Jul30
Group 1 profits drops amid auto slump
DETROIT (Reuters) -- Auto retail chain Group 1 Automotive Inc. reported a nearly 29 percent decline in quarterly earnings on Tuesday as sales of new vehicles suffered from an industrywide slump.
The company, which ranks as the fourth-largest U.S. auto retail chain in terms of sales, also cut its forecasts for full-year earnings and for 2008 U.S. auto sales.
Second-quarter net income fell to $17.2 million from $24.2 million during the same quarter a year ago.
Same-store revenue fell 7.1 percent to $1.5 billion, hurt by a 9.9 percent decrease in new-vehicle revenues and a 5.8 percent decline in total used-vehicle revenues.
Group 1's parts and service revenues rose 4.8 percent, and finance and insurance revenues ticked up 0.6 percent. Same-store gross margin improved 60 basis points, to 15.9 percent.
The company cut its forecast for industrywide U.S. new vehicle sales to a range of 14 million to 14.5 million vehicles in 2008.
Also, Group 1 lowered its 2008 full-year capital expenditure estimate to $55 million from $60 million.
"The challenges of the new-vehicle retail market became even more severe in the second quarter," CEO Earl Hesterberg said in a statement.
PRESS RELEASE: Group 1 Automotive Reports Second-Quarter 2008 Financial Results
Earnings Guidance / Acquisition and CapEx Targets Revised
HOUSTON--(BUSINESS WIRE)--Group 1 Automotive, Inc. (NYSE:GPI - News), a Fortune 500 automotive retailer, today reported 2008 second-quarter net income from continuing operations of $18.5 million, or $0.82 per diluted share. This compares to net income of $24.3 million, or $1.02 per diluted share, in the second quarter of 2007. The results in both periods include lease termination and asset impairment charges related to franchise disposals. Excluding the lease termination charge, second-quarter net income from continuing operations was $19.0 million, or $0.84 per diluted share.
Second-quarter 2008 same-store revenues fell 7.1 percent, to $1.5 billion. This decline is primarily due to an 8.2 percent reduction in new vehicle unit sales that resulted in 9.9 percent lower new vehicle revenues, as well as a 5.8 percent decrease in total used vehicle revenues. Retail used vehicle unit sales fell 2.4 percent resulting in a 2.0 percent revenue decline. Consistent with Group 1's strategy of reducing its low-margin used vehicle wholesale business, wholesale used vehicle revenues were 19.7 percent lower as the company wholesaled 13.4 percent fewer vehicles. These declines more than offset a 4.8 percent increase in parts and service revenues, as well as a 0.6 percent increase in finance and insurance (F&I) revenues. The growth in parts and service reflected improvements in all areas of this business. The revenue increase in F&I was realized despite a 6.3 percent retail unit sales decline as lower product costs and improved penetration more than offset the volume decline.
Same-store gross margin improved 60 basis points, to 15.9 percent, from the second quarter of 2007. The gross margin increase reflected an increase in the mix of the higher-margin parts and service and F&I business, partially offset by lower margins in new and used vehicles.
On a consolidated basis, selling, general and administrative (SG&A) expenses as a percent of gross profit increased 160 basis points, to 77.7 percent, as gross profit was down slightly and SG&A expenses grew 1.7 percent, or $3.3 million, from the prior-year period. The increase in absolute expenses is more than explained by acquisitions.
"The challenges of the new vehicle retail market became even more severe in the second quarter, but our performance in the other areas of our business – used vehicles, parts and service, and finance and insurance – substantially tempered the financial impact of reduced new vehicle sales," said Earl J. Hesterberg, Group 1's president and chief executive officer. "The strategic initiatives we launched two years ago, that were focused on the higher-margin used vehicle, parts and service, and finance and insurance businesses, are delivering the desired results and providing meaningful benefits during this period of weaker new vehicle sales."
For the six-month period, Group 1 reported net income from continuing operations of $35.6 million, or $1.57 per diluted share. On a comparable basis, excluding lease termination and asset impairment charges related to franchise disposals for both periods, six-month net income from continuing operations in 2008 was $36.1 million, or $1.59 per diluted share, compared to $45.0 million, or $1.88, in the 2007 period. Six-month same-store revenues were down 5.3 percent to $2.9 billion, reflecting decreases in new vehicle and wholesale used vehicle sales, partially offset by increases in all other aspects of the business. Total same-store gross margin also improved to 16.2 percent from 15.7 percent in the prior-year period.
2008 Acquisition Target Revised / Corporate Development Update
In light of the more challenging economic conditions, Group 1 has lowered its 2008 acquisition revenue target to $200 million from $300 million.
In June, Group 1 acquired Chrysler and Jeep franchises that will operate out of its existing Dodge dealership in the Austin, Texas, market. The two franchises are estimated to generate $7.7 million in annual revenues and will complete the "Alpha" configuration which includes all three Chrysler brands under one roof, as desired by Chrysler LLC. Year to date, Group 1 has acquired a total of five franchises expected to generate $90.2 million in estimated annual revenues toward its revised $200 million acquisition target.
In addition, Group 1 disposed of nine franchises in the second quarter with 12-month revenues of $128.8 million. These dispositions include the sale on June 30 of all seven of Group 1's franchises in New Mexico. The financial results associated with the New Mexico operations have been categorized in the second-quarter financial reporting as "discontinued operations," as the disposition of these six domestic franchises (Chevrolet, Pontiac, Buick, GMC, Chrysler and Jeep) and one import franchise (Mitsubishi) represents Group 1's withdrawal from the New Mexico market. Additionally, Group 1 closed a Ford dealership in Florida and a Volkswagen dealership in South Carolina in the second quarter.
The company also announced that it disposed of four franchises (Pontiac, Buick, GMC and Cadillac) in Beaumont, Texas, in late July.
2008 Full-Year Guidance and Outlook Revised
Group 1 revised its 2008 full-year guidance from continuing operations to a range of $2.65 to $2.95 based on its outlook and the following assumptions:
* Industry seasonally adjusted annual sales rate (SAAR) of 14.0 to 14.5 million vehicles
* Same-store revenues six to seven percent lower
* SG&A expenses as a percent of gross profit at 78 percent to 79 percent, excluding any one-time items, as lower sales revenues are expected to offset cost improvements
* Libor interest rates at current levels throughout 2008
* Tax rate of 38 to 38.5 percent
* Estimated average diluted shares outstanding of 22.8 million
* Guidance excludes the impact of future acquisitions and dispositions, as well as the potential related one-time costs estimated at $10 million to $15 million.
In addition, Group 1 announced that it has lowered its 2008 full-year capital expenditure projection to approximately $55 million from $60 millio
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This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com