AutoNation, Inc. (AN) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning. My name is Denise, and I will be your conference operator today. At this time, I'd like to welcome everyone to the AutoNation First Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. . Thank you. I would now like to turn the call over to Rob Quartaro, Vice President, Investor Relations. You may begin your conference. Rob Quartaro: Thank you. Good morning. And welcome to AutoNation's first quarter 2021 conference call and webcast. Please ensure that your lines are muted until the operator announces your turn to ask a question. Leading our call today will be Mike Jackson, our Chief Executive Officer; and Joe Lower, our Chief Financial Officer. Following their remarks, we will open up the call for questions. I will be available by phone following the call to address any additional questions that you may have. Mike Jackson: Good morning and thank you for joining us. Today we reported all-time record quarter results with adjusted EPS from continuing operations of $2.79, an increase of 207% compared to last year. These outstanding results were driven by strong performance in new, used and Customer Financial Services, and disciplined expense management. Demand continues to exceed supply for new vehicles and we expect this to continue through 2021 in part due to the production disruption. More importantly low interest rates and consumer preference for vehicle ownership versus ride-sharing and public transportation are supporting demand. We expect our shipments from the manufacturers to double in the second quarter compared to the prior year. AutoNation same-store new vehicle units were up 22% year-over-year and up 12% compared to 2019. We remain focused on our pre-owned vehicle procurement strategy. Nearly 90% of our preowned vehicles retailed in the first quarter were self-sourced, meaning, we acquired through trade-ins, switch returns, We'll Buy Your Car or service loaners and avoiding auctions. Acquiring vehicles at the right price, speed to the front line and fair one-price environment and leading digital capabilities are a winning formula for our customers, which shows in our results. AutoNation same-store pre-owned units were up 28% year-over-year, and 20% compared to 2019. We continue to leverage our digital capabilities to drive cost reductions and increase efficiency. Tools like Customer 360, which has over 10 million active customer records, enable us to provide a truly comprehensive and personal experience for our customers, which leads to higher close rates and increased vehicle sales. These efforts allowed us to deliver adjusted SG&A as a percent of gross profit of 62.7% in the first quarter of 2021 which represents a 1,120 basis point improvement compared to the first quarter of 2020. Our target is to operate at or below 65% SG&A as a percent of gross profit for '21. Joe Lower : Thank you, Mike, and good morning, everyone. Today, we reported adjusted net income from continuing operations of $234 million or $2.79 per share, versus $82 million or $0.91 per share during the first quarter of 2020. This represents an all-time high quarterly EPS and a 207 increase -- percent increase year-over-year. During the quarter, we sold our remaining stake in Vroom for a gain of approximately $6 million after tax or $0.07 per share, which was excluded from our adjusted results. Turning to operations, our first quarter same-store revenue increased $1.3 billion or 27% compared to the prior year, due to strong growth in new, used and Customer Financial Services. While prior comparisons are impacted by the onset of the COVID-19 pandemic, we continue to see strong consumer demand exceed supply for new vehicles. Given this backdrop, we remain focused on optimizing our business in the current environment. For the quarter, same-store total variable gross profit increased 52% year-over-year, driven by an increase in total combined units of 25% and an increase in total variable PVR of $767 or 21%. Our customer care business continued to gradually improve with same-store customer care gross profit increasing 1% year-over-year. Taking together our same-store total gross profit increased 27% compared to the prior year. Mike Jackson: Thank you, Joe. We had another impressive and record breaking quarter. We remain focused on delivering a peerless customer experience with industry-leading digital capabilities and outstanding associate interactions. Our commitment to the customer experience is why we're number one for The J.D. Power Dealer of Excellence Recognition Program for the third year in a row. Less than 2% of all U.S. franchise dealers achieve this honor. 