Group 1 says Q3 adjusted income rises 16% to $46 million
Group 1 Automotive Inc. reported strong third-quarter earnings as robust new and used car sales in both the U.S. and United Kingdom more than offset weaker performance in its Brazilian operations.
The nation’s third-largest dealership group today said adjusted net income rose 16 percent to $46 million, on revenue of $2.8 billion, an all-time record.
Its U.S. unit, which generates 84 percent of total group revenues, saw solid growth across the board in new-car sales, used sales, finance and insurance revenue and parts and service.
In a conference call, CEO Earl Hesterberg said he’s confident the company can continue to grow and increase profits even as the U.S. market nears its peak and growth in new car sales slow to rates in the low-single digits.
“I think our used car momentum is strong. Our parts and service is strong. Our shops are full,” he said. “So I think we still have a lot to work with. I think we are in a very strong point in the business cycle.”
He added that sales opportunities still exist in trucks and SUVs. Sales are surging due to low fuel prices but supply has not yet caught up with demand, he said.
“We are very short of trucks,” Hesterberg explained. “Our Ford truck sales were up 20 percent last quarter. Our General Motors truck sales were up 16 percent. We have absolutely no Toyota trucks.”
In the U.S., the Houston-based company was able to reduce sales, general and administrative expenses to 71.4 percent of adjusted gross profit, 1.5 percentage points lower than in the year-ago quarter.
Group 1 has 153 automotive dealerships, 200 franchises, and 35 collision centers in the U.S., U.K. and Brazil.
Parts and service
Hesterberg said the company was picking up some additional parts and service business due to the large and high profile recalls some automakers are contending with. He said the Takata airbag recall, which affects millions of vehicles, isn’t “anywhere near half” completed.
He added that the Volkswagen scandal related to the German brand’s diesel models is starting to slow sales in Group 1’s seven VW stores. Although new-car sales in the VW stores were up 6 percent in September, they are likely to fall 10 percent or more this month.
“It’s not pleasant, but it’s not material for Group 1,” Hesterberg said.
The third quarter earnings show Group 1 is feeling little impact from the sluggish energy sector, even though the retailer has a large presence in oil-producing states. Hesterberg said new-vehicle sales in Oklahoma declined in the third quarter, but grew in Texas.
Despite Europe’s uneven economy, the U.K. division saw revenue increase 30 percent to $327.4 million, boosted by a 34 percent jump in new-vehicle sales. Gross profit in that region rose 21.5 percent to $36.3 million.
Brazil remains a trouble spot, however. There, revenue fell 35 percent to $129.6 million. On a positive note, the Brazilian division remained profitable, reporting gross profit of $13.8 million, 40 percent less than a year earlier.
Hesterberg noted in his prepared statement that “overall market conditions continue to be challenging in Brazil, with new vehicle industry volumes declining over 25 percent” compared with the third quarter of 2014.
Group 1 was able to outperform the overall Brazilian market because its chain of stores there represent several brands -- Toyota, Land Rover, BMW -- that have added local production and are growing and gaining market share despite the economic turmoil. Group 1’s new-vehicle sales in Brazil were up 1.3 percent in the third quarter.
“We’re going to continue to build a strong business there so we’re in a good position when the market finally does recover,” Hesterberg said.
Group 1 purchased 443,447 of its own shares in the third quarter, at an average price of $83.69 each. So far this year, the company has repurchased approximately 850,000 shares, for a total of $71.1 million. The company has $28.3 million remaining from the sum it authorized for repurchases.
In the third quarter, Group 1 added Mercedes-Benz, Sprinter and Smart franchises near Austin, Texas. They are expected to generate about $100 million in annual revenue.
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