Autonation, Inc. reported its quarterly financial results for the period ended September 30, 2024. The company’s revenue increased by 12% to $2.3 billion, driven by growth in its retail and wholesale segments. Net income rose to $143 million, or $0.36 per diluted share, compared to $114 million, or $0.29 per diluted share, in the same period last year. The company’s gross profit margin expanded by 130 basis points to 14.1%, while its operating expenses increased by 10% to $1.3 billion. Autonation’s cash and cash equivalents stood at $1.1 billion, with a debt-to-equity ratio of 0.4. The company’s management attributed the strong results to its strategic initiatives, including investments in digital retailing and used vehicle inventory management.
AutoNation, Inc. Financial Report Summary and Analysis
AutoNation, Inc. is one of the largest automotive retailers in the United States, owning and operating 328 new vehicle franchises across the country. The company sells 32 different new vehicle brands, with the core brands being Toyota, Honda, Ford, General Motors, BMW, Mercedes-Benz, Stellantis, and Volkswagen.
In addition to new vehicle sales, AutoNation also generates revenue from used vehicle sales, parts and service operations, and automotive finance and insurance products. For the nine months ended September 30, 2024, new vehicle sales accounted for 47% of total revenue and 16% of total gross profit, while used vehicle sales accounted for 30% of total revenue and 9% of total gross profit. The parts and service operations contributed 47% of total gross profit, and the finance and insurance sales contributed 28% of total gross profit.
Market Conditions
In the third quarter of 2024, U.S. industry retail new vehicle unit sales decreased by approximately 2% compared to the third quarter of 2023. However, new vehicle inventory levels continued to increase during 2024 due to higher levels of manufacturer vehicle production. This increased supply and availability of new vehicles, along with higher manufacturer incentives, has resulted in a shift in mix from used vehicles to new vehicles.
System Outage Due to CDK Cyber Incident
On June 19, 2024, AutoNation was notified by its third-party information systems provider, CDK Global, that it was experiencing a cyber incident that impacted the systems necessary to support the company’s dealership operations, including sales, service, inventory, customer relationship management, and accounting functions. This CDK outage caused disruption and adverse impacts to AutoNation’s business, including its productivity. Access to the company’s systems was restored by the end of June, but certain ancillary systems and integrations were not fully restored until the end of July.
Financial Performance
During the three months ended September 30, 2024, AutoNation had net income of $185.8 million and diluted earnings per share of $4.61, compared to net income of $243.7 million and diluted earnings per share of $5.54 during the same period in 2023. The company’s total gross profit decreased by 9% during the third quarter of 2024 compared to the third quarter of 2023, driven by decreases in new vehicle gross profit, used vehicle gross profit, and finance and insurance gross profit, partially offset by an increase in parts and service gross profit.
New vehicle gross profit was adversely impacted by a decrease in gross profit per vehicle retailed, resulting from the increasing supply and availability of new vehicle inventory, which has led to moderation of margins. Used vehicle gross profit was adversely impacted by a decrease in used vehicle unit volume, particularly for mid- to higher-priced used vehicles, due in part to the shift in mix from used vehicles to new vehicles. Finance and insurance gross profit was adversely impacted by the decrease in used vehicle unit volume, an increase in retail vehicle sales financed through AutoNation’s captive auto finance company, and a decrease in product penetration.
The company’s used vehicle, parts and service, and finance and insurance businesses were also adversely impacted by the residual effects of the CDK outage in the third quarter of 2024. AutoNation estimates that earnings per share for the quarter ended September 30, 2024, were negatively impacted by approximately $0.21 per share due to the CDK outage.
Inventory Management
AutoNation monitors its new and used vehicle inventory levels based on current economic conditions and seasonal sales trends. The company’s new vehicle inventory units at September 30, 2024, were 46,090, up from 27,544 at September 30, 2023. The new vehicle inventory was net of cumulative write-downs of $3.6 million at September 30, 2024.
The company’s used vehicle inventory balance was net of cumulative write-downs of $7.2 million at September 30, 2024, down from $12.2 million at December 31, 2023. Parts, accessories, and other inventory are carried at the lower of cost or net realizable value, with a balance net of cumulative write-downs of $9.2 million at September 30, 2024.
Critical Accounting Estimates
AutoNation’s critical accounting estimates include goodwill and other intangible assets. The company tests goodwill and franchise rights for impairment annually as of April 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred. As of September 30, 2024, the company had $222.8 million of goodwill related to the Domestic reporting unit, $519.1 million related to the Import reporting unit, $482.2 million related to the Premium Luxury reporting unit, $140.5 million related to the Mobile Service reporting unit, $78.4 million related to the AutoNation Finance reporting unit, and $4.6 million related to the Collision Centers reporting unit.
The quantitative goodwill and franchise rights impairment tests are dependent on many variables used to determine the fair value of each reporting unit and store’s franchise rights. Based on sensitivity analyses, the company believes the fair values of the reporting units and franchise rights substantially exceed their carrying values, with the exception of the Mobile Service reporting unit, which exceeded its carrying value by approximately 25%.
