Release Date: October 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AutoNation Inc (AN, Financial) increased its market share in new vehicle sales, reversing previous declines due to a systems outage.
- The after-sales team achieved an all-time record gross profit, contributing significantly to the company's overall performance.
- AutoNation Inc (AN) successfully divested eight stores, generating over $150 million in proceeds, which can be reallocated for future investments.
- The company reported strong growth in its AutoNation Finance business, originating over $700 million in new loans year-to-date.
- Despite challenges, AutoNation Inc (AN) outpaced the overall industry in new unit sales, with same-store units increasing by 2% across all segments.
Negative Points
- The CDK systems outage significantly impacted performance, costing approximately $0.21 per share in the quarter.
- Severe weather events led to the temporary closure of around 50 stores, affecting sales and service operations.
- Used vehicle sales decreased compared to the previous year, partly due to inventory constraints from the CDK outage.
- Higher interest expenses, particularly from floor plan debt, negatively impacted the company's financial results.
- The company's total revenue decreased by 4% from the previous year, driven by declines in used vehicle sales and moderated selling prices.
Q & A Highlights
Q: Can you discuss the potential opportunities in the parts and service side, especially with the increase in warranty work from stop sales?
A: Michael Manley, CEO, highlighted that there is significant opportunity to grow customer pay penetration, particularly in the three to seven-year vehicle segment. He noted that OEM partners are focused on winning back customers to the franchise network, which could drive growth in this area. Manley also mentioned that the vehicle park is expected to grow, providing further opportunities for expansion in the parts and service business.
Q: What are the expectations for AutoNation Finance's cost of funding and profitability timeline?
A: Thomas Szlosek, CFO, stated that AutoNation Finance is expected to reach run-rate profitability by the end of 2025. He mentioned that the company is working towards becoming an ABS prime issuer, which should improve funding costs. Szlosek noted that while the current equity funding requirement is around 25-30%, it could potentially decrease to 10% or less with the implementation of an ABS program.
Q: How does AutoNation plan to allocate capital between share repurchases and M&A?
A: Szlosek explained that capital allocation decisions are based on creating shareholder value. While share repurchases have been a significant part of their strategy, the company is also exploring M&A opportunities. Michael Manley added that they are seeing a more favorable M&A environment with declining prices and are well-positioned to assess opportunities that fit their operating and density models.
Q: Can you provide an update on the recovery of the used car business following the CDK outage?
A: Szlosek noted that the used car business was heavily impacted by the CDK outage, particularly in July. However, inventory levels have improved, and the company entered Q4 in a better position. Manley emphasized the importance of disciplined sourcing to maintain margins and stated that used car performance improved progressively throughout the quarter.
Q: What is the outlook for new vehicle gross profit per vehicle retailed (GPU) and industry dynamics?
A: Manley indicated that while some OEMs have returned to 2019 margin levels, others are maintaining improved margins. He expects some downward pressure on margins in Q4 but believes the industry will see more stability in 2025. Manley also mentioned that the moderation of average MSRPs and increased incentives should positively impact demand for new vehicles.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
