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AutoNation Earnings: Buybacks Help EPS, but Results Still Look Solid

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AutoNation AN reported solid third-quarter results that were typical of the dealer sector, and we see no reason to change our fair value estimate. Diluted EPS of $5.54 fell about 8% year over year but beat the $5.49 Refinitiv consensus. $200 million of buybacks in the quarter helped, and we calculate that EPS using second quarter’s share count would have been $5.38. We expect more repurchases in the fourth quarter, but management did say acquisitions are becoming a more attractive opportunity, though sellers’ asking prices still need to come down. The United Auto Workers strike did not have much impact on the results beyond some inventory buildup, but we expect fourth-quarter damage should GM and Stellantis not soon reach a tentative deal as Ford did on Oct. 25.

New vehicle demand remains strong, though gross profit per unit fell 32.2% to $4,025 as profits across the sector have been declining from record levels caused by the chip shortage. New vehicle unit volume increased 12.1%, and new GPUs remain far above 2019 levels of about $1,800. Total same-store revenue fell 0.9% on a 13% fall in used vehicle revenue, and consolidated new and used vehicle gross profit dollars fell by 24% and 10.1%, respectively, which led to overhead cost deleveraging and a 16% decline in adjusted operating income. Used vehicle retailers are suffering from expensive inventory procurement, and customers are suffering from high prices following the chip shortage and rapidly rising interest rates. AutoNation’s used vehicle GPU only fell 6.6%, however, to $1,746, while units sold fell 3.8%. The firm’s multiple stores allow it to move inventory around as needed, and digital capability and trade-ins on new vehicle sales enabled the firm to self-source 96% of its used vehicle units sold in the quarter. Despite the used volume decline, new vehicle growth was enough to allow the company to increase combined new and used units sold year over year for the first time in eight quarters.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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