AutoNation(US:AN)2024-10-25 19:02Financial Data and Key Metrics Changes - Total revenue for Q3 2024 was $6.6 billion, a decrease of 4% year-over-year, primarily due to a decline in Used Vehicle unit sales and moderated selling prices for both new and used vehicles [12] - Gross profit increased 2% sequentially to $1.2 billion but was down from the previous year, with a gross profit margin of 18% of revenue remaining unchanged from Q2 [12][13] - Adjusted net income was $162 million compared to $244 million a year ago, with adjusted EPS at $4.02 for the quarter, not accounting for the $0.21 EPS impact from the CDK outage [14][15] Business Line Data and Key Metrics Changes - New Vehicle sales saw a 2% increase in same-store units, with strong performance across all segments, including Premium Luxury, Import, and Domestic [6][16] - Used Vehicle sales decreased nearly 8% year-over-year but showed sequential growth, with strong demand for vehicles priced under $20,000 [7][17] - Customer Financial Services (CFS) experienced sequential improvement, with product attachment rates and CFS PVRs exceeding previous records, and AN Finance originated over $700 million in new loans year-to-date [8][19] Market Data and Key Metrics Changes - New Vehicle inventory levels were at 46,000 units at the end of September, reflecting a 52-day sales supply, which is consistent with prior periods after adjusting for the CDK impacts [16] - Used Vehicle PVR was down approximately 9% year-over-year but remained stable sequentially, with a notable shift towards lower-priced vehicles [18] - The After-Sales segment grew gross profit by more than 3% year-over-year, now representing nearly half of total gross profit [20] Company Strategy and Development Direction - The company is focusing on capital allocation opportunities, including share repurchases and potential acquisitions, while also optimizing its portfolio through divestitures [10][22] - There is an expectation of moderation in seller expectations for franchise store valuations, allowing for more capital deployment in acquisitions that yield higher returns [11][22] - The company aims to enhance its self-sourcing capabilities for Used Vehicles to maintain and improve margin performance [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving affordability due to interest rate reductions, which is expected to lift demand for both new and used vehicles [25] - The company is encouraged by the stabilization of new car margins and anticipates that the fourth quarter will benefit from seasonal strength in premium luxury brands [17][25] - Management acknowledged the challenges faced in Q3, including the CDK outage and weather-related store closures, but noted a strong recovery in performance [6][25] Other Important Information - The company divested eight franchise stores during the quarter, generating over $150 million in proceeds, which will be used for capital reallocation [10][14] - Adjusted free cash flow year-to-date through September was $467 million, down from $850 million a year ago, reflecting changes in earnings and the impact of the CDK outage [21] Q&A Session Summary Question: Impact of warranty work from stop-sales on parts and service growth - Management noted that there is potential for growth in customer pay due to increased warranty work from stop-sales, with a focus on improving penetration in various vehicle age segments [27][28] Question: Clarification on AutoNation Finance's ABS deal and funding costs - Management indicated that the first ABS deal is expected next year, which should lower funding costs compared to current warehouse lines, but specific numbers are not yet available [30][31] Question: Trends in used car business post-CDK outage - Management reported that used car performance improved throughout Q3, with a better inventory position entering Q4, leading to an optimistic outlook for used vehicle sales [39][40] Question: Effects of storms on sales and service - Management confirmed that while the sales side typically recovers quickly post-storm, the service side experiences lingering effects, with some downtime but overall manageable impacts [41][42] Question: After-Sales growth and its underlying strength - Management emphasized that After-Sales growth was strong despite challenges, with a focus on technician recruitment and retention to further enhance service capabilities [47][48]