AutoNation Management Discusses Q2 2012 Results - Earnings Call Transcript

AutoNation (AN)

Q2 2012 Earnings Call

July 19, 2012 11:00 am ET

Executives

Cheryl Scully - Former Vice President

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

Mike Short - Chief Financial Officer and Executive Vice President

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

Analysts

N. Richard Nelson - Stephens Inc., Research Division

John Murphy - BofA Merrill Lynch, Research Division

Simeon Gutman - Crédit Suisse AG, Research Division

Aditya Oberoi - Goldman Sachs Group Inc., Research Division

James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division

Yejay Ying - Morgan Stanley, Research Division

Dan Galves - Deutsche Bank AG, Research Division

Presentation

Operator

Thank you for standing by and welcome to AutoNation's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect. I would now turn the call over to Miss Cheryl Scully, Treasurer and Vice President of Investor Relations for AutoNation. Ma'am, you may begin.

Cheryl Scully

Good morning, and welcome to AutoNation's second quarter 2012 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, will be discussed on this call. Reconciliations are provided in our press release, which is available on our website at investors.autonation.com.

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 quarterly adjusted earnings per share from continuing operations of $0.66 for the second quarter, a 35% increase as compared to $0.49 for the same period in the prior year. Second quarter 2012 revenue totaled $3.9 billion compared to $3.3 billion in the year-ago period, an increase of 17%, driven primarily by stronger retail new vehicle unit sales.

And in the second quarter, total U.S. industry new vehicle retail sales increased 15%, based on CNW Research. In comparison, during the same period, AutoNation's new vehicle unit sales increased 29%. Our improved operating leverage in the second quarter reflects our disciplined focus on expense management as well as long-term investments in centralized processes. We have effectively leveraged our scale to drive cost savings and deliver improved shareholder returns.

We've continued to focus on investments in technology and best practices which revolve around the customer experience, leading to efficiencies in our operations. These investments in the customer experience have continued to improve the productivity of our associates.

In the second quarter, we saw a revenue growth of 17%, with the headcount increase of just over 2%. In the second quarter, we saw Import inventories return to normal and Import unit sales growth of 44% over the same period last year when both Toyota and Honda were dealing with a limited supply of parts for production due to the earthquake.

As we previously have discussed, the recovery is driven by a replacement demand as the age of the fleet on the road has now increased to 11 years old. Also, manufacturers have stepped up the launch pace of new models. Finally, the credit environment is very strong, with low interest rates and ample credit availability.

AutoNation is well positioned to capitalize on recovery with an optimal brand and market mix and a disciplined cost structure. We continue to demonstrate our ability to drive strong shareholder returns during the 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 second quarter, we reported adjusted net income from continuing operations of $82 million or $0.66 per share versus $73 million or $0.49 per share during the second quarter of 2011, a 35% improvement on a per-share basis. Our second quarter results for the year excluded $2.6 million or $0.02 per share related to our franchise impairment. There were no other adjustments to net income in the prior-year period. Adjustments to net income are included in the reconciliations provided in our press release.

In the second quarter, revenue increased $568 million or 17% compared to the prior year and gross profit improved by $45 million or 8%. SG&A, as a percentage of gross profit, was 69.8% for the quarter, which represents 180-basis-point improvement compared to the year-ago period. We're pleased with these results and continue to focus on improving operating leverage across our business.

Net new vehicle floorplan was a benefit of $8.2 million, an improvement of $4.8 million from the second quarter of 2011, primarily due to higher floorplan assistance, driven by increased vehicle sales as well as negotiated -- as well as lower negotiated floorplan interest rates compared to the year -- to the prior-year period.

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