Tax Reform Boosts AutoNation Results

By Brian Baker
Medill Reports

AutoNation Inc. reported quarterly results that beat analyst estimates due to strong profit growth on used vehicles, benefits from recent U.S. tax reform and business divestitures.

Nevertheless, the stock dropped nearly 4 percent.

The Fort Lauderdale, Fla.-based auto retail chain reported net income of $151.3 million or $1.64 per share for the quarter ended Dec. 31, compared with $115.3 million or $1.14 per share in the same quarter a year ago.

Excluding a 45 cent per share benefit related to U.S. tax reform and a 17 cent per share boost from business divestitures, the company earned $1.02 per share compared with the consensus estimate of 92 cents per share.

Revenues increased 4 percent to $5.68 billion from $5.48 billion in the same quarter in 2016.

(Brian Baker/MEDILL)

Results were boosted by a 16 percent increase in used vehicle gross profit to $74 million, which management believes was driven by the company’s “One Price” initiative.

During a conference call with investors, CEO Mike Jackson expressed enthusiasm for the U.S. business outlook. “We are very optimistic about the pro-growth environment for business in the U.S. which includes the recently signed tax reform bill,” he said.

For the full year the company earned $434.6 million or $4.43 per share, compared with $430.5 million or $4.16 per share in 2016.

Revenues declined slightly to $21.5 billion from $21.6 billion in 2016. The company opened three stores during the year.

During the year, the company repurchased 10.1 million shares for $435 million and has $114 million remaining under its current repurchase authorization. Chief Financial Officer Cheryl Scully-Miller said the company will take an “opportunistic” approach to share repurchases.

In a note to clients, Bank of America Merrill Lynch analyst John Murphy said AutoNation’s results “demonstrate the core strength of the business model, and why we favor the auto dealers at this point in the auto cycle.” He has a neutral rating on the company’s shares.

Shares of AutoNation fell $2.18 to $58.04.

Photo at top: AutoNation Corporate logo. (AutoNation Inc.)