Just finished a lengthy interview with Mike Jackson, AutoNation CEO. I hope to have it transcribed and posted on Monday. One thing that struck me, the comparisons between Jackson and Dow chemical (DOW) Andrew Liveris are inescapable. Both are brutally honest about the business environment they are operating in and both have a clear vision on how to manage through it.
Tag: AN
src="http://d.yimg.com/ds/badge2.js"
badgetype="square">
ARTICLEURL
So when will the combination of the three happen?
AutoZone (AZO) added two new Board Members the other day. They are:
William Crowley, a former managing director of Goldman Sachs (GS). Crowley also has served as a director of Sears Holding (SHLD) since 2005. He has served as a director of Sears Canada Inc. since March 2005 and as the chairman of the board of Sears Canada since December 2006. Since 1999, he has been president and CEO of ESL Investments Inc., a private investment firm run by Sears largest shareholder Eddie Lampert. Crowley also serves as a director of AutoNation (AN) Inc.
Robert Grusky founded Hope Capital Management LLC in 2000 and serves as its managing director. That same year he co-founded the private equity firm New Mountain Capital LLC and served as principal, managing director and member. He's now a senior adviser. Grusky is a director of AutoNation (AN) and Strayer Education Inc.
The additions were part of a late June agreement with ESL and Lampert regarding his ownership.
This now means the three boards have overlapping representation. Lampert controls the Sears Board, will have 20% to 30% of the AutoZone Board after the 2008 Meeting in December and 25% of AutoNation's.
What does it all mean? Is he taking them private? No. There is no way with the incestuous Board relationships Lampert could pass any "fairness" test in a "taking private" scenario.
What then? Lampert will eventually own all three under the Sears Holdings umbrella.
Sears in one swoop will become the nations largest auto dealer, auto parts and auto repair company with considerable pricing and cost savings power.
When? Not this year. Next, maybe. But wait you say, ESL owns the shares of both AutoZone and AutoNation, not Sears. So what? Lampert can sell the shares to Sears in a private sale and in a day Sears owns almost 50% of both companies. Lampert needs no authority from either group of investors (ESL or Sears) as he has full authority to allocate capital as he wishes now. ESL investors would most likely be happy to take less for their AN and AZO shares now (than a public auction would garner) recognizing they are still the largest shareholders of Sears and will make the money in spades later.
Folks who have $5 million to let Lampert lock up and play with for 5 years see the bigger picture.
If this eventually happens, one has to think it has been in the cards for years now. That would possibly make Lampert the most patient man in the world...
Disclosure ("none" means no position):Long SHLD, AN, None
Visit the ValuePlays Bookstore for Great Investing Books
Things are not looking good for Ford (F), GM (GM) and Chrysler….
Mike Jackson says that the decision to stop leasing is hurting US makers in a bad way. Shareholders ought to rejoice he began reducing AutoNation’s (AN) exposure to US brands last year.
Disclosure (“none” means no position):Long AN, none
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Lampert Files 13F
Here is what Sears Holdings (SHLF) Chairman has:
AutoNation (AN)= 72 million shares
AutoZone (AZO)= 23 million shares
Sears (SHLD)= 65.6 million shares
Citi (C)= 19 million shares
Home Depot (HD)= 19.5 million shares
Centex (CTX)= 608k shares
KB Home (KB)= 358k shares
SLM Corp (SLM)= 6 million shares
Full Filing
Disclosure (“none” means no position):Long SHLD, AN,C, none
Visit the ValuePlays Bookstore for Great Investing Books
Categories
AutoNation 10-Q
These 10-Q’s are a fountain of information. A look at
AutoNation’s (AN) today.
