Lithia Motors Shares Up on Q2 Earnings and Revenue Beat

Lithia Motors Inc.’s (LAD) share price rose 4.6% to $94.59 on Jul 23 after the company reported that its second-quarter 2014 adjusted net income was the highest in the company’s history. Adjusted earnings increased 28% to $1.34 per share in the second quarter of 2014 compared with $1.05 earned in the year-ago quarter. Earnings also beat the Zacks Consensus Estimate of $1.25 by 9 cents.

Adjusted net income augmented 29% to $35.2 million from $27.4 million in the year-ago quarter. Alternatively, unadjusted net income from continuing operations was $35.2 million or $1.34 per share, compared to $25.3 million or 97 cents per share in the year-ago quarter.

Thee second quarter 2014 adjusted results from continuing operations exclude non-core charges related to acquisition expenses for the pending DCH combination offset by non-core gains resulting from a tax attribute. As a result, the adjusted and non-adjusted figures are the same. Second quarter 2013 adjusted income from continuing operations excludes 9 cents per share expense for non-core legal reserve related to a case filed in 2006, partly offset by a 1 cent per share benefit from a tax attribute.

Revenues from continuing operations in the reported quarter increased 21% to $1.2 billion from $1 billion in the year-ago quarter. Revenues marginally beat the Zacks Consensus Estimate of $1.19 billion. The improvement in revenues was driven by better performance across all segments, with service, body and parts, and new vehicle and used vehicle sales being the bright spots.

Revenues from new vehicle sales improved 21.9% in the quarter to $694.5 million. New vehicle retail sales increased 20.1% to 20,446 units. Revenues per new vehicle increased 1.5% to $33,967. On a same-store basis, revenues from new vehicle sales went up 12% to $632.8 million.

Revenues from used vehicle retail climbed 20.1% to $310.5 million in the quarter. Revenues from used vehicle wholesale went up 17.5% to $44.3 million. Used vehicle retail sales improved 14.3% to 16,086 units with revenues per vehicle increasing 5.1% to $19,301. Used vehicle wholesale sales improved 15.4% to 6,047 units and revenues per vehicle went up 1.8% to $7,324. Same-store revenues from used vehicle retail sales went up 11% to $285.5 million. Same-store revenues from used vehicle wholesale gained 11.3% to $41.9 million.

Revenues from service body and parts went up 21% to $114.3 million. Meanwhile, the company’s finance and insurance business witnessed a 28.1% rise in revenues to $43.8 million. However, revenues from Fleet and others inched up 1.4% to $14.4 million.

Gross profit increased 20.3% to $192.3 million from $159.8 million in the year-ago quarter. Operating income improved 22.6% to $105.7 million from $86.2 million in the second quarter of 2013.

Financial Details

Lithia Motors had cash and cash equivalents of $28.2 million as of Jun 30, 2014, up from $23.7 million as of Dec 31, 2013. Total debt was $260.8 million as of Jun 30, 2014 compared with $245.5 million as of Dec 31, 2013.

In the first six months of 2014, the company had an operating cash outflow of $4.2 million compared with a cash inflow of $24.4 million in the corresponding period of 2013.

Acquisitions

In Jun 2014, Lithia entered into an agreement with DCH Auto Group Limited to acquire total outstanding shares of DCH Auto Group Inc. The DCH stores are estimated to generate revenues of approximately $2.3 billion per annum.

In Jun 2014, Lithia also acquired Vic Alfonso Cadillac and Braley & Graham Buick GMC in Portland, OR. These stores are expected to generate total annual revenues of $60 million.

In Apr 2014, Lithia acquired Access Ford Lincoln in Corpus Christi, Texas and opened Lithia Chrysler Jeep Dodge Ram of Wasilla in Wasilla, AK. These stores are expected to generate $105 million in estimated total annual revenues.

The company president stated that the acquisition market will continue to remain strong. Lithia purchased 3 more stores in the second quarter of 2014, which totals to 8 stores acquired or opened so far this year.

Dividend and Share Repurchase

The board of directors of the company announced a dividend of 16 cents per share concurrent with the second quarter 2014 financial results, payable to shareholders on Aug 8, 2014.

Lithia repurchased 30,000 shares in the reported quarter at a weighted average price of $75.36 per share.

Outlook

Lithia Motors expects third quarter 2014 earnings in the range of $1.36-$1.38 per share. The company expects revenues between $1.2 billion and $1.3 billion, with a 13% increase in new vehicle same-store sales and a 7.5% rise in used vehicle same-store sales. Same-store sales from service body and parts are expected to improve 8% in the third quarter of 2014.

For the fourth quarter and full-year 2014, the company expects earnings for the combined Lithia/DCH organization to be in the range of $1.23–$1.26 per share and $4.95–$5.00 per share, respectively.

Same store total revenue for the fourth quarter is likely to be in the range of $1.1-$1.2 billion with an 11% rise in new vehicle same-store sales and a 6% increase in used vehicle same-store sales. Same-store sales from service body and parts are expected to improve 8% in the fourth quarter of 2014.

Lithia Motors currently carries a Zacks Rank #1 (Strong Buy).

Other stocks performing well in the auto industry include Asbury Automotive Group, Inc. (ABG) and Penske Automotive Group, Inc. (PAG) and Rush Enterprises, Inc. (RUSHA). All these stocks hold a Zacks Rank #2 (Buy).