Before the market opened on April 21, Lithia Motors Inc. (LAD, Financial) reported earnings results for its first quarter of fiscal 2021, which ended on March 31.
Both revenue and earnings showed strong growth, setting new records for the company on the back of heightened demand for new and used automobiles. The stock was up 1.82% to around $381.60 per share in midday trading following the news.
Earnings results
For the quarter, the company reported revenue of $4.3 billion, an increase of 55% from the prior-year quarter. GAAP earnings per share came in at $5.81 (up 195%), while adjusted earnings per share was $5.89 (up 193%). Analysts had been expecting revenue of $3.9 billion and adjusted earnings of $4.76 per share.
Quarter over quarter, total revenue improved 54.9%, with new vehicle retail sales up 59.7%, used vehicle retail sales up 54.6% and service, body and parts sales up 22.5%.
Operating profit as a percentage of revenue was 5.6% compared to 3.4% last year, while the net profit margin was 3.6% compared to 1.7%. The gross profit margin was flat year over year at 16.5%.
Bryan DeBoer, President and CEO of Lithia, had the following to say:
"Entering our 75th year in operation, Lithia & Driveway continued to deliver historic operational results driven by our omni-channel strategy and strength in all four business lines. Same store new, used, and F&I revenues were up nearly 30% and service, body, and parts increased slightly when adjusted for one less service day in 2021… The pandemic impacted our first quarter 2020 results only for the last two weeks in March and our team's performance this quarter demonstrates our ability to be the leader in consolidating this highly fragmented industry."
In terms of development, the company opened a new location in Los Angeles and completed the acquisitions of Fields Auto Group in the Greater Orlando, Florida area, Fink Auto Group in Tampa, Florida and Avondale Nissan in Phoenix. The largest acquisition was for The Suburban Collection in the Detroit area. In total, the strategic acquisitions are expected to generate $3.1 billion in annualized revenues.
As of the quarter's end, the company had cash and cash equivalents of $170.3 million on its balance sheet, while long-term debt stood at $2.2 billion.
Looking forward
"With a record $6.5 billion of expected annualized revenue acquired in the first nine months of our five-year plan, we are well ahead of schedule and are only getting started," DeBoer said. "With an acquisition pipeline more active than we have ever seen, we are well positioned to continue to aggressively pursue our goal of achieving $50 billion in revenue and $50 of earnings per share."
Going forward, the company plans to continue its aggressive growth strategy, driven by acquisitions and connected e-commerce offerings, as it aims to consolidate the more fragmented parts of the U.S. automobile retail industry.
Valuation
Given Lithia's aggressive growth strategy and the success that his approach has shown so far in terms of increasing the top and bottom lines rapidly, it would come as no surprise if the stock were trading at high valuation multiples. However, the price-earnings ratio of 19.83 is below the industry median of 23.15, even if it is above the company's own 10-year median price-earnings ratio of 13.08. As per the Peter Lynch chart, the stock is trading only slightly above its intrinsic value, but over the past couple of decades, the price has rarely varied far from this line.
The higher valuation multiples in many U.S. stocks at the moment helps make Lithia look more attractive, as it only seems overvalued by a narrow margin compared to how quickly it is growing. If the company is able to continue its aggressive growth strategy, it seems likely that the stock still has room to run.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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