Q4 profit rises 31% on higher volumes, stock rises 6.1%

AutoNation's Jackson calls 2013 a 'perfect year'

Q4 profit rises 31% on higher volumes, stock rises 6.1%

AutoNation CEO Mike Jackson, pictured on CNBC this morning, said 2014 should be profitable for the auto industry.
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After a year that he described as "perfect" for his company, AutoNation Inc. CEO Mike Jackson is looking for more of the same for 2014.

"I'm pretty optimistic. The powerful drivers are still there," Jackson told Automotive News today after announcing robust fourth-quarter profits. "The industry pretty much has its house in order, and so it should be a very profitable year for suppliers, manufacturers and retailers."

Jackson is projecting industry new-car sales growth of 3 to 5 percent. That would put U.S. auto sales in the low 16-million-unit territory for 2014.

AutoNation, the largest U.S. dealership group, doesn't give guidance for its own performance, but executives said the company has a strong footprint with dealerships in high-growth areas and a good balance of import, luxury and domestic-brand stores.

"We're very confident we're in the right place at the right time," AutoNation COO Michael Maroone said.

AutoNation is enjoying a strong recovery in California, Nevada, Arizona and Florida -- states that were hit hard by the housing crunch during the recession, Maroone said. During the fourth quarter, business in both Arizona and Florida increased 12 percent, he said.

Maroone noted that import-brand sales is an area to keep an eye on because the segment is "very competitive from a price point of view."

"There certainly is a lot of volume there," he said. "You just have to be concerned about the profit pressure."

The new-car profit margin for retailers will remain under pressure, too. AutoNation is not forecasting margin expansion, Maroone said. With strong seasonal luxury-brand sales, the company posted a gain in the new-car margin during the fourth quarter to 6.5 percent. But for full-year 2013, new-car margin slipped to 6.2 percent.

Q4 performance

Higher revenues and profits in all business categories drove AutoNation's fourth-quarter income to the highest levels of the year as the retailer continued to benefit from rising U.S. auto sales.

Net income for the nation's largest dealership group rose 31 percent in the fourth quarter from the year-earlier period to $109.4 million, the company reported today. Revenue rose 8 percent to $4.52 billion. As vehicle unit sales climbed, AutoNation posted solid gains in its new-vehicle, used-vehicle, parts and service and finance and insurance operations.

The fourth quarter largely echoed the retailer's performance for all of 2013. Full-year net income rose 18 percent to $374.9 million, as revenue rose 12 percent to $17.52 billion.

On a per-share basis, AutoNation posted earnings of 89 cents -- far above Wall Street expectations of 76 cents. The shares surged 6.1 percent to close the day at $49.89.

New and used sales

AutoNation retailed 74,468 new vehicles during the fourth quarter, up 5 percent from a year earlier. In 2013, unit sales rose 9 percent to 292,922, as the overall market grew 8 percent.

For the quarter, new-vehicle revenue rose 7 percent, while gross profit in that category rose 10 percent. New-vehicle margins rose slightly during the fourth quarter but fell slightly for the full year.

Used-vehicle retail revenue increased 16 percent, with a matching 16 percent jump in gross profit. Finance and insurance gross profit jumped 14 percent overall, coming in at $1,378 per vehicle on a same-store basis.

Parts-and-service revenue and gross profit both rose 9 percent. Total gross profit rose 11 percent to $703.2 million for the quarter.

Acquisitions

AutoNation finalized the acquisitions of Honda and Hyundai stores in metro Chicago during the fourth quarter, following purchases of Honda and Hyundai stores in Phoenix and a Toyota-Scion store in Dallas in the second quarter.

During the year, AutoNation also was awarded new Mercedes-Benz points in the Atlanta and Tampa, Fla., markets.

The company will continue to seek acquisitions in 2014, but it has no specific targets, executives said.

"There's a good level of discussions going on," Jackson said. "Pricing is on a fair basis. There still will be a touch of negotiations, but there are good conversations going on."

You can reach Amy Wilson at awilson@crain.com.


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