AutoNation inventory hits all-time excessive after stable earnings

Vehicles are displayed for sale at an AutoNation car dealership on April 21, 2022 in Valencia, California.

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A solid fourth-quarter earnings report from AutoNation on Friday propelled the car dealer’s stock to a new all-time high and its best day in nearly three years.

The Florida-based dealership group reported adjusted earnings per share of $6.37 and revenue of $6.7 billion for the previous quarter. That compares to analyst expectations of $5.83 a share and $6.5 billion in revenue, according to Refinitiv.

AutoNation closed Friday at $157.30 a share, marking a new high for the auto dealer’s stock following an 11.4% increase to the end of the week. It was the stock’s best daily performance since April 2020 and a new record-high closing price.

The increase follows AutoNation last year reducing shares outstanding by 25% as it repurchased 15.6 million shares, including 4.6 million during the fourth quarter.

AutoNation CEO Mike Manley attributed the solid quarter and record year of earnings to operational execution as well as new all-time high earnings in after sales and customer financing.

“During the year, we expanded our footprint, introduced additional transportation solutions, and leveraged our strong cash flow to fund investments and return capital to shareholders,” Manley said in a release.

AutoNation’s 2022 cash flows from operations were a record $1.7 billion. Its net income last year was roughly flat from 2021, despite a 26% decline in the fourth quarter to $286.4 million.

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AutoNation’s shares over the last five years.

Large dealers such as AutoNation have been reporting record results during the coronavirus pandemic, as consumer demand remained resilient but new vehicle inventories were at record lows due to production interruptions due to the global health crisis as well as supply chain problems.

The circumstances pushed AutoNation to pivot to sell more used cars than new during the pandemic, as those who couldn’t afford or find a new vehicle moved to the used car market. That propelled prices to new record highs and profits for used vehicle sales.

Vehicle inventories have been slowly rising for many auto brands in recent months. However, there remain hurdles and Wall Street has been monitoring for a “demand destruction” scenario in which pent-up demand from the past three years is depleted.

AutoNation did not release guidance for 2023. Manley told Automotive News he expects the seasonally adjusted annual rate of light-vehicle sales to be close to 15 million this year, up from 13.7 million in 2022.

“I think for the foreseeable future, the retail industry will continue to evolve including how customers approach vehicle ownership and usage,” he said during an earnings call Friday. “And it’s an exciting time, frankly to be on the segment and we believe the evolving landscape offers many opportunities.”

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