Asbury Automotive 1Q07 Earnings Preview

| About: Asbury Automotive (ABG)

Asbury Automotive Group (NYSE:ABG) will issue a press release telling us how many new and used vehicles they sold, arranged financing for, and fixed in January, February and March of 2007. We call this the first quarter.

A group called First Call polled 9 analysts that write investment research on Asbury (not me), and came to the conclusion that on average, these analysts expect Asbury to earn (so after the company has paid all expenses and taxes associated with selling and fixing the vehicles) about $0.42 per every share of Asbury stock out there. If achieved, this would be about 2% better than what Asbury earned per share last year in the first quarter.

I estimate Asbury will make about $0.43 per share in the first quarter. This is based my forecast for them to sell nearly $1.5 billion worth of stuff, about 3.6% more stuff than what they sold with the same number of stores (so same-store sales) in the first three months of 2006. And I think they will make about $2.80 in operating profit for every $100 of stuff they sell (so 2.8% operating margin).

For all of 2007, I think they will earn about $2.08 for every share folks own of the company. My forecast assumes Asbury will account for about 65 out of every 1,000 vehicles I estimate will be sold in the United States in 2007 (about 16.3 million units). My forecast for what Asbury earns in 2007 on the sale of these new and used vehicles, financing, and repairs, is a bit lower than the $2.12 the professional analysts are guesstimating.

They'll release the results before the market opens. The conference call is at 10:00 am (eastern). The dial in number is 800-263-8506. The playback number is 888-203-1112. Access code # 2723343. And will be available for seven days.

What I said last year in my follow up thoughts piece after Asbury reported 1Q06 results (May 1, 2006).

As indicated last week, Asbury reported earnings per share [EPS] of $0.41 from continuing operations, up ~16% on a comparable basis (adjusting for stock option expense and $2.3 million regional restructuring charge last year). Same-store sales were up 6% (excluding fleet and wholesale), with new (retail) up 4%, used up 9%, and parts and service up 10%. Management indicated the markets they were in performed a bit worse than the national averages (although longer-term they indicate those markets possess superior population and economic growth levels), but they were able to gain ~20 basis points of market share during the quarter.

We think the company stands at the early stages of generating cost savings and economies of scale. During the conference call management discussed plans to implement a company-wide payroll by mid- next year, plans to move to a single dealer management system [DMS] and standard chart of accounts. Management indicated they want to centralize as many back office functions as they can, but want to leave the "front end" alone. We think changes in the sales process ("front end") will occur in the industry as well in the coming years, but as we have discussed in the past, before a better selling experience can be delivered, greater commonality in systems and processes need to be present at the store first. Overall, we were encouraged with the quarter and management's initiatives. However, management also indicated they did not want to go to a central accounting office, preferring instead to gain economies by region. Granted, going to a single centralized accounting system is not an easy task and something that we think will take years (and duplicative costs/investments), but ultimately we think the companies that move toward this endeavor will find themselves at a significant competitive advantage over the next 5 - 10 years.

In hindsight, I think Asbury management is dead on in trying to centralize back office regionally first, then national. Trying to go national all at once seems a bit overwhelming given the entrepreneurial nature of the business.

ABG 1-yr chart:

ABG 1-yr chart