78 AutoNation stores representing over 20% of our dealerships were recognized. Our associates did not let the pandemic interfere with their ability to provide a great experience, that were in the stores and any offices to meet the needs of our customers. I want to thank each of them to show up every day for our customers and each other. With that, I'm delighted to take any questions. Operator: . Your first question comes from Rajat Gupta from JPMorgan. Your line is open. Rajat Gupta : Hi. Good morning. Thanks for taking my questions and congrats on a really strong quarter. I just had a question on just the supply, the days supply. It dropped pretty materially from the fourth quarter to first quarter. You're obviously sourcing a lot directly from consumers and outside the options. Just curious as to how do you see that more days supply end of the quarter impacting your second quarter growth? Are you able to retain the first quarter kind of growth into April? Do you expect that to continue during the second quarter, based on how strong the demand is? I'm just curious as to how much of a constraint is the supply right now, for both the new and used? Thanks. Mike Jackson: There is no question that there is more demand than supply, that is the headline. On the new vehicle side, there supply is tight, but shipments and production are disrupted with the chip crisis and will be for the rest of the year. But it's nothing like a year ago during the pandemic when we had the factory shutdowns. Our shipments this second quarter will be double what they were a year ago. So, it's on the margin as far as shipments. But the headline is, more the demand than supply, we've adjusted pricing to reflect that, and you've seen the improvement in our front-end growth. The demand for personal transportation is across the board from price point of $5,000 through $500,000, and we've aggressively moved to increase our availability on pre-owned, you see that. And we have the capability to source 90% of what we retail ourselves and that's a core capability. So, the marketplace is good in our combination to perform within that of a brand for experience, digital platform and operating execution, which includes how we acquire and speed to market, and we can do it profitably. It is all to the benefit of AutoNation. We're in a very good position. Rajat Gupta: Got it. So it looks like that the trends on like just the same-store comps here, and this is comparing versus 2019 level, I mean that's continued here into April? Or have you seen any slowdown here at all? Or is it still pretty solid? Mike Jackson: The demand is a very strong, and I'm just saying it for over a year that there's been a pivot, seismic shift, you pick the words. But the American spirit is that they want individual transportation, individual personal vehicle. They want to decide, where they go when, who's with them, who's been in the vehicle before them, who's been in the vehicle after them. And I think this demand shift towards personal vehicle is very strong. You also see it in the housing industry, that people want a bigger, more comfortable home with more electronics in it, and the competition for chips between the home industry and the automobile industry. And of course, underpinning all this is very attractive interest rates for our customers, which the demand we expect to last for the rest of the year, interest rates will be low for the rest of the year, the chip result -- disruption will be there for the rest of the year. So I think it continues. Rajat Gupta: Just to follow-up on capital allocation, pretty aggressive buybacks here in the last couple of quarters. And you have also started to ramp up some M&A activity. Can you give us a sense of how we should expect the balance of capital allocation to be going forward? I mean, do we see bigger pivots towards M&A? And just on the M&A side, if you could comment on, what the pipeline is looking like, how the valuations are looking like, therefore assets would be helpful? Mike Jackson: Joe, can you take that please? Joe Lower: Sure. So to start it out, extremely strong cash flows, for you to start that discussion. So $278 million of free cash flow of the quarter, so we're generating extremely strong cash. Our first priority is always going to be reinvesting in the business. Again, we've come out and communicated expectations on AutoNation USA, and a general timetable and kind of giving you a sense, on average, about $10 million a store. In addition, we are going to continue to be opportunistic on M&A. We do have a high threshold for both financial and I'll call it strategic cultural fit. But we're very encouraged by what we're seeing in the marketplace, we remain disciplined, and still believe that our stock represents an attractive value. And given the strong free cash flow, extremely strong balance sheet, we continue -- expect to continue to have a very balanced deployment across all those categories. Obviously, the hardest to project is the M&A, but that is going to be opportunistic based on situation. Operator: Our next question comes from Bret Jordan with Jefferies. Bret Jordan: I am thinking about your used retail sourcing going forward? I think you mentioned that was sourced in-house. But given the current environment, should we expect to see a shift in how these used vehicles are sourced and I guess, said another way, just slowdown in trade-ins from maybe lack of new vehicle supply. Should we expect to see more sourcing from off lease and direct to customers? And is there ample opportunity in both those channels? Mike Jackson: Yes, we intend to source everywhere aggressively, and have the capability to do all of that, and have to be prepared to deal with any developments in the marketplace, that would be a challenge. We're very excited about our direct purchases from consumers which are now running over 5,000 per month. And we expect