February 3, 2017 / 2:44 PM / 6 months ago

AutoNation quarterly earnings rise despite pressure on margins

3 Min Read

(Reuters) - AutoNation Inc (AN.N) said on Friday fourth-quarter net income from continuing operations surged 31 percent despite dwindling profit margins on vehicle sales, thanks in part to a gain from the sale of assets.

The largest United States auto retail chain said it earned $115.6 million, or $1.14 a share, from continuing operations in the quarter ended Dec. 31, up 18 percent from $97.8 million a year earlier, or 87 cents a share.

Revenues for the quarter rose 3 percent to $5.5 billion.

AutoNation shares were down 2.9 percent in New York trading on Friday.

Results in the latest quarter reflected a gain of $20 million, or 19 cents a share, from the sale of operations. Without that gain, the company's net from continuing operations of 95 cents a share would have been a penny below the 96 cents a share consensus estimate of analysts, according to ThomsonReuters I/B/E/S.

AutoNation's results reflect the pressure the U.S. auto business faces despite record levels of sales. Demand for trucks and sport utility vehicles has surged, but passenger cars have slumped, forcing dealers and manufacturers to offer steeper discounts.

That stress was reflected in AutoNation's profit margins on sales of new and used vehicles. Gross profit margins on new vehicles declined to 5.2 percent of sales in the fourth quarter from 5.6 percent a year earlier. Used vehicle profit margins fell to 6.3 percent from 7.3 percent a year ago.

AutoNation Chief Executive Mike Jackson told Reuters on Friday industry inventories were high.

"I look at the production plans, I see now plans to bring them down," Jackson said.

Discounting pressure cut an average $100 a vehicle from AutoNation's new vehicle profits in the quarter, he said. "That pressure remains in 2017."

However, Jackson said he expects used vehicle profitability to stabilize after the first quarter, as AutoNation disposes of vehicles affected by a recall relating to Takata airbags.

AutoNation's asset sale in the fourth quarter was part of a broader plan to sell assets, including dealership properties, to raise $500 million to fund expansion into businesses beyond new vehicle sales, including standalone used car stores, collision repair and vehicle auctions, Jackson said.

Because of the pressure on new vehicle profit margins, "we have to grow the business where we have opportunity," Jackson said.

"We did $250 million of these transactions in the last year, and we'll do another $250 million in next year and a half," he said.

Factoring out results from discontinued operations, AutoNation had net income of $115.3 million, compared to $97.5 million a year earlier.

AutoNation has been repurchasing its shares, and its number of shares outstanding was down 9 percent in the latest quarter from a year earlier.

Editing by Bernadette Baum

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