AutoNation (AN)

Q4 2011 Earnings Call

January 26, 2012 11:00 am ET

Executives

Cheryl Scully - Former Vice President

Michael J. Jackson - Chairman of the Board and Chief Executive Officer

Michael E. Maroone - President, Chief Operating Officer and Director

Mike Short - Chief Financial Officer and Executive Vice President

Analysts

N. Richard Nelson - Stephens Inc., Research Division

Ravi Shanker - Morgan Stanley, Research Division

Rod Lache - Deutsche Bank AG, Research Division

John Murphy - BofA Merrill Lynch, Research Division

Simeon Gutman - Crédit Suisse AG, Research Division

Patrick Archambault - Goldman Sachs Group Inc., Research Division

Presentation

Operator

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Thank you for standing by and welcome to AutoNation's Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will 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 fourth quarter and full year 2011 conference call and webcast. 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-Pearlman and I will also be available by phone following the call to address any additional questions that 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 available on our Investor Relations website at investors.autonation.com under Financials. And now I'll turn the call over to AutoNation's Chairman and Chief Executive Officer, Mike Jackson.

Michael J. Jackson

Good morning, thank you for joining us. Today, we reported an all-time record adjusted quarterly EPS from continuing operations of $0.51 for the fourth quarter, a 13% increase on a per share basis as compared to $0.45 for the same period in the prior year. Fourth quarter 2011 revenue totaled $3.7 billion compared to $3.2 billion in the year-ago period, an increase of 13%, driven primarily by stronger, new and used vehicle revenue. We also reported an increase of 7% in operating income to $144 million. In the fourth quarter, total U.S. industry new vehicle retail sales increased 7% based on CNW Research data. In comparison, during the same period, AutoNation's new vehicle unit sales increased 13% or 10% on a same-store sales basis.

For the full year, adjusted EPS from continuing operations of $1.94 was a record, up 24% over prior year. Revenue for the full year was up 11% over the prior year.

In 2011, we repurchased 17.1 million shares, or $583 million, average price of $34.14. From January 1 to January 25, 2012, we have repurchased an additional 3.5 million shares or $122 million at an average price per share of $34.74. Since the year I arrived in 1999, we have bought back 395 million shares or $6.5 billion at an average price of $16.44 per share.

Today, we also announced that our Board of Directors authorized the repurchase of an additional $250 million of AutoNation common stock. AutoNation has $278 million remaining board authorization for share repurchase.

AutoNation has an optimal brand and market mix that position us well for strong performance and new vehicle sales as the market rebounds. As we look at 2012, we believe that the improvement in new vehicle sales will continue. The recovery has 3 drivers: The first is the aged fleet on the road, which is now approaching 11 years old; the second is the accelerated price of new products being launched by the manufacturers; and, finally, the availability of credit financing to our customers. Our planning assumption for 2012 industry new vehicle light sales is 14 million units, which should be around a 10% improvement over 2011.

We have been consistently demonstrating our ability to perform in what we expect to be a multiyear recovery in auto retail. I'll now turn the call over to our Chief Financial Officer, Mike Short.

Mike Short

Thank you, Mike. And good morning, ladies and gentlemen. For the fourth quarter, we reported adjusted net income from continuing operations of $71 million, or $0.51 per share versus $68 million dollars, or $0.45 per share during the fourth quarter of 2010, a 13% improvement on a per share basis. Our fourth quarter results for this year exclude $1.4 million, which is $0.01 per share, of debt refinancing costs. There were no adjustments to net income in the prior-year period. Adjustments to net income are included in the reconciliations provided in our press release.

Last quarter, we indicated that we expected to receive the remaining incentives under the Premium Luxury program during the fourth quarter. Gross profit was favorably impacted by $2 million this quarter due to these incentives. This compares to gross profit of $13 million from incentives recognized in the fourth quarter of 2010.

In the fourth quarter, revenue increased $432 million, or 13% compared to the prior year, and gross profit improved by $35 million, or 6%. SG&A, as a percentage of gross profit, was 71.3% for the quarter, which represents an 80-basis-point improvement compared to the year-ago period. Excluding the benefit from the additional incentives in both quarters, SG&A as a percentage of gross profit improved by 220 basis points.

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