Considering the credit markets and the economy, this earnings report from AutoNation (AN) is simply fantastic.
AutoNation, Inc. (NYSE: AN) , America’s largest automotive retailer, today reported 2008 fourth quarter net income from continuing operations of $70 million, or $0.40 per share, compared to $51 million, or $0.28 per share, in the prior year. In the quarter, the Company had a net benefit from certain items of $48 million or $0.28 per share, including a net positive tax adjustment of $0.18 per share and a gain on the repurchase of the Company’s senior notes of $0.14 per share. Additionally, other items had an unfavorable impact of $0.04 per share. After adjusting for these items as disclosed in the attached financial tables, net income from continuing operations for the 2008 fourth quarter was $22 million or $0.12 per share.
Fourth quarter 2008 revenue totaled $2.7 billion, compared to $4.1 billion in the year-ago period, driven primarily by lower vehicle sales. In the fourth quarter, total U.S. industry new vehicle retail unit sales declined 49%, based on CNW Research data. In comparison, in the fourth quarter AutoNation’s new vehicle unit sales declined 40%.
Commenting on the fourth quarter, Mike Jackson, Chairman and Chief Executive Officer, said, “The fourth quarter was negatively impacted by the credit panic triggered on September 15 by the bankruptcy of Lehman Brothers. Automotive retail sales collapsed from one day to the next as credit for our customers was withdrawn from the market. This panic continued to erode consumer confidence and accelerated the decline in the U.S. economy and auto retail market. In the fourth quarter, AutoNation continued to remain profitable even with a U.S. SAAR near 10 million new vehicle units, a 27 year low.” Jackson also stated, “When we saw the auto retail market deteriorate in the beginning of 2008, AutoNation began to identify cost reduction opportunities. In July we announced our plan to reduce cost by $100 million on an annual run rate basis and have successfully achieved this goal – a significant accomplishment in its own right. With the collapse of sales in the second half of September, additional actions became necessary in the fourth quarter to further reduce costs. We have successfully implemented additional cost reduction actions totaling approximately $100 million on an annualized run rate basis. Taken together, AutoNation’s total annualized cost savings of $200 million demonstrates our Company’s ability to effectively address the challenges created by the credit panic.”
Jackson added, “Despite the severely depressed sales environment, AutoNation continues to generate solid cash flow which allowed the Company to reduce its non-vehicle debt by $155 million during the quarter and close the fourth quarter with a strong cash position of $110 million. Full-year debt reduction totals approximately three-quarters of a billion dollars, consisting of $517 million of non-vehicle debt and $195 million of vehicle floor plan debt. As a result, the Company remained in compliance with all financial covenants in its debt agreements as of December 31, 2008 with a leverage ratio of 2.45 versus 2.78 a year ago.”
Looking forward, Jackson also stated, “We agree with industry projections that the 2009 SAAR will be in the range of 11 million new vehicle units with obvious weakness in the first half of the year. In this environment, we believe we will be able to manage within all financial covenants.”
AutoNation provides additional detail on its three operating segments: Domestic, Import, and Premium Luxury. The Domestic segment is comprised of stores that sell vehicles manufactured by General Motors, Ford, and Chrysler; the Import segment is comprised of stores that sell vehicles manufactured primarily by Toyota, Honda, and Nissan; and the Premium Luxury segment is comprised of stores that sell vehicles manufactured primarily by Mercedes, BMW, and Lexus.
Segment Results for the Quarter
— Domestic -Domestic segment income (1) was $14 million compared to year-ago segment income of $36 million. Fourth quarter Domestic retail new vehicle unit sales declined 44%. In comparison, U.S. industry Domestic retail new vehicle unit sales declined 52% according to CNW Research.
— Import -Import segment income was $20 million compared to year-ago segment income of $52 million. Fourth quarter Import retail new vehicle unit sales declined 39%. In comparison, U.S. industry Import new vehicle retail unit sales declined 44% according to CNW Research.
— Premium Luxury -Premium Luxury segment income was $39 million compared to year-ago segment income of $59 million. Fourth quarter Premium Luxury retail new vehicle unit sales declined 35%. In comparison, U.S. industry Premium Luxury retail new vehicle unit sales declined 34% according to CNW Research.
(1) Segment income is defined as operating income less floor plan interest expense
For the full year ended December 31, 2008, the Company reported net loss from continuing operations of $1.23 billion or $6.89 per share, compared to net income from continuing operations of $289 million or $1.44 per share in the prior year. After adjusting for the impairment charges and certain other items as disclosed in the attached financial tables, net income from continuing operations for the full year ended December 31, 2008 was $181 million or $1.02 per share, compared to $277 million or $1.38 per share in the prior year. The Company’s revenue for the year ended December 31, 2008 totaled $14.1 billion, down 19% compared to $17.3 billion in the prior year.
So, we are in the 10,000 years flood and the company is still making money. Competitors are closing their doors at a breakneck pace. The company is cash flow positive and paying off debt. AutoNation is going to emerge from this stronger than ever and in a far more dominant market position.
Shareholders ought to be thrilled…
Speaking of shareholders, AutoNation also signed an agreement with Eddie Lampert and ESL Investments. Read it here
Disclosure (“none” means no position):Long AN
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