AutoNation (AN)

Q1 2011 Earnings Call

April 26, 2011 11:00 am ET


Michael Maroone - President, Chief Operating Officer and Director

Cheryl Scully -

Michael Jackson - Chairman of the Board and Chief Executive Officer

Mike Short - Chief Financial Officer and Executive Vice President


Colin Langan - UBS Investment Bank

Brian Sponheimer - Gabelli & Company, Inc.

Patrick Archambault - Goldman Sachs Group Inc.

Rick Nelson - Stephens Inc.

Matt Nemer - Wells Fargo Securities, LLC

John Murphy - BofA Merrill Lynch



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Thank you for standing by, and welcome to AutoNation's First Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Ms. Cheryl Scully, Treasurer and Vice President of Investor Relations for AutoNation.

Cheryl Scully

Good morning, and welcome to AutoNation's First Quarter 2011 Conference Call. Leading our call today will be Mike Jackson, our Chairman and Chief Executive Officer; Mike Maroone, our President and Chief Operating Officer; and Mike Short, our Chief Financial Officer.

Following their remarks, we will open up the call for questions. Kate Keyser and I will also be available by phone following the call to address any additional questions you may have.

Before we begin, let me read our brief statement regarding forward-looking comments and the use of non-GAAP financial measures. Certain statements and information on this call will constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks, which may cause the actual results or performance to differ materially from expectations. Additional discussions of factors that could cause actual results to differ materially are contained in our SEC filings. Certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. Reconciliations are provided in our press release, which is available on our website at

And now, I'll turn the call over to AutoNation's Chairman and Chief Executive Officer, Mike Jackson.

Michael Jackson

Good morning. Thank you for joining us. Today we reported record adjusted EPS from continuing operations of $0.46 for the first quarter, a 35% increase on a per-share basis as compared to $0.34 for the same period in the prior year. Gross profit for all of our major categories improved compared to the first quarter of 2010 and our expense structure remained very disciplined.

First quarter 2011 revenue totaled $3.3 billion compared to $2.8 billion in the year-ago period, an increase of 17% driven primarily by stronger new vehicle revenue. In the first quarter, AutoNation's new vehicle unit sales increased 23%, or 20% on a same-store basis, which were in line with the industry according to CNW Research Data.

In March, we began to see a mix shift, with consumers gradually moving to mid-size and small vehicles as gas prices increase, fuel efficiency has written on the consumer consideration shopping list and is now in the top 10 according to CNW.

We are, of course, supportive of the efforts of our Japanese-based partners as they work tirelessly to rebuild and begin production and bring it back online. To support the recovery efforts, AutoNation has made a donation of $100,000 to the American Red Cross. While the underlying recovery in consumer demand for autos remains on track in the United States due to Japanese supply constraints throughout the remainder of 2011, we are reducing our planning assumption for the 2011 full year U.S. industry sales to mid-12 million new vehicle units.

Based on current information, we see significant reductions in vehicle shipments from the Japanese manufacturers through year end with the resumption of normal shipment level in early 2012.

I'll now turn the call over to Chief Financial Officer, Mike Short.

Mike Short

Thank you, Mike. Good morning, ladies and gentlemen. For the first quarter, we reported net income from continuing operations of $70.3 million, or $0.46 per share, versus $58.8 billion, or $0.34 per share, during the first quarter of 2010, a 35% improvement on a per-share basis. During our fourth quarter conference call, we mentioned that we expected to earn approximately $9 million in performance-based manufacturer incentives over the following 2 quarters, primarily related to Premium Luxury vehicles previously sold.

Our first quarter gross profit and operating income were favorably impacted by $4.6 million due to the recognition of these incentives. We expect to recognize approximately $4.5 million in operating income related to these incentives in the second quarter of 2011.

First quarter revenue increased $474.5 million or 17% compared to the prior year. Gross profit improved by $57.8 million or 11%, while SG&A was up $34.3 million or 9% for the quarter. SG&A as a percentage of gross profit was 72.0% for the quarter. Excluding the benefit from the manufacturer incentives previously mentioned, it would have been 72.6%. This represents an improvement of over 80 basis points compared to the first quarter of 2010, it also represents over 100 basis points sequential improvement, excluding the benefit from the incentives in both quarters.

Although we achieved strong SG&A performance to date, there's still further long-term benefit to be gained as we focus on technology and process improvements in our stores and in our Shared Service Center, as well as centralized procurement initiatives. Our scale and centralization efforts to date uniquely position us to take these next steps in SG&A improvements.

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