to continue to grow that. So clearly, our ability to acquire pre-owned is a core capability, acquire them at the right place. More importantly, we have a system and a process that we can recondition to a very high standard, both cost effectively and very quickly, and have them frontline-ready. And therefore run a very high turn rate on our pre-owned inventory. So we're in a good place with the brand, all our pre-owned is one priced what consumers love. We have a great digital platform where everything is listed. And we have a speed to market and a core ability to acquire pre-owned. So we're very confident and optimistic about the future of our pre-owned business. Hence, the decision to layout the additional years of our investment in the USA stores that will take us to 130 USA stores in operation by the end of 2026. Bret Jordan: Okay, great. And thinking about SG&A growth, Q1 was another really great quarter in that respect, and obviously a portion that is due to the higher gross profit you're putting up. But it looks like you updated expectations for the year to 65% from, I think your prior target was below 68%. And I'm just wondering what opportunities you're seeing there that contributes to that updated outlook? Mike Jackson: Joe, could you please take that? Joe Lower: Sure. So really seeing the deployment of our digital tools both in the stores and in the back office really helping, where we're seeing a greater leverage both in overhead and compensation at advertising. So as we kind of look across all three categories, we've seen significant improvement. And really the only kind of difference is very little, comp, which actually increased which is understandable given the strong growth. But if you look at the underlying drivers, we've continued to see the benefits of strict discipline, fewer heads, lower spending on advertising and lower discretionary spend. When we now look out the rest of the year, we have a high degree of confidence that we can draw that into that 65% range and below. So it really is leveraging the tools that we put in place and is maintaining the discipline on costs going forward. Operator: Your next question comes from Stephanie Benjamin with Truist. Stephanie Benjamin: I think following up on the question that was just asked. I wanted to hear a little bit more about the updated USA store investment I believe expanded though in store count, but it sounds like accelerated the timeline as well. So we'd love to hear what happened really in the last couple months that gave you confidence that to accelerate the plans with the performance of your existing stores, the overall market would love to get more color and what was behind this decision? Mike Jackson: So the performance of the existing stores is outstanding and continues to develop really well. Joe, I think the operating profit of the existing stores was $3 million for the quarter. Is that, correct? Joe Lower: Correct, exceeded $3 million. Mike Jackson: Exceeded 3 million in the quarter. Now, as far as what we just announced, we really had already announced '21 and '22. And I think there's only a slight difference in the store count in those two years. And what we really announced today was what we're building from '23 till the end of '26. And it's -- that's just an expression of our confidence that we really have this combination figured out. And not to be repetitive, but it's important. The brand, one price, digital platform, operating skills in the market, USA stores are really a reconditioning center that we can when we acquire vehicles, it's an acquisition point, but a reconditioning center for pre-owned and for speed to market. And it's a delivery center. And we're able to build those very cost effectively, and with a very reasonable ramp to profitability. Joe, what would you like to add to that on USA stores? Joe Lower: I think the only thing I would add, Mike, is just underlying that is the success we've had in procuring vehicles, which is where it all starts. If you go back just a year, 80% of our procurement was self-sourced. And as you stated earlier, in Q1, we're up to 90%. And I think the skills we've learned in procuring vehicles directly from customers, really is a differentiator in the marketplace and something we think we can leverage going further -- going forward. Stephanie Benjamin: Great. That's really helpful. And then mostly just a follow-up question. I don't believe you called out that any kind of impact this quarter from the weather events in Texas, if you could kind of quantify that in any way or anything that you saw or do you feel like most of that was recovered, at least at some point later on and being apart larger or so? Mike Jackson: Yes. I think I said at the time that it was a huge challenge for Texas, but it's one of the most resilient fightback facing the country. And they really got to say the Texas moving quickly. And I think whatever disruption we had, we were able to recover. Joe, you would know the actual numbers, but -- material impact one way or the other. Joe Lower: There really wasn't. And if anything we did better than the market in Texas, I think is we kind of demonstrated our ability to navigate that. Operator: Your next question comes from the line of Rick Nelson with Stephens. Your line is open. Rick