Reported Operating Data
AutoNation’s reported operating data shows that new vehicle revenue was relatively flat for the three months ended September 30, 2024, compared to the same period in 2023, due to an increase in unit volume offset by a decrease in revenue per vehicle retailed. New vehicle gross profit per vehicle retailed decreased during the third quarter of 2024, primarily due to the increasing supply and availability of new vehicle inventory, which has resulted in moderation of pricing and margins.
Used vehicle revenue and gross profit decreased during the three and nine months ended September 30, 2024, compared to the same periods in 2023, due to decreases in unit volume and revenue/gross profit per vehicle retailed. This was driven by the shift in mix from used vehicles to new vehicles, as well as the impact of the CDK outage on used vehicle inventory levels and productivity.
Parts and service revenue and gross profit increased during the three and nine months ended September 30, 2024, compared to the same periods in 2023, primarily due to increases in warranty service and customer-pay service, partially offset by the impact of the CDK outage.
Finance and insurance revenue and gross profit decreased during the three and nine months ended September 30, 2024, compared to the same periods in 2023, due to decreases in gross profit per vehicle retailed and used vehicle unit volume, partially offset by an increase in new vehicle unit volume.
Segment Results
AutoNation has three reportable segments: Domestic, Import, and Premium Luxury. The Domestic segment’s operating results were adversely impacted by decreases in new vehicle gross profit, finance and insurance gross profit, and used vehicle gross profit. The Import segment’s operating results were adversely impacted by decreases in new vehicle gross profit and finance and insurance gross profit. The Premium Luxury segment’s operating results were adversely impacted by decreases in new vehicle gross profit and used vehicle gross profit.
The “Corporate and other” segment includes the company’s non-franchised businesses, such as collision centers, used vehicle stores, auction operations, parts distribution centers, a mobile repair and maintenance business, and an auto finance company. This segment’s revenue increased due to newly opened AutoNation USA stores, but its loss decreased due to an increase in net gains on business/property dispositions, partially offset by an increase in deferred compensation obligations.
Selling, General, and Administrative (SG&A) Expenses
AutoNation’s SG&A expenses decreased during the three months ended September 30, 2024, compared to the same period in 2023, primarily due to a decrease in performance-driven compensation expense and divestitures, partially offset by an increase in deferred compensation obligations. As a percentage of total gross profit, SG&A expenses increased to 68.6% during the third quarter of 2024, from 63.3% in the same period in 2023, due to the moderation of gross profit and the decrease in gross profit resulting from the CDK outage.
During the nine months ended September 30, 2024, SG&A expenses decreased slightly, primarily due to a decrease in performance-driven compensation expense and self-insured losses, partially offset by one-time compensation paid to commission-based associates due to the CDK outage, acquisitions and newly opened stores, and an increase in advertising expenses and transportation-related costs. As a percentage of total gross profit, SG&A expenses increased to 68.6% during the first nine months of 2024, from 62.4% in the same period in 2023, primarily due to the moderation of gross profit and the decrease in gross profit resulting from the CDK outage and the one-time compensation paid to commission-based associates.
Non-Operating Income (Expense)
Floorplan interest expense increased during the three and nine months ended September 30, 2024, compared to the same periods in 2023, primarily due to higher average vehicle floorplan balances. Other interest expense decreased during the three months ended September 30, 2024, compared to the same period in 2023, due to lower average interest rates and lower average debt balances, but increased slightly during the nine months ended September 30, 2024, compared to the same period in 2023, due to higher average debt balances, partially offset by lower interest rates.
AutoNation also recognized net gains related to changes in the cash surrender value of corporate-owned life insurance for deferred compensation plan participants, as well as unrealized losses related to the change in fair value of its minority equity investments.
Liquidity and Capital Resources
AutoNation believes its cash and cash equivalents, funds generated through operations, and amounts available under its revolving credit facility, commercial paper program, secured used vehicle floorplan facilities, and non-recourse warehouse facilities will be sufficient to fund its working capital requirements, origination of auto loans receivable, debt service, tax obligations, and other commitments and contingencies.
The company’s capital allocation strategy is focused on growing long-term value per share. It invests capital in maintaining and upgrading existing facilities, building new facilities, and pursuing strategic initiatives and acquisitions. AutoNation also deploys capital to repurchase its common stock and/or debt.
During the three and nine months ended September 30, 2024, the company repurchased 36,192 and 2,232,007 shares of its common stock, respectively, at an average price of $156.03 and $159.34 per share, respectively. As of September 30, 2024, $965.1 million remained available under the company’s stock repurchase limit authorized by its Board of Directors.
AutoNation’s non-vehicle long-term debt totaled $3.6 billion as of September 30, 2024, including senior notes, a revolving credit facility, and finance leases and other debt. The company also had $350.0 million of commercial paper notes outstanding at September 30, 2024, as well as non-recourse debt related to its auto finance operations.
Outlook
AutoNation’s financial performance in the third quarter of 2024 was adversely impacted by the moderation of new and used vehicle margins, the decrease in used vehicle unit volume, and the residual effects of the CDK outage. The company expects these trends to continue throughout 2024, but believes the situation is stabilizing.
Overall, AutoNation remains focused on growing long-term value per share through strategic investments, acquisitions, and capital allocation decisions. The company’s diversified business model, strong liquidity position, and disciplined approach to operations and capital management position it well to navigate the current market conditions and pursue future growth opportunities.