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Bloomberg
AutoNation Inc., the largest auto retailer in the US, reversed early-morning losses to reach a five-week high after convincing investors it can weather a plateau in new-vehicle sales and rebound from a quarter that missed analyst expectations.
Shares in the dealership group rose 3 percent to $49.49 after touching $50.24, the highest intraday price since March 14. The stock’s gains followed a 5.3 percent decline earlier after its first-quarter revenue fell shy of estimates.
Chief Executive Officer Mike Jackson acknowledged slowing sales growth in the US and said the company is meeting it head-on; cutting back on vehicle orders and calling on automakers to reduce production, which he hinted may already be happening to avoid oversupplying the market. He said that AutoNation remains optimistic, pointing out a recent acquisition and $371 million spent on recent share buybacks.
It’s “a historically cautious guy having some optimism on the outlook,†said Bret Jordan, an analyst at Jefferies with a hold rating on the stock. “I think people are recognising that it’s not the end of the world if we have a slowdown in new vehicle demand, and that valuation-wise these have been sold down a bit,†he said of auto retailers.
AutoNation, based in Fort Lauderdale, Florida, said in a statement that first-quarter revenue rose 3.5 percent to $5.12 billion, missing the $5.3 billion estimate of 13 analysts.
Investors have been skittish about auto stocks and retailers amid signs of slowing demand for new vehicles. AutoNation tumbled quickly after its revenue miss Friday, one day after competitor Lithia Motors Inc. trimmed its new-vehicle sales projections and its shares fell the most in 18 months. A quarter of AutoNation’s new-vehicle sales are in markets with high employment in the oil and gas sector, making them particularly susceptible to weakening demand as the price of oil tumbled.
“Our volume results are very much a reflection of the economic stress that’s in the markets we’re in,†Jackson said on the call.
New-vehicle retail sales were “flat†for the quarter despite rising incentives, strong lease penetration and ample inventories, Jackson said. He did, however, say he still expects the industry to sell more than 17 million new-vehicles this year, resorting to more incentives and fleet sales if necessary. The industry is much more equipped to handle a plateau than it was in 2008-2009, he said, because it’s addressed much of the capacity and cost issues that plagued automakers.