Sonic Earnings: Results Look Better Than They First Appear

Sonic Automotive’s third-quarter results gave us no reason to change our fair value estimate, even though adjusted diluted earnings per share fell 38% year over year to $1.26, missing the $1.43 LSEG consensus. The stock still rose 3.6% on Oct. 24, which we think is due to adjusted EPS rising to $1.64 if one excludes the $0.05 impact of a large BMW stop sale on most of its SUVs, plus a $0.33 add-back for lost business in July from the June 19 cyberattack on dealer management system vendor CDK. Management sounded optimistic on the call that the normal seasonal pattern of strong fourth-quarter results due to Sonic’s premium brand mix will occur this year, which we agree with, given that the firm’s BMW sales—Sonic’s largest brand at 21% of total revenue—are up over 20% in October.