UPDATE 3-AutoNation profit misses expectations, shares drop

Thu Jul 17, 2014 11:35am EDT

(Adds CEO, COO and analysts' comments, updates stock price, impact of GM recall)

By Bernie Woodall

DETROIT, July 17 (Reuters) - Shares of AutoNation Inc , the largest U.S. auto dealer group, fell as much as 8 percent on Thursday after its earnings missed analysts' expectations.

Analyst Joseph Amaturo of the Buckingham Research Group said he was "unimpressed" with AutoNation's results and that the company was not expanding its share of the U.S. new-vehicle market.

Amaturo said some investors had expected the additional recalls by most automakers this year, led by General Motors Co , to boost AutoNation's sales and margins, but this didn't transpire. Indeed, this factor could be a negative for other U.S. auto dealer groups that are due to report earnings later in the month.

Mike Jackson, the company's chief executive, told Reuters that Wall Street analysts had underestimated the pace at which AutoNation would spend $100 million to upgrade its online presence over the next few years.

Jackson, who had announced the digital investment in April, declined Thursday to say how much of that amount was spent on its online operations in the second quarter.

In an interview with Reuters, Jackson said that the massive recall of General Motors vehicles will be "a wash" for AutoNation and unlikely to impact its earnings.

On an conference call with analysts, AutoNation Chief Operating Officer Mike Maroone said the company "missed some opportunities" in selling used cars in the quarter because of lighter inventory than desired.

In the quarter, the proportion of revenue linked to used vehicle sales fell to 22.6 percent from 23.9 percent a year earlier.

Indeed, dealers such as AutoNation may face further expenses linked to recalls.

While automakers such as GM pay dealers for recall expenses, Maroone told Reuters the company needed to hire more technicians to handle the recalls.

Maroone said that while AutoNation had already planned to hire 400 additional auto technicians for their 273 franchises in 15 U.S. states, the GM recall necessitated the hiring of "hundreds" more than that this year.

Jackson said AutoNation and its dealers "have a long way to go" in fixing all of the GM cars recalled. So far, he said, about 500,000 of them have been fixed.

Of nearly 29 million GM recalls worldwide this year, 25.7 million of them are registered in the United States.

The company reported second-quarter net income from continuing operations of 83 cents per share, missing analysts' expectations of 87 cents.

Net income per share was also 83 cents a share, up 14 percent from a year ago on stronger new vehicle sales. Net income was $100.4 million, up 12 percent from a year ago.

Second-quarter revenue was $4.79 billion, as expected, and up 8 percent from $4.43 billion a year ago.

Shares had regained a bit of strength after falling as much as 8.4 percent earlier on Thursday. By late morning, AutoNation shares were trading at $56.42, down 7.2 percent. (Editing by Bernadette Baum)