NEW AUTO:
Same store new vehicle revenue decreased $418.6 million or 16.2% for the three months ended June 30, 2008, and $654.1 million or 13.1% for the six months ended June 30, 2008, as compared to the same periods in 2007, primarily as a result of a continued challenging automotive retail environment, which resulted in decreased same store unit volume. Same store revenue per new vehicle retailed decreased 3.9% during the three months ended June 30, 2008, and 2.6% during the six months ended June 30, 2008, as compared to the same periods in 2007. We believe these results were driven by the current unfavorable economic conditions in the United States, including continued weakness in the housing market and tightening in the automotive retail credit market. Additionally, the increase in fuel prices has caused a shift in consumer demand toward more fuel-efficient vehicles. The average revenue per vehicle retailed has declined due to the relatively lower selling prices of these vehicles. To the extent that we continue to see unfavorable economic conditions, we anticipate that the automotive retail market will remain challenging in 2008. Accordingly, we expect the decline in our sales to continue in 2008.
Same store gross profit per new vehicle retailed decreased 8.3% during the three months ended June 30, 2008, and 9.2% during the six months ended June 30, 2008, as compared to the same periods in 2007, due to increased pricing pressure as a result of a competitive retail environment, tightening in the automotive retail credit market, and increasing margin pressure on less fuel-efficient trucks and sport utility vehicles due to rising fuel costs. We expect continued margin pressure in 2008.
Our new vehicle inventories were $1.9 billion or 62 days supply at June 30, 2008, as compared to new vehicle inventories of $1.8 billion or 52 days supply at December 31, 2007, and $1.8 billion or 55 days at June 30, 2007. The increase in our new vehicle inventory days supply is primarily due to lower than expected sales during the three months ended June 30, 2008.
The net new vehicle inventory carrying cost (new vehicle floorplan interest expense net of floorplan assistance from manufacturers) decreased $6.9 million for the three months ended June 30, 2008, and $10.3 million for the six months ended June 30, 2008, as compared to the same periods in 2007, primarily as a result of a decrease in new vehicle floorplan interest expense due to lower floorplan interest rates, partially offset by a decrease in floorplan assistance due to lower new vehicle sales.
USED AUTO:
Same store retail used vehicle revenue decreased $75.5 million or 8.8% for the three months ended June 30, 2008, and $126.8 million or 7.4% for the six months ended June 30, 2008, as compared to the same periods in 2007, primarily as a result of a reduction in revenue per vehicle retailed and a decrease in same store unit volume. Same store unit volume decreased as a result of a challenging retail environment driven by the current unfavorable economic conditions in the United States, including continued weakness in the housing market, the increase in fuel prices, and tightening in the automotive retail credit market. The decrease in used vehicle sales volumes was also driven in part by a decrease in trade-in volume associated with new vehicle sales. To the extent that we continue to see unfavorable economic conditions, we anticipate that the automotive retail market will remain challenging in 2008.
Same store gross profit per used vehicle retailed decreased 8.3% during the three months ended June 30, 2008, and 10.4% during the six months ended June 30, 2008, as compared to the same periods in 2007, due to increased pricing pressure as a result of a competitive retail environment, tightening in the automotive retail credit market, and increasing margin pressure on less fuel-efficient trucks and sport utility vehicles due to rising fuel costs.
Used vehicle inventories were $288.0 million or 42 days supply at June 30, 2008, compared to $308.6 million or 44 days supply at December 31, 2007, and $361.6 million or 44 days at June 30, 2007.
Interest Rate Risk:
We had $2.2 billion of variable rate vehicle floorplan payable at June 30, 2008, and $2.1 billion at December 31, 2007. Based on these amounts, a 100 basis point change in interest rates would result in an approximate change of $22.5 million at June 30, 2008, and $21.4 million at December 31, 2007, to our annual floorplan interest expense. Our exposure to changes in interest rates with respect to total vehicle floorplan payable is partially mitigated by manufacturers’ floorplan assistance, which in some cases is based on variable interest rates.