Nelson: Just on new car inside same-store units, up 22%, up 12% compared to 2019. Are you, in fact, outpacing the industry? What do you think retail did in the first quarter? Mike Jackson: I think we are at or close to retail SAAR for new vehicles in the quarter. I think we've clearly outperformed on pre-owned. So there it is. We clearly with limited supply have made the decision on new to hold margin. There is no reason to rush things out the door. You can't easily replace it. Now, we've increased front end gross margins on new considerably. But on pre-owned, while our front end margins are excellent, we clearly have going for volume and feel the demand is there. And those customers who are looking for a different price point are not open to paying what's being asked for new vehicles, then we shift them to a pre-owned, which we have and we can and do replace. So that's how we're moving through this situation. But the headline is, there’s significant demand, significant sustainable demand and we are moving with market I would say on volume, but doing an excellent job on front-end gross margin on new, and are going for volume in pre-owned, hence plus 28%. Rick Nelson: The SG&A target 65% or below, I'm curious what that assumes in terms of GPU, I think you are going to be able to hang on to these outside kind of GPUs as you’ll move through the year. Mike Jackson: Yes. So again, our front-end growth on new move from 4% to 6%, is that correct, Joe? We've been at 6% before in the past. It's not like we're at some unprecedented level or some unreasonable level. So -- and there is a very active discussion by the manufacturers about having some discipline and maybe as I've been advocating for 15 years running in different parts between demand and supply, would be intelligent. So, we'll see. But the question won't be answered until 2022. I mean, there is going to be more demand than supply through the balance of this year. Rick Nelson: Those supply challenges might be quite the worst is behind us for those have become more problematic as the year unfolds. Mike Jackson: So look, from my perspective, in my world, the worst was the factory shutdowns, literally a year ago for six, eight, 10 weeks, depending on manufacturing and then a very, very gradual resumption. What we face with the chip is, absolutely nothing like that. What is very interesting at the moment is how much of our incoming shipments are pre-sold. So shipments are somewhat disrupted and they can't run everything at a 100%, but it's twice as good as it was a year ago. But I sort of think the way it is now, the way it's going to be the rest of the year from everything I hear from the manufacturers, they really do not have a clear sightline to higher levels of production. So, we probably are running the plan that we have right now, which is get good front-end growth on new and go for the volume in pre-owned, and that seems to be a very weighing equation in this environment. Operator: Your next question comes from John Murphy with Bank of America. John Murphy: I just wanted to follow up real quickly on that comment you made about the automakers. I mean, with the dealer body, including AutoNation's dealing is miraculous, right, with the level of inventories being so low. I mean, you're selling in the first quarter in the industry at large, mostly retail, not a lot of fleet. So just curious, do you really think that -- I mean, is there a discussion that you're having and that they're having to finally understand this balance? Because they're making a whole lot more money, too. But it's not just you, they are too. I mean are they rumbling for that? Or is this just still TBD until you're confident? Mike Jackson: Having this conversation for 30-plus years from my days of running Mercedes through my days here at AutoNation, and I think for the first time ever, I can see a lively constructive conversation about this issue. I mean, in the past, it was always theoretical. And I would never wish for this pandemic. It's a horrific, horrible thing that we've gone through. But if you ever wanted a case study of what the world looks like if you did it different, this past year in this moment and all of this year will be it and the list of benefits, both at the manufacturer, supplier and retail level, with a little adjustment here and there, is considerable and it's long. So retail -- and on top of that, a big part of that is trade-in values for consumers is excellent. That's one of the ways this situation is working for everyone from the consumer through the manufacturer. So look, it's force majeure at the moment because the chips simply aren't there, and they're not going to be there in any meaningful way for some time compared to the demand. But I think, John, at the end of the day, there could be a new way forward. John Murphy: Yes. It's very encouraging. Second, quick question, on acquisitions. It seems like pricing is going up dramatically. This is a very nuanced way that we model stuff of 15% to 30% of price to sales, just on our cash flow statements in our models. Joe, how should we think about that roughly? Is that range about right these days? Because with some of these numbers, it seemed like you're a bit higher in that on price to sales. How should we think about that in