A group called Zack's polled 5 analysts that write investment research on Lithia (not me), and came to the conclusion that on average, these analysts expect Lithia to earn (so after the company has paid all expenses and taxes associated with selling and fixing the vehicles) about $0.45 per every share of Lithia stock out there. If achieved, this would be about 9% worse than what Lithia earned per share last year in the first quarter.
I estimate Lithia will make about $0.47 per share in the first quarter. This is based my forecast for them to sell $772 million worth of stuff, about 4.9% less 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 $3.60 in operating profit for every $100 of stuff they sell (so 3.6% operating margin).
For all of 2007, I think they will earn about $2.21 for every share folks own of the company. My forecast assumes Lithia will account for about 40 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 Lithia earns in 2007 on the sale of these new and used vehicles, financing, and repairs, is more than the $2.06 the professional analysts are guesstimating.
The conference call is at 5:00 pm (eastern). The dial in number is 973-582-2750. The conference id is 8680214.
What I said last year when Lithia reported 1Q06 results (April 25, 2006):
While the earnings figures continue to demonstrate management's ability to deliver in a difficult environment, we were a bit concerned with the profit metrics. Total retail same-store sales (excluding fleet) were up 7.1% on an 11.5% spike in new vehicle retail units (far better than the flat U.S. retail environment in 1Q), while same-store gross profits only increased 4.9%. Gross profit margins fell 30 basis points (from the prior year period) to 17.5%, while selling general and administrative (SG&A) expenses rose 100 basis points to 77% and pre-tax profits from continuing operations fell 40 basis points to 2.2%. What seemed to help the most was the tax rate falling to 35.6% from 38.7%. We've seen this happen before, and we suspect the lower profit margins in the face of higher sales are due to the company blowing out inventory as a result of taking excess vehicles to help major automakers (like DaimlerChrysler) out.
The results in no way derail our positive disposition toward Lithia's approach, but when dealers take on excess inventories, it leaves us with less of an ability to assess whether or not the company has made further progress in the development of a superior store model. Then again, Automotive News ran a story yesterday indicating a survey of dealers suggests 26% of dealers so far this year have lost money, so perhaps this merely represents Lithia capitalizing on its superior store (profit) model by grabbing market share. However, experience (from watching most of the companies do this off and on again) tells us next year in 1Q we'll hear management discuss that while same-store sales were a bit below average, gross profits improved considerably as the company focused on profitable sales.
LAD 1-yr chart: