. "Accelerated product launches, replacement demand and robust consumer credit will continue to support a strong sales environment."
While the overall U.S. economy remains sluggish, U.S. light-vehicle demand has jumped 15 percent this year through June.
In the second quarter, AutoNation's new-vehicle unit sales increased by 29 percent. That volume drove total gross profit from new vehicles up 6 percent, on a same-store basis, to $145.2 million.
But gross profit per vehicle retailed fell to $2,173 -- a drop of almost 18 percent. The decline in new-vehicle margins was expected because of the tough comparison with year-ago results. That's when the March 2011 earthquake in Japan caused shortages of Japanese-brand vehicles, which drove up prices.
Used-vehicle retail unit sales rose 8 percent, but gross profits from retail used vehicles dropped 3 percent to $75 million. Parts-and-service gross profits increased 3 percent to $252.8 million.
Finance and insurance gross profits soared 24 percent to $144.8 million. On a per-vehicle basis, the F&I gain was 4 percent, to $1,283 per vehicle.
AutoNation said it posted a record for adjusted earnings per share from continuing operations of 66 cents. That beat Wall Street's expectations of 59 cents and was a 35 percent increase from the year-ago figure of 49 cents.
The company spent $126.2 million to repurchase 3.7 million shares of common stock during the second quarter, leaving 121 million shares outstanding as of June 30.
AutoNation said today that its board has authorized the repurchase of as much as an additional $250 million in stock. Given prior board approvals, AutoNation now has authorization to buy back $368 million worth of its shares.
AutoNation shares closed down $1.67, or 4 percent, at $40.78 each in New York Stock Exchange trading Thursday.
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