UPDATE 2-Group 1 profit nearly doubles, beats Street

Thu Feb 9, 2012 3:52pm EST

* Adjusted Q4 earnings/shr 94 cts vs 87 cts Street view

* Sees 14 million 2012 U.S. industry auto sales

* Group 1 posted record yearly profit in 2011

* Shares up 3 pct

By Bernie Woodall

DETROIT, Feb 9 (Reuters) - Group 1 Automotive, one of the largest U.S. retail auto dealer groups, said earnings nearly doubled in the fourth quarter on higher sales of new vehicles as well as savings from cost cuts that began during the 2008-2009 financial crisis.

The cost savings helped the company through last year's inventory problems of Toyota Motor Corp and Honda Motor Co which were caused by the earthquake and tsunami in Japan last March and floods in Thailand last October.

At the start of 2011, Toyota and Honda accounted for 49 percent of Group 1 new-vehicle sales. That figure fell to 41 percent, 30 percent for Toyota, for the full year 2011.

The Houston-based company, which went public in 1997, set net profit records for the fourth quarter and the full year.

In 2007, when the U.S. auto industry was averaging nearly 17 million vehicle sales annually, Group 1's break-even point was about 13 million vehicle sales, which has been cut to around 10 million vehicles, company Chief Executive CEO Earl Hesterberg said in an interview with Reuters.

"We thought that at less than 13 million units, we couldn't make money and at 12.8 million last year, we set an all-time (profit) record," said Hesterberg.

"With the fear that we had and the panic from the downturn of the recession, we stripped our company down and made it very lean, said Hesterberg. "So now, as revenue increases we have a much better business model."

In the fourth quarter, expenses from sales, general and administrative expenses fell to 76.1 percent, down 260 basis points from a year earlier. Hesterberg said such expenses were 83 percent to 84 percent during the financial crisis.

Group 1 does not give financial guidance, but Hesterberg said he expects 2012 U.S. light vehicle sales will rise to 14 million, up 9 percent from 2011.

This is slightly more bullish than most automakers and the 13.8 million in sales forecast by J.D. Power & Associates.

Group 1 said fourth quarter net income was $20.9 million, or 90 cents per share, up from $10.57 million, or 45 cents per share a year earlier.

Adjusted for one-time items, earnings per share were 94 cents, beating analysts' average forecast of 87 cents, according to Thomson Reuters I/B/E/S.

Shares for Group 1 on the New York Stock Exchange were up nearly 3 percent on Thursday afternoon, at $56.98, which is up 10 percent since the start of the year.

Group 1 sales rose 13 percent to $1.63 billion in the quarter.

Gross profit from sales of new vehicles increased 23.6 percent, while gross profit from sales of used cars was up 14 percent.

For the full year 2011, Group 1 revenue increased 10.4 percent to $6.08 billion.

Since the start of the year, Group 1 has added a BMW dealership in South Carolina and a Volkswagen store in San Antonio. It now has 111 dealerships that have 143 franchises.

J.P. Morgan said in a research note that the new acquisitions are "likely an attempt by the company to diversify its revenue base away from Japanese automakers."

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