February 1, 2018 / 12:49 PM / a year ago

AutoNation profit up, but 2018 industry outlook hurts shares

DETROIT (Reuters) - AutoNation Inc’s (AN.N) shares fell 5 percent on Thursday, hurt by falling margins and its 2018 industry sales forecast, even as the largest U.S. auto retail chain reported a better-than-expected fourth-quarter profit.

Fort Lauderdale, Florida-based AutoNation said it expects full-year 2018 U.S. industry sales of around 16.8 million vehicles, more than 2 percent lower than in 2017.

Major automakers posted mixed U.S. new vehicle sales for January, following a 2 percent decline last year. Sales are expected to fall further in 2018 as interest rates rise and more late-model used cars come back to dealer lots to compete with new ones.

The U.S. industry’s growing reliance on short-term leases to consumers mean around 4 million nearly-new, low-mileage vehicles will return to dealers this year, offering a cheaper, high-quality alternative to a new car.

AutoNation Chief Executive Mike Jackson said that this would be a challenge for the industry but the company has planned for the influx.

“You’ll have a certain cannibalization away from new vehicles into nearly-new vehicles,” Jackson told Reuters. “For us as a retailer that’s manageable because we saw this coming” and have beefed up capacity to sell those nearly-new vehicles .

The average gross profit per used vehicle sold by AutoNation in the fourth quarter rose 6 percent to $1,344. But gross profit per new vehicle sold fell nearly 6 percent to $1,847.

Rising interest rates, which will make car loans more expensive, are another potential challenge for U.S. auto sales this year.

“Most importantly to us, credit remains readily available and affordably priced, both for us as a company and for the consumer,” Jackson said. “It will be manageable as rates gradually increase.”

AutoNation reported a fourth-quarter net profit of $151.3 million or $1.64 per share, up from $115.3 million or $1.14 per share a year earlier, helped by a U.S. tax overhaul announced in December and business divestitures.

Excluding a 45 per cent share benefit from the tax overhaul and 17 cents per share from business divestitures, the company earned $1.02 per share.

Analysts had expected earnings per share excluding items of 93 cents per share.

The company reported revenue for the quarter of $5.7 billion, up from $5.5 billion a year earlier. Analysts had on average expected revenue of $5.55 billion.

AutoNation shares were last down $1.47 or 2.4 percent at $58.75 on the New York Stock Exchange.

Reporting By Nick Carey; Editing by Chizu Nomiyama, Frances Kerry and Susan Thomas

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