modeling it? It's costing for us to do because not a lot of information is disclosed, but just how should we think about it? Joe Lower: I'd say we generally think more about it as a multiple of EBITDA than revenue. And it's kind of in that high single-digit range, and returns are mid-teens. John Murphy: Got it, okay. That's very helpful. And then just on your AutoNation USA expansions, it seems like you'll be at 22 stores, I think, by the end of 2022 if my count is correct. So it'll be 27 per year for the next 4 years after that. That's a heavy pace. I mean, I'm sure on the capital front, on the inventory front, I'm confident you guys could pull it off, but human capital is always a question, right? So, I mean, how do you ramp up those GMs of those stores and the staffs in those stores? That's a lot of hiring with people that are cashless, a lot of expensive inventory. Mike Jackson: Now you're spot on. This was -- there's 2 critical paths as far as sustaining that level of growth. And it's both management and the ability to build the stores on the right side for the right locations. And we've been hard at work at that for the past 2 years. And it's the reason why we waited to say something publicly until we were absolutely convinced that we could do it. So on the human capital side, we have AutoNation General Manager University, which is an internal development capability, that general management within the company is trained and developed high potential, future general managers are identified years ahead of time and go into development programs and the development programs as a big component around preowned cars, and running and leading a USA store is something now that's aspired to within the company. Everybody sees the success that they are. So we have a development pipeline of talent that we will promote from within to lead these stores. John Murphy: Okay. And then just lastly, parking service is still not getting a lot of airtime or ink. Historically, that's been the key driver of the business, you used to get UIOs in it, you ran the parts service business off them. When do you think we see an inflection point there? And is there a lot of deferred maintenance that, second half of this year, early next year, it really pops back up? Because I mean, if what's going on right now continues, and then you get that kicker of parts and service, I mean it just seems like nuclear fuel to earnings and cash flow. Just when do you think that kicks in? Mike Jackson: So first, in principle, John, you're exactly right. Although in the past year, the number of miles driven was reduced, depending on the period of time you pick. And as such, the pent-up need for maintenance was reduced proportionally to that. But there isn't a point coming. And Joe, you've done the calculations backwards and forward several times. Would you describe where we are for the first quarter and where do you think it goes from here? Joe Lower: As we've said, it continues to recover. Our first quarter Customer Care growth was positive percent, which is a continuation of the progress. It's really month by month. The areas that are recovering the fastest, not surprisingly, our customer pay. It's the internal work as far as prepping cars. Warranty and collision has trailed, as we've mentioned, and it really is tied to that miles driven, but we continue to see sequential monthly improvement. But that's been the laggard. We do expect that, that will continue to improve over the course of this year, which will help all of our Customer Care business. But March was our best month we've seen in a while. We've continued to see a positive trend. John Murphy: So it would be fair to say we're just the precipice of a positive inflection point, but how positive it is, is still TBD. Is that -- will that be the way you'd characterize it? Is that fair? Joe Lower: I think this is fair. Operator: Your next question comes from Adam Jonas of Morgan Stanley. Adam Jonas: Mike, I'd like to ask you long-term questions because you just got such an unbelievable experience and we all value your views. So Volvo is trying to go direct-to-consumer with their EVs, right, Mike? I'm sure you've been following that. Why, in your opinion, would they want to do that? Can you see the motivation from their perspective? And do you think they could be successful? Or should they just -- are they nuts? That's my first question. Mike Jackson: Yes, that'd be polite. Yes, they're not. Thank you, Adam, for allowing me to say that. And I think at the end of the day, they're going to have to kick the beehive and end up not that different from where they are today for very rational, appropriate reasons. And others who talk about this selling direct, and we've experienced with other manufacturers, when the moment of truth finally arise, they end up with what is basically a reservation listing order bank, which you can't even specify your, in detail, your vehicle with the manufacturer, and it gets turned over to the dealer and the retailer to take over. But they sort of established a reservation. Reservation is the best word to describe what some of these selling direct things are. Now of course, you have the Tesla model, which is absolutely a sell-direct model, and you have other electric vehicle startups that are