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AutoNation, Inc. (NYSE: AN), America’s largest automotive retailer, today reported 2009 second quarter net income from continuing operations of $55 million or $0.31 per share, compared to year-ago net income from continuing operations of $56 million or $0.31 per share. After adjusting for certain items disclosed in the attached financial tables, net income from continuing operations for the 2009 second quarter was $51 million or $0.29 per share, compared to $59 million or $0.33 per share in the prior year.

Second quarter 2009 revenue totaled $2.6 billion, compared to $3.7 billion in the year-ago period. The decrease was driven primarily by lower new vehicle sales. In the second quarter, total U.S. industry retail new vehicle sales declined 40% compared to last year, based on CNW Research data. In comparison, in the second quarter AutoNation’s new vehicle unit sales declined 38%.

Commenting on the second quarter, Mike Jackson, Chairman and Chief Executive Officer, said, “Despite extraordinarily difficult industry conditions, AutoNation delivered solid profitability, driven by cost reduction, lower interest expense, and our disciplined operating model and inventory management. The second quarter was a pivotal moment for the automotive industry. Long-awaited volume stabilization, the successful government-led restructuring of General Motors and Chrysler, and significant dealer consolidations were accomplished. The industry is now positioned for a healthy rebound when macroeconomic conditions, particularly consumer credit, improve.” Mr. Jackson also noted, “Our continued disciplined inventories led to a year-over-year improvement in gross profit per vehicle retailed and lower floor plan expense.”

Mike Jackson added, “The stabilization of the SAAR in the second quarter is the first step to a gradual recovery and marks the first time since the end of 2007 that we did not see a significant sequential decline in industry new vehicle sales. We also expect the ‘Cash for Clunkers’ program to stimulate new vehicle sales. Going forward, we expect a gradual improvement of new vehicle sales beginning in the second half of 2009 and intend to increase our inventory of vehicles in a disciplined manner to meet demand. Having weathered the storm, AutoNation remains in an excellent position to capitalize on dealer consolidation and the gradual recovery in industry volumes. We will continue to benefit from our $200 million structural cost reduction program.”

At the end of the second quarter, AutoNation had nearly $450 million in liquidity, including cash of $129 million and remained well within the limits of the financial covenants in our debt agreements.

AutoNation has 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.


• Domestic —Domestic segment income for the second quarter of 2009 was $26 million compared to year-ago segment income of $33 million. Second quarter Domestic retail new vehicle unit sales declined 34%.

• Import —Import segment income for the second quarter of 2009 was $42 million compared to year-ago segment income of $57 million. Second quarter Import retail new vehicle unit sales declined 41%.

• Premium Luxury —Premium Luxury segment income for the second quarter of 2009 was $43 million compared to year-ago segment income of $52 million. Second quarter Premium Luxury retail new vehicle unit sales declined 34%.

For the six-month period ended June 30, 2009, the Company reported net income from continuing operations of $108 million or $0.61 per share compared to $111 million or $0.62 per share in the prior year. After adjusting for certain items as disclosed in the attached financial tables, net income from continuing operations for the six-month period ended June 30, 2009 was $91 million or $0.51 per share, compared to $114 million or $0.63 per share. The Company’s revenue for the six-month period ended June 30, 2009 totaled $5.0 billion, down 32% compared to $7.4 billion in the prior year.


CEO Jackson on the morning shows:

Mike Jackson on CNBC 7-31-2009 from http://marccannon.vox.com/
Mike Jackson on Bloomberg 7-31-2009 from http://marccannon.vox.com/

I spoke with Jackson and Maroone after earnings were released and there were a few comments worth sharing:

  • The $1 billion (as of last Friday) spent on cash for clunkers did more to stimulate the economy than "the entire previous $750 billion" according to Jackson
  • For the first time in over a year, Jackson appears open to the idea of making an acquisition
  • Dealership closures nationwide are "about 80% done"
  • He is now satisfied with having domestic dealership make up 30% of his portfolio after the changes the companies have gone through
  • Given a choice, Ford (NYSE:F) is now the clear favorite among the domestic automakers with customers due to their lack of a bailout
  • Banks are beginning to lend again although they are requiring larger down payments
  • Speculation that families are downsizing the number of vehicles they own is temporary and not a trend
  • The decision to let Lehman go under "was a catastrophic failure"
  • The industry bottomed in February and will continue a slow climb out

This is a great company that is really well run. In every category its declines are less than the industry as a whole and any positive increases it is seeing exceed the industry as a whole. Its market share continues to increase and the new business model at the auto maker level is going to increase pricing power.

Jacskon said he thinks the days of 16 million units a year are gone for a while but with the new pricing power dealerships will have, they will not need anywhere near that number in order to post very strong profits.

Here is the Q2 earnings call transcript.

Disclosure: Long AN

Source: AutoNation Beats: A Conversation with CEO Mike Jackson