Group 1 Automotive net rises 5% amid higher expenses

Group 1 Automotive Inc. said today that third-quarter net profit rose 5 percent from the year-earlier period on an 18 percent rise in revenues. It said profits were held back by higher expenses and thinner margins on lagging vehicle sales.Group 1, the nation's fourth-largest automotive retailer by new-vehicle retail sales, reported net profit of $32.8 million on revenue of $2.34 billion in the quarter.In a conference call, Group 1 executives said costs to terminate about 50 employees at its Brazilian operations as well as Brazil's poor economy and low consumer confidence dragged down Group 1's results.It also was hurt by a competitive pricing environment in the United States, which pressured margins on new and used vehicles.'Cost-cutting strategies'Group 1's business in the United Kingdom was strong, but that market only accounts for about 10 percent of the company's total revenue. Brazil comprises about 12 percent and the United States makes up about 78 percent."This necessitates a variety of cost-cutting strategies across our operations, which is now under way," CEO Earl Hesterberg said on the call.Hesterberg said the company is six weeks into working on cutting its costs in Brazil, largely through job reductions, but union contracts and labor laws there complicate the task. Hesterberg said he hopes Group 1 will feel the effects of the cost cuts by year-end.Hesterberg said he remains optimistic about U.S. sales growth. He predicted 2013's U.S. sales at 15.4 to 15.6 million retail vehicles. He said he expects a "single digit" increase to carry over into 2014.Lagging salesGroup 1's revenues in the United States rose 4 percent to $1.9 billion. New-vehicle unit sales rose 3 percent, well below the industrywide 9 percent rise in U.S. light-vehicle sales in the quarter. Group 1's used-vehicle retail unit sales rose 5 percent.Parts and service revenue increased 3 percent to $218.9 million. Group 1's gains in that area were driven by collision work at several new collision centers the company added in the past 12 to 18 months, Hesterberg said.Finance and insurance revenue rose 13 percent to $75.7 million. Group 1 set an F&I per-vehicle gross profit record for its U.S. business in the third quarter of $1,375, up 9 percent.But in cars, gross profit per retail unit sold fell 12 percent for new vehicles to $1,646 and 2 percent for used vehicles to $1,618.Margin pressuresGroup 1 CFO John Rickel said margins on vehicle sales began coming under pressure in the last couple of years. That has accelerated, and he does not see it subsiding soon."It's just a competitive environment out there and there's a lot of transparency with the Internet," Rickel said. "People can cross shop us. And the combination has made it very competitive for the front-end sales."Hesterberg added that the margin pressure is widespread across all brands except Ford."Half our business is in Texas and Oklahoma. Our full-sized truck sales were up 17 percent. There was a lot of aggressive activity in the truck segment, despite the fact that our Ford margins were okay," Hesterberg said. "The truck sales were competitive fighting the GM launch. But we're a big Toyota company and that's where the biggest margin pressure was."At its United Kingdom operations, Group 1's revenue jumped 45 percent to $234.9 million on double-digit revenue gains in all segments of its operations. New-vehicle retail sales surged 68 percent to 4,306 units, while used retail sales climbed 86 percent to 2,510.Buying stock, storesThe company's board of directors increased Group 1's stock-repurchase authorization by 50 percent to $75 million, the company said. It expects any repurchase of shares will be paid for by cash from operations.At the end of September, Group 1 bought a Honda dealership in Tulsa, Okla., which is estimated to generate $60 million in annual revenues. So far this year, Group 1 has disposed of seven dealerships that generated $318.9 million in annual revenues and acquired 29 dealerships, including some overseas, that are expected to generate about $967 million in annual revenues.Group 1 ended the quarter with $301.7 million in liquidity, Rickel said.Group 1, of Houston, ranks No. 4 on Automotive News' list of the 125 largest dealership groups in the United States based on new-vehicle retail sales, with retail sales of 128,550 units in 2012. It operates 141 dealerships in the United States, the U.K. and Brazil.

Group 1 Automotive net rises 5% amid higher expenses

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