This summary is based on the fourth quarter fiscal 2007 earnings call conducted by AutoNation Inc. (AN) on February 7, 2008.
Chairman and CEO: Mike Jackson
President and COO: Mike Maroone
CFO: Mike Short
VP of IR: John Zimmerman
Key Investors Issues
- The earnings per share dropped to 28 cents from 36 cents in prior year.
- Quarterly revenue dropped from $4.39 billion in previous year to $4.21 billion.
- During Q4, AutoNation repurchased 4 million shares of stock for a total of $65 million.
- For fiscal 2007, net income was $278.7 million, on revenue of $17.7 billion.
Fourth Quarter Fiscal 2007 Financial Highlights
The fourth quarter EPS from continuing operations was 27 cents compared to last year’s EPS of 35 cents.
The US economic growth drastically slowed in the fourth quarter of 2007. Results for the fourth quarter of 2007 reflected a decline in new vehicle retail sales, especially in California and Florida, partially offset by continued share repurchases.
Operating profit for the fourth quarter was $148 million, down 16% from $177 million a year ago.
The operating results for the fourth quarter of 2007 were adversely affected by some year end accounting adjustments. The aggregate impact of these was approximately 2 cents per share. These adjustments included a favorable finance and insurance revenue adjustment of approximately $4 million and unfavorable adjustment of approximately $4 million in SG&A driven by various legal and other matters, and an unfavorable adjustment depreciation expense of about $4 million.
The SG&A as a percentage of gross profit increased 240 basis points to 74% from 71.6% a year ago.
This was a result of a deleveraging of the firm’s cost structure due to the decline in vehicle sales.
- Net inventory carrying costs was consistent in Q4 with a prior year period.
- Other interest expense was $5.2 million higher in Q4 versus last year.
- For Q4 2007, the firm had an effective income tax rate of 39.1% versus a prior year effective rate of 37.5%.
During the fourth quarter, AutoNation repurchased 4 million shares of stock at an average price of $16.29 per share for a total of $65 million.
The firm’s future share repurchases are subject to limitations contained in its debt agreements. As of January 1, 2008, the firm’s basket capacity for share repurchases was approximately $30 million and each quarter it is permitted to add back approximately 50% of its net income after-tax and any stock option proceeds. The firm reinvested $31 million in the business through capital expenditures during the quarter, bringing total capital expenditures for the year to $160 million.
Throughout 2007, the auto retail environment remained challenging.
In the quarter, pressure on the segment increased with the drastic slowing in economic growth. In addition, consumer concern of a possible recession intensified. As a result, the firm’s same-store new and used retail volume in the quarter was up 6%, or 70,800 units, compared to the period a year-ago, and gross margin for vehicle retail was compressed for both new and used vehicles.
At December 31st, the new vehicle inventory was 62,700 units for all stores, a reduction of 3% or 1,900 units compared to a year ago. However, due to a slower sales pace, new vehicle day supply increased two days to 53 days at year end. Base supply for used vehicles was 44 days at December 31st, an increase of two days compared to a year ago. The firm continues to work diligently to optimize its used vehicle inventory.
In January, the firm added dedicated used vehicle resources to supplement its field team and it has redoubled its efforts relative to its used vehicle management process. The objective is to drive more trade-ins into that retail at a greater percentage of those trade-ins. This includes repositioning used inventory based on store need and highest opportunity for retail.
At $631 million, same-store revenue for parts and service reflected a 3% increase. The firm was pleased with growth of 5% in customer pay, parts, and service revenue. Its ongoing growth in those areas is attributed to extensive training of its field operations associates, coupled with its service drive process and service marketing initiatives.
Fourth quarter same-store F&I gross profit per vehicle retailed was $1,162, an increase of $41 or 4% compared to a year ago. The company attributes ongoing solid F&I performance to its preferred lender network, OEM service contract alliances, and strong product to offerings and penetration.