We had $0.9 billion of other variable rate debt outstanding at June 30, 2008, and $1.2 billion at December 31, 2007. Based on the amounts outstanding, a 100 basis point change in interest rates would result in an approximate change to interest expense of $9.0 million at June 30, 2008, and $11.8 million at December 31, 2007.
All in all not much that is not discussed and disclosed in earnings calls and press releases. That is good as an investor because it does reduce the risk for negative surprises from “hidden items”.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Lampert Buys More AutoNation Shares
In a just filed SEC document, Sears Holdings (SHLD) Chairman Eddie Lampert, through his RBS Partners hedge fund has purchased another 386,000 share in two transactions of AutoNation (AN).
Lampert is picking up shares in bug chunks now vs the smaller transactions previously announced.
He is racing towards 50% ownership while the stock is depressed.
Disclosure (“none” means no position):Long AN, SHLD
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Lampert files 13D/A in AutoNation
Current numbers are in for Lampert’s investment in AutoNation (AN)
“As of July 31, 2008, the Filing Persons may be deemed to beneficially own an aggregate of 77,679,856 Shares (approximately 44.0% of the outstanding Shares based on the Issuer having 176,658,137 Shares outstanding on July 21, 2008, as disclosed in the Issuer’s last quarterly report on Form 10-Q). “
Disclosure (“none” means no position):Long An
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Lampert Buys More AutoNation (AN) Shares
Just a week after Bill Gates picked up 5% of the shares of AutoNation (AN), Sears Holdings (SHLD) Chairman Eddie Lampert purchased an additional 3.478 million shares at $9.80 to $10.35 a share
Lampert now controls in excess of 75 million shares or over 43% of the company.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Categories
AutoNation Earnings Call Notes
Some interesting tidbits in the earnings call.
– AutoNation retailed 73, 500 new vehicles on a same-store basis, down 13%, compared to the period a year ago. But favorable compared to the industry that, according to CNW Research, was off 16% at retail on the quarter. Used vehicle results were favorable relative to new. They retailed just under 50,000 units in the quarter, 4% less compared to a year ago. Inventory at June 30th reflects a new vehicle day supply of 62 days. This represents an increase of seven days compared to a year ago, it reflects the slower sales pace in May and June and compares favorably to the industry at 67 days. Margins are 10 basis points higher than the nearest competitor, and 140 bps higher than the average used-car dealer.
In short, AutoNation is clearly the class of the auto retailing industry.
At June 30th, store count numbered 242, representing 319 franchises and 39 brands in 15 states. In September, AN will open Mercedes-Benz of Del Rey in Del Rey Beach, Florida. This add point brings the Mercedes dealership count to seven in Florida and 14 company-wide.
AutoNation is focused on profitability rather than market share. Market share will take care of itself as US auto makers shrink brands and dealerships in an effort to streamline operations. As AutoNation lessons it reliance on US brands, it’s market share will increase by default. Said Jackson, “we continue to divest underperforming stores to optimize our portfolio. The divestitures are primarily domestic franchise. However, we will retain our high-volume, core domestic franchises. We expect over time that these domestic franchises will constitute about 20% of our new vehicle revenue (29% currently).
Jackson was asked specifically about this on the call:
Rick Nelson – Stephens
“Are you seeing an acceleration in store closings among competitors?”
Mike Jackson
“Yes, on the domestic side, absolutely. And as I said earlier, we have a core group of domestic stores that are great locations with high throughput franchises that as painful as the current environment will be long-term, we will be served well by the shakeout that is going on now.”
This news piggybacks on a previous post regarding the potential gains for AutoNation from domestic automaker’s problems.
It seems that expectations for several holdings, Dow Chemical (DOW), Sherwin Williams (SHW), Citigroup (C) and now AutoNation (AN) were all far worse than reality. With the exception of Citigroup (the jury is still out) they all have top flight management who are deftly steering their respective businesses through unprecedented times. With depressed share prices, better than anticipated results, and visibility clearing, buy opportunities abound.
