Why Is AutoNation (AN) Down 12.5% Since Last Earnings Report?

Zacks Equity Research
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A month has gone by since the last earnings report for AutoNation (AN). Shares have lost about 12.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AutoNation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

AutoNation Lags Earnings Estimates in Q4

AutoNation reported adjusted earnings of $1.10 per share, missing the Zacks Consensus Estimate of $1.14. In the year-ago quarter, the bottom line was $1.64 per share. Net income from continuing operations was $93 million compared with $152 million in fourth-quarter 2017.

During the quarter under review, AutoNation’s revenues were $5.41 billion compared with $5.68 billion in the prior-year quarter. The top line also missed the Zacks Consensus Estimate of $5.59 billion.

During the reported quarter, new-vehicle revenues decreased 8.3% year over year to $3.07 billion in fourth-quarter 2018. Used-vehicle revenues rose 0.4% to $1.21 from the year-ago figure. Parts and service business revenues gained 1.6% from fourth-quarter 2017 to $868 million. Net revenues from the finance and insurance business were $245 million, reflecting a decline of 0.7% from the prior-year quarter.

2018 Results

In 2018, the company recorded net income from continuing operations of $396 million or $4.34 per share compared with $435 million or $4.43 per share in the prior year.

Revenues for the year were $21.4 billion, marking a slight decline from $21.5 billion in 2017.



Segmental Details

Revenues at the Domestic segment — comprising stores that sell vehicles manufactured by General Motors, Ford and FCA US — declined 7.9% to $1.75 billion. The segment’s income decreased 17.9% to $55 million in the quarter under review.

Revenues at the Import segment — consisting of outlets that sell vehicles manufactured primarily by Toyota, Honda, Nissan and Hyundai — decreased 5.9% to $1.6 billion. Further, the segment’s income declined 8.9% to $68.5 million in the reported quarter.

Revenues at the Premium Luxury segment comprise stores that retail vehicles manufactured by Mercedes-Benz, BMW, Lexus and Audi. The sales figure fell 2.3% to $1.9 billion. Segmental income declined 13.4% to $91.4 million in the reported quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents were $48.6 million as of Dec 31, 2018, declining from $69 million as of Dec 31, 2017. The company’s inventory was valued at $3.6 billion as of Dec 31, 2018, almost in line with the figure recorded as of Dec 31, 2017.

At the end of 2018, non-vehicle debt was $2.6 billion compared with $2.7 billion in 2017. At the end of fourth-quarter 2018, capital expenditure was $122 million compared with $108 million in the prior-year quarter.

AutoNation Lags Earnings Estimates in Q4

AutoNation reported adjusted earnings of $1.10 per share, missing the Zacks Consensus Estimate of $1.14. In the year-ago quarter, the bottom line was $1.64 per share. Net income from continuing operations was $93 million compared with $152 million in fourth-quarter 2017.

During the quarter under review, AutoNation’s revenues were $5.41 billion compared with $5.68 billion in the prior-year quarter. The top line also missed the Zacks Consensus Estimate of $5.59 billion.

During the reported quarter, new-vehicle revenues decreased 8.3% year over year to $3.07 billion in fourth-quarter 2018. Used-vehicle revenues rose 0.4% to $1.21 from the year-ago figure. Parts and service business revenues gained 1.6% from fourth-quarter 2017 to $868 million. Net revenues from the finance and insurance business were $245 million, reflecting a decline of 0.7% from the prior-year quarter.

2018 Results

In 2018, the company recorded net income from continuing operations of $396 million or $4.34 per share compared with $435 million or $4.43 per share in the prior year.

Revenues for the year were $21.4 billion, marking a slight decline from $21.5 billion in 2017.

Segmental Details

Revenues at the Domestic segment — comprising stores that sell vehicles manufactured by General Motors, Ford and FCA US — declined 7.9% to $1.75 billion. The segment’s income decreased 17.9% to $55 million in the quarter under review.

Revenues at the Import segment — consisting of outlets that sell vehicles manufactured primarily by Toyota, Honda, Nissan and Hyundai — decreased 5.9% to $1.6 billion. Further, the segment’s income declined 8.9% to $68.5 million in the reported quarter.

Revenues at the Premium Luxury segment comprise stores that retail vehicles manufactured by Mercedes-Benz, BMW, Lexus and Audi. The sales figure fell 2.3% to $1.9 billion. Segmental income declined 13.4% to $91.4 million in the reported quarter.

Balance Sheet and Capex

AutoNation’s cash and cash equivalents were $48.6 million as of Dec 31, 2018, declining from $69 million as of Dec 31, 2017. The company’s inventory was valued at $3.6 billion as of Dec 31, 2018, almost in line with the figure recorded as of Dec 31, 2017.

At the end of 2018, non-vehicle debt was $2.6 billion compared with $2.7 billion in 2017. At the end of fourth-quarter 2018, capital expenditure was $122 million compared with $108 million in the prior-year quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.74% due to these changes.

VGM Scores

Currently, AutoNation has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise AutoNation has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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