talking about it. I think the Achilles heel in that model is that you do not put in a service infrastructure. So the franchise system, in order to get a franchise, you have to invest in the facilities that you are going to care for the units and our operations in the marketplace. So if you're a start-up, you don't need that on day 1, but ultimately, you need it. And I think it's an Achilles heel and very expensive and difficult to build subsequently. But if you're a startup, it's your decision to go to market however you wish. But I think the franchise model is the best for the manufacturer, for the consumer. And as a retailer, if you're good at the business, it can be a very rewarding return. So I think it's viable, sustainable. And my -- and I was once -- one once, a manufacturer -- on the manufacturing side. I mean, you sit in these meeting rooms and you dream all this stuff up and you throw it against the wall and see what sticks. I don't think this is going to stick. I'm not overly concerned about it. I will say, though, unequivocally that retailers who have a proprietary digital capability, unique tools that are very effective, have a significant competitive advantage. I think that's really the headline in all this. And for us, it's Global 360 and equity mining, some other fabulous tools that are just unlocking business for us every day. If you're competing against us and you're buying off-the-shelf manufacturer cookie cutter tools to compete in retail, you are really in a unsustainable position because you don't have the scale to go out and build your own tools. I mean it. You know, Adam, what we went through in '14, '15 and '16 to build these things, and I'm glad we did it, especially with the inflection point that came. So I think that's driving -- I think that's the headline for auto retail, and I think that's going to -- I think you're going to see more buy-sells and consolidation into bigger entities, and the ultimate winners are those who have scale, a big brand, freight experience, digital platform, oh, and the ability to do all that profitably. Adam Jonas: Alright. I want to put -- at the risk of putting some napalm on the hornet's nest, here I go. Here we go, baby. So the dealer -- the state dealer franchise laws, I mean, don't you think they're past their sell-by date in some areas? Like what is -- just for the sake of discussion, if you're wrong, and these startups aren't all going down some path where they say, just kidding, we need help, we're not going to go direct-to-consumer anymore. That was a bad idea. And -- but let's say they actually do, and they start building their parts and collision stuff the way Tesla is doing, and going service centers and they'll have hiccups and stuff, do we run the risk of having 2 classes of auto distribution: one, where you got the new guys that actually have the option, they might screw it up, but some won't, of going direct. And then the others that are legally kind of can't do it, and there may be things to do, but they just kind of locked into the one? And I wonder if this reaches like FCC or -- sorry, FTC or Supreme Court, like you really think that it's -- those year-old laws are just absolutely, they don't need any clicking? They're just right for this moment in tech? Mike Jackson: Well, Adam, you've never seen AutoNation object any of these start-ups, it is really their decision how they want to go to market. And it's their decision, their responsibility, it's their capital, and you've never seen AutoNation protest that in any state or get involved in it. Now where state franchise laws have a certain relevance and merit is when a manufacturer comes to us and says, okay, here's the deal, build this exclusive facility. Here's the keyword, exclusive facility for us, and there's given market and we're giving you a given territory and return for that exclusive investment. Well, I'm going to eject if you make that deal with me and you put another one down the road for me a week later. Now if you're not asking me to be exclusive, if you let me do what I want as a retailer, which is I'm going to build one great, big mega facility delivery center and put everything in it under one roof, then I don't need franchise laws to deal with that issue. But as long as you're asking for exclusivity, there has to be some protection on this exclusive investment that's been made. And their franchise laws have relevance. But this whole campaign to block startup manufacturers from going direct, we are not involved in. And it's really their choice, what they want to do. Operator: Your next question comes from David Whiston of Morningstar. David Whiston: I guess I know it's too early to talk about a SAAR expectation for next year. But similar to what I think John was asking about on service, I mean, given the supply shocks we've had on new vehicles for a couple of years now, plus low interest rates, plus actually healthy demand, do you see a scenario for next year or worse, sales could just -- new vehicle sales could just explode up? Mike Jackson: So again, the headline is there's far more demand than there is supply. So it's really difficult to judge where the level of demand is out there. I think the pandemic was a scarring event for America. I think shelter-in-place was a scarring event