A Safe Drive for Your Portfolio

Ayush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

One of the biggest automotive retailers in the U.S., AutoNation (NYSE: AN), released its quarterly earnings earlier this month. The results were mixed as the company reported all-time high earnings but still fell short of the analysts’ estimates by the slightest of margins. However, the revenue generated by the company comprehensively beat all the expectations.

If you’re wondering what contributed toward this considerably fine growth and whether or not the company is capable of coming out of the wash in the present world of stiff competition, then continue reading.

Reason that drove success

AutoNation’s revenue increased 13.4% to a stunning $4.4 billion, thumping the consensus estimates of $4.3 billion. The company operates in three segments, namely domestic, import and premium luxury. All the segments performed luminously to contribute to this eye-catching growth of revenue, while elevated revenue from retailed used vehicles also supplemented the top line.

New vehicle unit sales recorded an increment of 11%, which escalated the segments revenue to $2.5 billion, an increase of 13.5% from the prior year. The same-store sales, which indicate a company’s success, also increased 9.2% to $2.4 billion.

Used vehicle sales didn't contribute to the revenue as much as the new vehicle sales, but you can’t deny the fact that this sector’s contribution was noteworthy. As the statistics show, the sales of used vehicles generated revenue of $1.1 billion, which marks an increase of 11.5% versus the previous fiscal year.

According to me, good performance in every segment clearly shows that the company is running like a well-oiled machine. And if AutoNation continues what it has been doing, the company will easily surpass all the expectations.

Now, let’s have a look at the earnings. On an adjusted basis, the earnings per share increased 11% to $0.73 from continuing operations, as compared to the prior year when it was $0.66, falling shy of the analyst estimates by a mere $0.01 per share. Net income increased to $90 million from $81.5 million, a significant rise of 10.4%, which was, as I said, achievable only because of the efficient performance of all sectors.

What does AutoNation have in store?

I’m sure by now you’re interested in knowing what AutoNation is planning for the future. Let me tell you beforehand that the company is looking to hold the fort as the biggest automotive retailer in the U.S.A. and the tactics which are being implemented look likely to reap fruits.

Following the success of premium luxury stores, AutoNation has awarded Mercedes-Benz' franchises in Atlanta, Tampa, Fla. markets. The development of these stores is on track and the organization expects a gestation period of around 15 months.

Following the acquisitions of Don Davis Toyota Scion, SanTan Honda superstore, and Hyundai of temple, AutoNation also completed its re-branding initiative. Although the one-time investment was high, the company is confident it will be a success. Its numerous domestic and import franchises representing various manufacturer brands is now unified and marketed under the name of AutoNation across the nation.

The board members of AutoNation, over the previous conference call, stated that the company is actively looking for more acquisitions and new store opportunities with a focus on adding new brand representation with their existing market.

According to me, the company’s ever-growing urge of making the most out of each possible opportunity will benefit its margins.

Outsmarting the peers

But as you know, nothing in the world comes easy and AutoNation will have to make the right moves, which it has been doing until now, to steer clear of its competitors.

The most competent organization that AutoNation should look out for is Asbury Automotive (NYSE: ABG). This automotive retailing giant recently released its admirable quarterly results. It generated revenue of $1.3 billion, which was 16% more than the prior fiscal year. An upward trend of sales of new and used vehicles contributed to impressive financial figures.

Apart from this, Asbury’s gross profit incremented 16% as an outcome of increased sales volume and the repurchasing of 5 million shares.

As far as the forward-looking statements are concerned, the management of the company stated that the acquisitions of Bentley and Volkswagen franchises last December are followed up by the obtainment of Hyundai, Kai, and Toyota franchises in the Atlanta market. With the prominent cash influx during the previous quarter, and the extended investment in the business, a marginally better performance in the foreseeable future won’t be surprising.

The problems for AutoNation don’t end here as there is another company capable of damaging its success. CarMax (NYSE: KMX)), an inferior competitor of AutoNation, released its quarterly earnings last month. To the surprise of many, the company posted a profit of $146.7 million; this is a rise of 21.5% as compared to the preceding fiscal year, which amounted to $120.7 million.

The company also generated revenue of $3.3 billion, which beat the consensus estimate of $3.1 billion. CarMax’s margins were largely driven by the increased sales of used vehicles, which compensated for the loss incurred in the sales of new vehicles. The extensive focus on the sales of used cars bailed the company out, as the gross profit increased 17.3% to $448 million.

CarMax is planning to open around 15 stores every year for the next two years and the developments are right on track, as the company had already established five new stores before the end of the preceding quarter. Cutting down on expenses has also helped the company to post a profit and concentrate on the opening of new stores, but CarMax needs to step up its effort if it really wants to challenge AutoNation.

Thoughtful abstract

In my opinion, AutoNation is well set to outsmart its competitors and if you’re looking for long-term success, then investing in the company may prove to be a good deal. Due to the stiff competition, the increase may not be exponential, but the company’s planned acquisitions will quite possibly enable it to sustain slow and steady growth. 

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Ayush Singh has no position in any stocks mentioned. The Motley Fool recommends CarMax. The Motley Fool owns shares of Asbury Automotive Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus