AutoNation Inc. reported a 12% jump in profit amid strong U.S. auto sales and confirmed plans to buy a Texas dealership chain, the company's largest acquisition in 15 years.

AutoNation, the largest auto dealership chain in the U.S., reported third-quarter net income from continuing operations of $119 million compared with $107 million the same period a year ago. It posted $1.05 earnings per share from continuing operations, in line with Wall Street expectations and 17% higher than the comparable period last year.

The Fort Lauderdale, Fla.-based company is one of several publicly traded dealer groups riding high as light-vehicle demand runs at the highest pace in over a decade. Armed with growing cash reserves and steady revenue streams, these companies are taking advantage of attractive financing terms to snap up smaller dealers wanting to cash out of the business.

AutoNation said it has agreed to buy 12 Texas dealerships from the Allen Samuels Auto Group, adding $800 million in revenue and 19,500 units in sales. Texas will account for about 25% of total revenue for AutoNation once the deal is completed, the company said.

Third-quarter revenue rose 9% to $5.4 billion, compared with $4.9 billion over the same period last year and in line with analyst expectations for the quarter. Finance and customer service profits increased 14% and 9% respectively, new-vehicle retail sales increased 7%, and the company's websites generated 25% of its sales.

The group reiterated that it wouldn't sell vehicles with open recalls, a move that impacts preowned inventory due to the large volume of vehicles recalled over the past 20 months. As of Sept. 30, 6% of AutoNation's inventory wasn't available for sale due to open recalls, including 16% of its used vehicle inventory.

AutoNation said its used car business should normalize in the first half of 2016 and that it would be adding used car inventory to offset the impact of the recalls. Used-vehicle sales are typically more profitable than sales of new cars and trucks.

Write to Gautham Nagesh at gautham.nagesh@wsj.com

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(END) Dow Jones Newswires

October 28, 2015 09:05 ET (13:05 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
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