for America and people have changed the way they live, and they changed the way they work because of this pandemic. And I can remember, as a kid, meeting my grandparents, which were unbelievably frugal and I say, why don't you loosen up and spend a little money and they would say, "Listen, you don't understand. You haven't been through the Great Depression." So I think this has been a scarring event on the psyche of America, and they think differently about their home. There's concern about density. They want more space in their home. They want their home to be able to do more for them. And when they do leave their home, they want to control the vehicle that they're in to the greatest extent possible and who's been in it before them. So I don't really know where demand has gone because this is -- the supply is restricted. What -- but we should be careful here what's -- I've never seen so much preselling of shipments. We -- these vehicles are coming in and going out if you want an indication of the level of demand. So people are buying up the pipeline before they even get to the dealership. And we've gone on our digital platform, AutoNation, where we show now a market, everything we have incoming. And we're selling incoming vehicles that have been produced. Now the predictability of arrival is not exact with disruptions in production, but it's amazing how many people are now have changed the way they buy a vehicle in that sense. And again, that's all possible to do where our incoming pipeline is visible on a national basis. So it would be -- it's hard to predict on and it's premature to predict on '22. But I think I have a pretty good sight line for the rest of the year that the headline is -- demand is high. They want personal vehicle. They're willing to buy an incoming vehicle. They're willing to switch to a late-model preowned and the demand is across the board. And if you manage the business correctly, you can do very well in this environment. David Whiston: And somewhat related to that question then is, as you know, there's a balance between the amount of inventory you have and then your pricing power, and you talked about right now, you're sticking to getting the high front-end gross, which I agree with. But just crudely speaking, do you want slightly more inventory than you have now, a lot more or a payer mix? Mike Jackson: Yes, it's a -- careful what you wish for. And as I walk the stores, I hear that all the time, they say, "Oh, Mike, if you could -- if we can only get some more cars, we would sell so many, it's just unbelievable." And I always say, well, be careful what you wish for. So look, I have a very good sight line on the rest of '21. I think the rest of the '21 is about, as I described, outstanding demand, very attractive interest rates and customer flexibility that they're willing to purchase incoming shipments in advance and they're willing to switch over to pre-owned to get their personal vehicle. David Whiston: Okay. And just last question on the balance sheet. You have big bond maturities in both '24 and '25. They're only at 3.5%. The rates are quite low right now. Do you have any interest and perhaps we could find either of those this year to spend the timeline out beyond the '24 and 25'? Mike Jackson: Joe, that's in your wheelhouse. Joe Lower: Yes, not at this time, we continue to evaluate, but not a priority in this current environment. Operator: There are no further questions at this time. Mr. Jackson, I'll turn the call back over to you. Mike Jackson: Well, I want to thank you for joining us today, and thank you for all your questions. And I also want to thank all our associates who put on the mask every day and come to work and imagine -- just imagine, through this entire pandemic, on any given day, 95% of our associates were physically at work to take care of our customers. And for that, I'm very grateful on this outstanding performance and 4 record quarters in a row would not be possible without 95% of our associates putting on that mask and coming to work. So we have 50% of them are vaccinated at this point. We're working hard that everyone who wants a vaccination can get it, and we look forward to the day that we don't have to wear masks. It's not here yet, but we look forward to that day. Thank you, everyone, for joining us. Appreciate your questions. Operator: This concludes today's conference call. You may now disconnect.AN Ratings Summary
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AutoNation Q1 2024 Earnings Beat EPS Forecasts with Strategic Shareholder Enhancements
AutoNation's Q1 Earnings Overview
On Friday, April 26, 2024, AutoNation, Inc. (NYSE:AN) reported its first quarter earnings, revealing an earnings per share (EPS) of $4.49, which slightly exceeded the anticipated EPS of $4.45 set by analysts. This performance indicates a positive outcome in terms of profitability, showcasing the company's ability to generate earnings above market expectations. Despite this achievement in EPS, AutoNation's revenue for the period was reported at $6.49 billion, which marginally missed the forecasted revenue of approximately $6.49 billion. This discrepancy between the EPS beat and the slight revenue miss presents a nuanced view of the company's financial performance during the quarter.
