Group 1 Automotive Inc. is expected to report higher profits on solid new-vehicle sales in the second quarter, despite a shortage of new cars and trucks to sell.
The company provided preliminary data on the second quarter because the microchip-related supply disruption has "made it very difficult for the financial markets to grasp the impact on our business," CEO Earl Hesterberg said in a release Thursday.
Group 1 expects earnings per share for the quarter to range between $10.20 and $10.70. Group 1 reported $1.63 in diluted earnings per share in the pandemic-stricken second quarter of 2020 and $2.64 in the second quarter of 2019.
The company said its profits are being driven by strong vehicle margins in the U.S., a rebound in U.S. service business and recovery in the U.K., as well as cost controls.
Second-quarter parts and service gross profit is expected to be up 10 percent against the second quarter of 2019 – a more comparable period because the period in 2020 was impacted by the coronavirus pandemic.
Group 1's shares rose 8.4 percent to close at $162.87 in New York.
Daryl Kenningham, Group 1's president of U.S. and Brazilian operations, said the shortage of new vehicles being produced has impacted industry sales volumes and Group 1's new-vehicle inventory levels.
But he noted that industry sales volumes also reflect a steep decrease in the fleet segment, where Group 1 does not compete.
"Additionally, OEMs are now producing only the fastest-selling models, which improved our inventory turn and enabled us to sell more new units in the U.S. in the second quarter of 2021 than we did in the second quarter of 2019," Kenningham said.
Group 1 estimates its same-store new retail sales in the U.S. grew by 55 percent over the second quarter of 2020 and by 11 percent over the second quarter of 2019. Its same-store used retail sales in the U.S. were up 31 percent over the year-ago quarter and rose 12 percent over the second quarter of 2019.
Still, the inventory picture looks uncertain. The company said its U.S. new-vehicle inventories totaled about 5,400 at the end of the second quarter, which is about a 16-day supply. It had about 12,800 used units at the end of the quarter, for about a 29-day supply.
"We believe that we are nearing our lowest point of new-vehicle supply with approximately 8,500 new U.S. vehicle receipts in June 2021 and a similar number expected in July," Hesterberg said. "We do not have visibility beyond that. A high percentage of our incoming units are presold and we were able to retail approximately 10,000 units in June in the U.S. despite inventory levels never exceeding 7,000 units at any point during the month."
Houston-based Group 1 came in No. 4 in Automotive News' ranking of the top 150 U.S. dealership groups, with 140,221 new-vehicle sales in 2020.