AutoNation Profit Rises as Car Sales Boost Repairs

AutoNation Inc. (SAH), the largest U.S. retailer of new cars and trucks, reported second-quarter earnings that met analysts’ estimates as gains from parts and service helped overcome lower profit per new vehicle sold.

Net income rose 14 percent to $89.9 million, or 73 cents a share, from $78.6 million, or 64 cents, a year earlier, the Fort Lauderdale, Florida-based company said today in a statement. The earnings matched the average of 12 estimates compiled by Bloomberg. Sales increased 13 percent to $4.43 billion.

AutoNation is earning more from its parts and service operations after 25 consecutive months of industywide gains in U.S. new-vehicle sales, according to Bloomberg Industries. Rising deliveries are leading to more cars and trucks returning to dealerships for maintenance and repairs, the most lucrative business for auto retailers.

“We are in the early innings of the recovery in the customer care business,” Chief Executive Officer Mike Jackson said in a telephone interview. “We did the calculation on where the turning point would be, and we had it called practically down to the day.”

Gross profit from parts and service increased 11 percent to $280.2 million in the quarter. Those gains bolstered earnings as gross profit per new vehicle sold fell 7.6 percent to $2,007. That was the lowest since 2010’s third quarter, Matt Nemer, a Wells Fargo & Co. analyst in San Francisco, said in a report.

AutoNation fell 1.1 percent to $44.98 at the close in New York. The shares have risen 13 percent this year, trailing the Standard & Poor’s 500 Index (SPX)’s 18 percent increase.

Service Payoff

AutoNation invested more in the tire and express repair businesses starting in early 2012 so the company would benefit from a rising number of vehicles in operation, which trails moves in new-car sales, Chief Operating Officer Mike Maroone said in a telephone interview.

“We looked in the mirror and said, ‘We don’t have enough resources applied against what is the most lucrative part of the business,’” Maroone said. “This is the first of what should be a multiyear payoff.”

The profit increase from improving the parts and service business has been underappreciated by investors, Gary Balter, a Credit Suisse Group AG analyst in New York, said in a July 3 report. Balter raised his rating to the equivalent of a buy and said the shares may climb to $53 in the next year.

“The rising parts and service tide should have a meaningful impact on bottom line growth,” he wrote.

AutoNation completed the process of renaming its more than 200 mass-market brand franchises in this year’s first half after posting record profit for 2012.

The dealership group’s non-luxury domestic and import franchises now use the AutoNation name. For example, a store between Miami and the company’s Fort Lauderdale headquarters is now AutoNation Chevrolet of Pembroke Pines. Previously, it was Maroone Chevrolet of Pembroke Pines.

To contact the reporter on this story: Craig Trudell in Southfield, Michigan, at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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