AutoNation(AN) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - AutoNation reported a solid fourth quarter with a 3% revenue growth and an 8% adjusted net income growth, leading to a 16% increase in adjusted earnings per share [3][4] - Adjusted free cash flow exceeded $1 billion, up approximately 39% from 2025, with a capital deployment of over $1.5 billion, half of which was allocated to share repurchases [3][10] - The balance sheet remained healthy, with year-end leverage largely unchanged from the prior year at 2.44x EBITDA [4][30] Business Line Data and Key Metrics Changes - Same-store unit sales of new vehicles decreased by 10% in Q4, with a significant decline of 60% in battery electric vehicles and 10% in hybrid powertrain vehicles [5][18] - Used vehicle gross profit increased by 5% for the full year, despite a 6% decline in profit per unit for Q4 [7][20] - Customer Financial Services (CFS) unit profitability grew by 8% year-over-year, with record gross profit per unit achieved [8][21] Market Data and Key Metrics Changes - The industry faced tougher sales comparisons in Q4 2025, with a light vehicle SAR of 16.7 million in Q4 2024, impacting sales negatively [4][18] - New vehicle inventory amounted to 45 days of supply, up from 39 days in Q4 2024 [19] - The used vehicle market remains tight, with a focus on acquiring vehicles through internal channels [21] Company Strategy and Development Direction - AutoNation expanded its presence in key markets through acquisitions, including a Ford and Mazda store in Denver and an Audi and Mercedes store in Chicago [11][29] - The company aims to maintain a balanced capital allocation strategy, focusing on both M&A opportunities and share repurchases [30][56] - The strategy includes improving after-sales growth and maintaining strong cash flow to support future investments [34][27] Management's Comments on Operating Environment and Future Outlook - Management expects the market to be slightly down in 2026 compared to 2025, with potential benefits from tax changes and improved used vehicle market conditions [32][34] - There is a focus on maintaining performance in the CFS business while being aware of consumer sensitivity to monthly payments [33][78] - Management is optimistic about the growth trajectory in after-sales and the potential for continued profitability in the AN Finance portfolio [33][43] Other Important Information - Adjusted EPS for Q4 was $5.08, a 2% increase from the previous year, while full-year adjusted EPS was $20.22, up 16% from 2024 [18][10] - The company repurchased $785 million worth of shares, reducing share count by 10% year-over-year [29][30] Q&A Session Summary Question: Regarding the new car business and unit numbers - Management noted a reduction in OEM dealer-facing incentives and a significant drop in EV volume, which contributed to the decline in same-store sales [38][40] Question: On AutoNation Finance's profitability cadence - Management expressed confidence in continued profitability growth, with a starting point of $6 million in Q4 and expectations for improvement throughout 2026 [41][42] Question: Capital spending and M&A market outlook - Management indicated that 2026 capital spending levels would be similar to 2025, with ongoing opportunities in the M&A market [52][54] Question: Trends in hybrid and electric vehicle GPUs - Management observed a decline in hybrid GPUs and flat performance for battery electric vehicles, with expectations for improvement in hybrid margins in 2026 [60][62] Question: Consumer credit availability and affordability pressures - Management acknowledged significant growth in monthly payments and anticipated some relief in charged APR, while emphasizing the importance of affordability in the new car market [77][78]