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4-Traders Homepage  >  Equities  >  Tokyo  >  Nissan Motor Co Ltd    7201   JP3672400003

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AutoNation Hits Record EPS, But Counsels Caution

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07/29/2016 | 07:06pm CEST

AutoNation Inc., benefiting from continued growth in demand for higher margin trucks and sport-utility vehicles, will continue pairing back inventory levels as the wider auto industry braces for a plateauing of U.S. light-vehicle sales after six years of uninterrupted growth.

The largest auto retailer in the U.S. said it earned second-quarter net income of $112 million, or $1.08 per share, from continuing operations compared with $115 million, or $1 per share, the same period a year ago. Revenue of $5.4 billion during the period outpaced second-quarter 2015 by 4%.

Analysts expected earnings of $1.05 per share on $5.5 billion in revenue for the period.

AutoNation, based in Fort Lauderdale, Fla., has been reducing inventory as industry volumes level off following six consecutive years of industry growth. It reduced its stock by 6,000 vehicles in the April-through-June period compared with the first quarter, and will continue reducing to its normalized level in the third quarter.

The retailer's view on the U.S. market reinforces the cautionary tone raised by Ford Motor Co. on Thursday. The No. 2 U.S. auto maker reported a decline in second-quarter earnings and warned the back half of 2016 could be softer than initially expected, due partially to a cooling off in the American light-vehicle market.

While overall U.S. auto sales were up in the first six months of 2016 vs. 2015's record pace, retail sales?or cars sold at dealer lots?were off 2% industrywide, AutoNation said. Sales to fleet buyers, including commercial customers and rental-car lots, are currently carrying the market.

In a press release, AutoNation said auto makers are still setting sales goals that are too high and that those targets, combined with higher discounts, are leading to "irrational" behavior in the marketplace. Ford, Nissan Motor Co., and Fiat Chrysler Automobiles are three companies AutoNation identified, and the retailer said it doesn't participate in sales-target programs that are unrealistic.

The industry can expect the seasonally adjusted annual rate to hover around 17 million for the foreseeable future, Chief Executive Mike Jackson said in an interview. He remonstrated the idea that the SAAR should rise by 500,000 units each year. When auto makers "overproduce" in that kind of environment, he said, they "get stuck" with high incentives.

"Hopefully (auto makers are) going to moderate their expectations," and adjust course accordingly, Mr. Jackson said. He noted several other large auto dealer groups are also pulling back on inventory.

Trucks are still the de facto vehicle choice for U.S. consumers, he said.

"Gas prices are down and the American people are stampeding" toward trucks, he said, echoing a sentiment he shared earlier this year when he told The Wall Street Journal, "America's gone completely truck crazy."

AutoNation has also refused to sell used vehicles with open safety recalls, including a large percentage of cars and light trucks affected by potentially-defective Takata Corp. air bags. The retailer said Friday that 20% of its used inventory is on hold, but $3 million in expected compensation from auto makers will help offset costs.

Write to Jonathan Bach at jonathan.bach@wsj.com

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Financials ( JPY)
Sales 2017 12 029 747 M
EBIT 2017 891 000 M
Net income 2017 525 746 M
Debt 2017 5 205 438 M
Yield 2017 4,60%
P/E ratio 2017 7,60
P/E ratio 2018 6,82
EV / Sales 2017 0,81x
EV / Sales 2018 0,81x
Capitalization 4 496 092 M
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Mean consensus OUTPERFORM
Number of Analysts 21
Average target price 1 258  JPY
Spread / Average Target 23%
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Carlos Ghosn Chairman, President & Chief Executive Officer
Joseph G. Peter Chief Financial Officer, Head-IR & Accounting
Shunichi Toyomasu Head-Systems Technology Development Division
Celso Guiotoko Chief Information Officer
Takao Asami Senior Managing Executive Officer & Head-Research
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