Disclosure (“none” means no position):Long AN, none
Visit the ValuePlays Bookstore for Great Investing Books
Categories
AutoNation (AN) CEO on Earnings
AutoNation (AN) released results today and the news was far better than one would expect given its current operating environment.
America’s largest automotive retailer, today reported 2008 second quarter net income from continuing operations of $53 million or $0.29 per share, compared to year-ago net income from continuing operations of $79 million or $0.38 per share. After adjusting for certain items disclosed in the attached financial tables, net income from continuing operations for the 2008 second quarter was $59 million or $0.33 per share, compared to $76 million or $0.36 per share in the prior year. analysts had expected $.30 cents a share.
Second quarter 2008 revenue totaled $3.9 billion, compared to $4.5 billion in the year-ago period, driven primarily by lower new vehicle sales. In the second quarter, total U.S. industry retail sales declined 16%, based on CNW Research data. In comparison, in the second quarter AutoNation’s new vehicle unit sales declined 12%.
Commenting on the second quarter, Mike Jackson, Chairman and Chief Executive Officer, said, “Despite the fact that this past quarter was the most challenging automotive sales environment any of us have encountered, AutoNation delivered solid profitability.” Mr. Jackson also noted, “In the second quarter, the industry encountered $4.00 per gallon gasoline on top of the continued housing depression and credit crisis, resulting in a significant challenge as consumers are either postponing the purchase of vehicles or they are purchasing smaller vehicles that are more economical both at the time of purchase and at the pump. We now believe that, in 2008, U.S. new vehicle industry sales will decline to the low-14 million unit level.”
Mr. Jackson added, “In continuing response to the ongoing macroeconomic and industry challenges, we are executing a cost reduction plan with a targeted annualized run rate pre-tax savings of $100 million. In the first half of the year, we achieved approximately $25 million of this benefit. In the second half of the year, we expect to achieve approximately $50 million of savings, for a full-year 2008 impact of $75 million on a pre-tax basis. Our targeted annualized cost savings include reductions in advertising spending, corporate overhead expense and store personnel expense.”
Full release:
I don’t think (at least I hope) anyone is buying share of AutoNation now expecting an immediate payoff. This is a true value investment. The deal here is that when auto’s rebound, AutoNation, being the largest and also the most well run organization of the lot will benefit the most from its currently depressed levels.
Jackson is cutting costs and making the necessary moves to position the company for the rebound.
Watch him on CNBC this morning:
Nissan CEO Carlos Ghosn seems to back Jackson’s thoughts. The advantage Jackson has is that he will benefit from all the automakers, and whatever trend(s) emerge not just one.
With famed investors like Berkshires’s (BRK.A) Buffett, Sears’ (SHLD) Lampert, Gates, Leucadia (LUK) and Sullivan jumping into the sector, now it the time to be buying shares.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Bill Gates Buys AutoNation (AN) Shares
Bill Gates’ Cascade Investments and The Gates Foundation in a recent SEC filing disclosed a 5.5% stake in the auto retailer.
From the filing:
“(1) Cascade Investment, L.L.C. (“Cascade”) holds 5,263,588 shares of Common Stock. For purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, all shares of Common Stock held by Cascade may be deemed to be beneficially owned by William H. Gates III as the sole member of Cascade. Michael Larson, the Business Manager of Cascade, has voting and investment power with respect to the shares of Common Stock held by Cascade. Mr. Larson disclaims any beneficial ownership of the shares of Common Stock beneficially owned by Cascade and Mr. Gates.
(2) The Bill & Melinda Gates Foundation Trust (“Trust”) holds 4,640,000 shares of Common Stock. For purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended, all shares of Common Stock held by the Trust may be deemed to be beneficially owned by William H. Gates III and Melinda French Gates as Co-Trustees of the Trust. Michael Larson has voting and investment power with respect to the shares of Common Stock owned by the Trust. Mr. Larson disclaims any beneficial ownership of the shares of Common Stock beneficially owned by the Trust or Mr. and Mrs. Gates.”