During the earnings conference call, as highlighted by Seeking Alpha, key figures from AutoNation, including CEO Michael Manley and CFO Thomas Szlosek, discussed the company's financial results and strategic directions. The call, attended by analysts from major financial institutions, underscored the company's focus on operational efficiency and strategic initiatives aimed at enhancing shareholder value. Notably, AutoNation's after-sales gross profit saw a significant year-over-year increase of 9%, reaching a record $556 million. This growth in after-sales gross profit is a testament to the company's robust service and parts operations, which continue to be a strong revenue driver.
Furthermore, AutoNation has been proactive in repurchasing its shares, buying back 1.6 million shares of common stock year-to-date through April 24, 2024. The Board of Directors' decision to authorize the repurchase of up to an additional $1 billion of common stock reflects the company's confidence in its financial health and its commitment to returning value to shareholders. This aggressive share repurchase strategy not only underscores the company's financial stability but also signals a bullish outlook on its stock value.
From a valuation perspective, AutoNation's price-to-earnings (P/E) ratio of approximately 7.73 suggests that the stock might be undervalued relative to its earnings, making it an attractive option for investors seeking value stocks. The company's price-to-sales (P/S) ratio of around 0.26 further indicates that the shares could be trading at a low price compared to the company's sales, offering a potentially lucrative investment opportunity. However, the high enterprise value to operating cash flow (EV/OCF) ratio of about 163.22 raises questions about the company's valuation compared to the cash it generates from operations, suggesting that investors should also consider cash flow metrics when evaluating the stock.
In summary, AutoNation's first quarter 2024 financial results reveal a company that is not only growing in terms of earnings but also actively enhancing shareholder value through significant after-sales profit growth and share repurchases. Despite the slight revenue miss, the company's strategic initiatives and financial metrics present a compelling case for investors, especially those looking for undervalued opportunities in the automotive retail sector.
AutoNation Q1 2024 Earnings: Strong Sales and Profitability
AutoNation's Earnings Report Overview
AutoNation (AN:NYSE) has recently shared its earnings report for the first quarter ended March 2024, shedding light on its financial performance and operational efficiency. The report, while not detailing every metric, hints at a comparison with Wall Street's expectations and last year's figures, suggesting a nuanced view of the company's current standing. For those keen on understanding AutoNation's financial health in detail, Zacks Investment Research offers a more in-depth analysis.
In the first quarter, AutoNation reported a substantial revenue of $6.77 billion, indicating the company's strong sales performance. This figure is crucial as it reflects the total income generated from the company's business activities, showcasing its ability to attract and retain customers. The net income, an essential indicator of the company's profitability, was reported at $216.2 million. This metric is particularly important as it shows the company's efficiency in managing its expenses and maximizing profit from its revenues.
Furthermore, AutoNation's gross profit for the quarter stood at approximately $1.16 billion, with an operating income of $303 million. These figures are vital as they provide insights into the company's operational efficiency. Gross profit, the difference between revenue and the cost of goods sold, highlights the company's ability to manage its production and sourcing costs effectively. Operating income, on the other hand, reflects the company's earnings from its core business activities, excluding the effects of interest and taxes.
The company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) reached around $360.4 million. EBITDA is a widely used performance metric that offers a clearer picture of a company's operational profitability by removing the effects of financing and accounting decisions. Additionally, AutoNation reported earnings per share (EPS) of $5.04, a critical measure of the company's profitability on a per-share basis, indicating the amount of net income earned for each share of its stock.
Lastly, the cost of revenue for AutoNation during this period was about $5.61 billion, with income before tax at approximately $277.7 million, and an income tax expense of $61.5 million. These figures collectively provide a comprehensive view of the company's financial health, showcasing its ability to generate profit, manage costs, and fulfill its tax obligations efficiently.
