Record Third Quarter AutoNation Profits: Balancing Inventory Issues and Growth

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Buyers are ready to buy a new vehicle that is close enough to what they want in today’s tight inventory market or pick something from the pipeline and wait for it, Jackson said. Others will switch to used vehicles or say they will wait until next year. Jackson considers this a “pent-up demand.”

Stephens Inc. analyst Rick Nelson said in a note to investors last week that inventory levels are unlikely to improve immediately when vehicle production increases. The reasons for this are strong overall consumer demand and the fact that much of the additional production will go to buyers who have already ordered vehicles.

“We don’t think stocks will improve significantly until 2022,” Nelson wrote. “As a result, we are seeing margins on new non-standard vehicles in the coming quarters.”

The development of AutoNation’s inventory situation in the fourth quarter and next year will be monitored by Manley.

Manley will also lead AutoNation’s capital allocation strategy, which includes the expansion of used vehicle retailer AutoNation USA’s platform, share buybacks and return to dealer acquisitions.

AutoNation last week said it signed an agreement to buy Priority 1 Automotive Group from Towson, Md., Pending approvals from the automaker and others. The acquisition, which covers nine luxury dealerships and three body shops, is expected to generate annual revenue of around $ 420 million. A closing date is scheduled for November.

At the end of September, AutoNation purchased 11 dealerships and an auto body shop from the Peacock Automotive Group under a deal originally announced in April. These stores are expected to generate $ 380 million in annual revenue.

These transactions were AutoNation’s first acquisitions after being on the sidelines of the buy-sell market since 2018.

“We will continue to seek additional acquisitions that complement our portfolio and meet our performance thresholds,” AutoNation CFO Joe Lower told analysts last week.

From September 30, 2020 to September 30, 2021, AutoNation spent $ 2.2 billion to repurchase 27% of its outstanding shares. In the third quarter alone, AutoNation spent $ 879 million to buy back almost 11% of its own shares.

The company’s board of directors has authorized additional spending of $ 1.3 billion on share buybacks.

Jackson largely favored share buybacks rather than paying what he described as high prices to acquire dealers.

And some analysts see this strategy continuing.

Truist Securities analyst Stephanie Moore in a note to investors last week said that with AutoNation’s $ 1.8 billion in cash, “we expect the share buybacks to constitute a main element of its capital allocation strategy “.


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