DETROIT -- The corporate ratings agency Standard & Poors dropped its outlook on AutoNation Inc. from stable to negative late Thursday, Nov. 29, citing softer sales for the retailer in California and Florida.
The outlook revision indicates our concern that AutoNations results in 2008 could come under pressure as a result of lower U.S. light-vehicle sales, particularly in the companys crucial markets of California and Florida, where economic softening has been pronounced, S&P credit analyst Nancy Messer wrote in a Thursday report.
But the agency said it would not change its BBB- credit rating on the nations No. 1 auto retailer. The rating means S&P views AutoNation as investment grade but only one step above junk debt status.
The ratings on AutoNation reflect the companys satisfactory business profile as the largest dealership group in the highly fragmented, cyclical and competitive $1 trillion automotive retail industry, Messer wrote. The ratings also reflect the companys efficient cost structure and moderate financial profile with fair profitability and good cash flow protection.
Ratings could drop
S&P said it could lower the ratings if new-vehicle demand worsens significantly, threatening AutoNations earnings and cash flow.
AutoNations profits and sales have declined this year.
The company posted third-quarter net income of $76.5 million on revenue of $4.60 billion, down from net income of $85.4 million on revenue of $4.85 billion during the same quarter last year.
For the first nine months of the year, AutoNation said it posted net income of $238.3 million on revenue of $13.48 billion, down from net income of $256.5 million on revenue of $14.25 billion last year.
The third quarter was a challenging economic environment for new-vehicle sales, driven largely by continued weakness in the housing market in our key markets of Florida and California, CEO Mike Jackson said in the third-quarter report, released Oct. 24.
We expect to continue to see a challenging new-vehicle retail market as long as the housing market difficulties persist. AutoNation continues to have confidence in California and Florida and views them as healthy markets over the long term.
AutoNation stock has been in a steady decline since late June, when it traded as high as $22.77. The shares closed Friday at $16.50 a share, up 29 cents.
Earlier this week, hedge fund investor Edward Lampert boosted his stake in AutoNation by nearly 3 million shares to 30 percent of the companys stock.
AutoNation, of Fort Lauderdale, Fla., ranks No. 1 on the Automotive News list of the top 125 U.S. dealership groups, with retail sales of 369,567 new vehicles in 2006.