$$ AutoNation: Earnings, Talking to Mike Jackson & “Double Dip”

Hard to imagine they could do any better…

I have it before and will reiterate, Mike Jackson is one of the best CEO’s in any business. To have his company in this shape so soon after the recession is a testament to that.

Summary:

20% growth in second quarter revenue and retail vehicle unit sales over the prior year

Second quarter adjusted EPS from continuing operations was $0.38 ($0.31 on a GAAP basis), a 36% increase compared to $0.28 in the prior year ($0.30 on a GAAP basis)

AutoNation repurchased 20.9 million shares of its common stock for $414.4 million in the second quarter and on July 20 the Board of Directors authorized the repurchase of up to an additional $250 million of AutoNation common stock

AutoNation announces the acquisition of Toyota Mall of Georgia, one of the largest Toyota stores in the United States, and two Hyundai stores, one in Atlanta and the other in Seattle.

Today we reported second quarter adjusted EPS from continuing operations of $0.38, a 36% increase compared to adjusted EPS from continuing operations of $0.28 in the prior year. On a GAAP basis we
reported EPS of $0.31 compared to $0.30 a year ago.

Second quarter 2010 revenue totaled $3.1 billion; compared to $2.6 billion in the year-ago period, an increase of 20% and we had increases in all of our revenue categories. In the second quarter, total U.S. industry new vehicle retail unit sales increased 12%, based on CNW research data. In comparison, during the same period, AutoNation’s new vehicle unit sales increased 20%.

The key to our top line growth is driving operational excellence through the use of leading technology and processes combined with inventory optimization. Combining that with our best in class, disciplined cost structure will continue to drive our industry leading margins. We believe that we have a compelling opportunity to create significant value for stockholders over the next several years as the industry recovers. We have made a major investment of over a half billion dollars in our company through stock repurchases, together with the acquisitions that we announced and our continued reinvestment in our existing stores, reflecting our confidence in AutoNation’s financial and operating strength and the long-term prospects in the auto industry.

The combination of these drivers presents a significant long term growth and value creation opportunity.

My Talk with Jackson

Last year you spoke of “postponed demand”. How much of the increase you are seeing is that vs growth (people trading up)?

A significant part is the recouping of postponed demand. Jacskon said they always had high confidence in 2010 projections, a “no brainer” he called them. “Of course there will be some months were the number flucuate, but the trend is clear”. Credit improvement is being seen in all areas. Traffic and demand always there (2008-09), problem was credit no available. Sales improvement crosses all geographies/manufacturers. 40% increase in truck sales “small business owners gaining confidence”. 30% in Ford and Chevy. People have said Fla. and Cal are dead, sales in both areas up >20%. Q3 2010 will beat cash for clunkers # Q3 2009. Close to 12m annual run by Q4

Do you see the “Double dip” people fear?
For auto recovery to go to next level, employment and housing must recover. He feels both will begin stronger recovery in 2012-13. Jackson feels industry will return to 15m units by 2012-13. Is holding off on specific 2011 guidance until Q4 or Q1 2011 (this is not unusual as Jackson does not make prediction he cannot be 100% certain of. Jackson says there are “those that talk about recovery and those who act on it”. By making dealership purchases and expanding capex on stores, he is “acting on it”. While Jackson refrained to make a general macro comments, one can easily extrapolate from his actions and projections for upcoming years they see the economy continuing to improve. Clearly backing 2010 guidance implies they do not see a “double dip” or even a significant slowdown in the second half or 2010.

This is a very strong gauge. In 2008-09 Jackson was cutting capex budgets and retrenching his company to weather the upcoming storm. He generally has been ahead of the curve so his outlook and comments carry significant weight.

Expansion into northern markets?
Not now…expanding footprint in current area..

Pricing?
Firm, incentives falling. Credit has healed “across the board” and even subprime loans are getting done

How is luxury market doing?
Growing 15% but did not fall as far in downturn, they are “very optimistic””