October 29, 2019 / 11:25 AM / 2 months ago

AutoNation profit beats estimates as used-vehicle sales offset new-auto sales

(Reuters) - AutoNation Inc (AN.N) reported a better-than-expected quarterly profit on Tuesday, as higher demand for used vehicles helped the largest U.S. auto dealership chain offset declines in new vehicle sales.

Chief Executive Cheryl Miller told Reuters lower interest rates were helping car shoppers afford loans and were reducing the company’s costs for carrying inventory. U.S. car and light truck sales could finish the year at about 17 million vehicles, better than expected earlier this year, she said.

Rival auto retail chain Group 1 Automotive Inc last week also beat expectations, and said U.S. consumer demand for vehicles remained strong.

The results come three months after the Fort Lauderdale, Florida-based AutoNation replaced its chief executive for the second time here in July.

AutoNation’s profits have been under pressure as U.S. new vehicle sales have weakened after showing strong growth since the end of the financial crisis of 2008.

The company has been focusing on expanding offerings such as branded car parts and services, and finance and insurance products to boost profitability.

New vehicle sales were down 6.4% to 74,190 units during the third quarter, while used vehicle volumes grew 5.2% to 63,581 units.

Operating profit margins on new vehicle sales declined to 4.1% from 4.3% a year ago, when AutoNation received a one-time payment from an automaker. Margins on service rose to 45.3% from 45.2%.

Miller said AutoNation would continue to invest in services beyond the new car sales. The company also will continue to cut overhead costs, she said.

Selling, general and administrative costs now consume about 72% of revenue, excluding charges.

“Longer term I’d love to get it to 70%,” Miller said.

Miller said the strike at General Motors Co (GM.N) had little impact. The retailer has been working to reduce inventories, Miller said.

AutoNation ended the third quarter with 55 days’ supply of unsold vehicles, down from 63 days a year ago.

The company’s earnings per share from continuing operations fell to $1.11 from $1.24, beating the average analyst estimate of $1.05, according to IBES data from Refinitiv.

AutoNation in August warned it expected severance and other expenses paid to Carl Liebert, who was briefly chief executive ahead of Miller, to “adversely impact” third-quarter earnings by an estimated 11 to 12 cents.

Total revenue rose 2.1% to $5.46 billion.

Reporting by Rachit Vats in Bengaluru; Editing by Subhranshu Sahu and Bernadette Baum

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