AutoNation Profit Slumps on Incentives, Hail Costs -- Update
April 22 2016 - 8:50AM
Dow Jones News
By Jeff Bennett
AutoNation Inc., the largest operator of automotive dealerships
in the U.S., reported a 14% drop in its first-quarter profit as a
slight uptick in incentives and costs associated with hail damage
weighed on results.
Chief Executive Mike Jackson said automotive retail sales have
plateaued as new vehicle purchases by consumers remained flat
year-over-year during the quarter despite auto makers boosting
their incentives by 14% compared with the same period a year
earlier.
Dealers have called on auto makers to take more proactive steps
to reduce small car production or face an incentive war that could
undermine the entire industry at a time when consumers are paying
more to buy higher-end sport-utility vehicles and pickup trucks.
General Motors Co., on Thursday, posted a $1.95 billion
first-quarter profit due in part to sales of pickup trucks and SUVs
in the U.S.
"If there had not been dramatic increases in incentives, there
would have been a decline in sales [during the first quarter] and,
by the way, incentives are reaching the danger level of almost 10%
of the asking price," Mr. Jackson said during an interview on CNBC
Friday morning.
For the quarter, AutoNation said net income dropped to $96
million, or 89 cents a share, compared with $112 million or 97
cents a share a year earlier.
The company's operating profit of 90 cents a share trailed
analyst expectations of 93 cents but included a 3-cent charge for
hail damage caused by storms in Texas and a 3-cent stock-based
compensation expense. Excluding those costs, the company generated
96 cents a share.
Revenue during the period came in at $5.12 billion, a 3.6%
increase over the same period a year earlier but trailing analyst
expectations of $5.29 billion.
AutoNation dealers handed out more manufacturer incentives,
driving costs of new vehicle sales up 2% to $2.65 billion. As a
result, the gross profit per new vehicle sold slipped 8% to
$1,888.
Separately, the company said it repurchased 7.9 million shares
of common stock for an aggregate purchase price of $371 million.
The company has $175 million remaining on its share repurchasing
authorization.
Investors sent shares down as much as 2.2%, or $1.05, to $47 in
premarket trading. AutoNation's stock has dropped more than 20%
since the start of the year when Mr. Jackson first warned the
industry that overall sales were slowing.
Industry forecasters still expect overall U.S. auto sales to
reach 17.8 million for 2016, marking a new milestone and breaking
last year's record of 17.5 million. The new level will be reached
by auto makers selling more of their vehicles to fleet
operators.
A fuller picture of the health of the automotive industry will
come into focus over the next week with Penske Automotive Group
Inc. set to deliver its results on Tuesday followed by Group 1
Automotive Inc. reporting sales on Wednesday.
Write to Jeff Bennett at jeff.bennett@wsj.com
(END) Dow Jones Newswires
April 22, 2016 08:35 ET (12:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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