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Categories
AutoNation's Jackson on $4 Gas…..Good
AutoNation’s (AN) CEO Mike Jackson was on NBC’s Nightly News the other night.
Here is the appearance:
Now, Jackson is both being right and a little self-serving which, as a shareholder is just fine. $4 gas for a prolonged period will lead to a fundamental shift in consumer behavior. The tens of millions of SUV’s that have been sold in the past decade are going to be traded in for smaller, more efficient models in droves.
As the largest auto-dealer in the nation, Jackson (and shareholders) will benefit from that activity. As gas prices inch higher ($4.25 around here) that activity will begin sooner and become greater. Good….
While auto sales are currently down (along with AN’s stock price), this is not an evaporated demand situation. It isn’t like retail where I may pass on something and just never get it. People need cars as they age and deteriorate (or trade in a gas guzzler). The demand builds over time as the purchases are put off, then it releases and the longer the build, the faster the release.
The key here is Jackson’s market share. As dealerships close, Jackson is getting an even bigger piece of a shrinking pie without expending more capital to do so. The Kiplinger Letter recently predicted 15 million auto units to be sold this year. Here is what got me. They said “expect 1,200 dealerships, mostly US only brands to be gone by the end of the year”.
Since they will not be Jackson’s, this is good news for AutoNation shareholders.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
Categories
AutoNation’s Jackson on $4 Gas…..Good
AutoNation’s (AN) CEO Mike Jackson was on NBC’s Nightly News the other night.
Here is the appearance:
Now, Jackson is both being right and a little self-serving which, as a shareholder is just fine. $4 gas for a prolonged period will lead to a fundamental shift in consumer behavior. The tens of millions of SUV’s that have been sold in the past decade are going to be traded in for smaller, more efficient models in droves.
As the largest auto-dealer in the nation, Jackson (and shareholders) will benefit from that activity. As gas prices inch higher ($4.25 around here) that activity will begin sooner and become greater. Good….
While auto sales are currently down (along with AN’s stock price), this is not an evaporated demand situation. It isn’t like retail where I may pass on something and just never get it. People need cars as they age and deteriorate (or trade in a gas guzzler). The demand builds over time as the purchases are put off, then it releases and the longer the build, the faster the release.
The key here is Jackson’s market share. As dealerships close, Jackson is getting an even bigger piece of a shrinking pie without expending more capital to do so. The Kiplinger Letter recently predicted 15 million auto units to be sold this year. Here is what got me. They said “expect 1,200 dealerships, mostly US only brands to be gone by the end of the year”.
Since they will not be Jackson’s, this is good news for AutoNation shareholders.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
You know, if Congress would just listen to Jackson and Dow’s (DOW) Andrew Liveris on energy, we would be so much farther along the road than we are now.
We recently took a long position in AutoNation (AN). This interview Jackson did was what got me really looking into the company and considering a purchase.
This is a multi-year bet as auto sales do not look to turn soon but the demand will continue to build and when it releases, profits ought to flow…
It should be noted that famed value investors like Leucadia (LUK), Berkshire’s Buffett (BRK.A) are buying into the sector as it troughs.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books
You know, if Congress would just listen to Jackson and Dow’s (DOW) Andrew Liveris on energy, we would be so much farther along the road than we are now.
We recently took a long position in AutoNation (AN). This interview Jackson did was what got me really looking into the company and considering a purchase.
This is a multi-year bet as auto sales do not look to turn soon but the demand will continue to build and when it releases, profits ought to flow…
It should be noted that famed value investors like Leucadia (LUK), Berkshire’s Buffett (BRK.A) are buying into the sector as it troughs.
Disclosure (“none” means no position):Long AN
Visit the ValuePlays Bookstore for Great Investing Books