On July 31, 2024, AutoNation Inc (AN, Financial) released its 8-K filing for the second quarter of 2024, revealing a challenging period impacted by a significant cyber incident. The company reported revenue of $6.5 billion and an EPS of $3.20, both falling short of analyst estimates of $6.723 billion in revenue and $4.23 in EPS.
Company Overview
AutoNation is the second largest automotive dealer in the United States, with 2023 revenue of about $27 billion and over 250 dealerships, plus 53 collision centers. The firm also has 23 AutoNation USA used-vehicle stores, a captive lender, four auction sites, and three parts distributors across 21 states, primarily in Sunbelt metropolitan areas. New-vehicle sales account for nearly half of revenue; the company also sells used vehicles, parts, and repair services as well as auto financing. The company (formerly Republic Industries) spun off its waste management unit (Republic Services) in 1999 and its car rental businesses (ANC Rental) in 2000. Wayne Huizenga founded the company in the 1990s to bring the rollup acquisition strategy to auto retailing, which has proved to be a smart move.
Performance and Challenges
AutoNation Inc (AN, Financial) faced a challenging second quarter, with revenue declining by 6% year-over-year to $6.5 billion, primarily due to the CDK Global cyber incident, which disrupted the company's dealer management system. This outage reduced earnings per share by an estimated $1.55, including $0.79 of one-time costs. The company's gross profit also fell by 13% to $1.2 billion, and net income dropped by 52% to $130.2 million.
Financial Achievements
Despite the setbacks, AutoNation Inc (AN, Financial) reported some positive developments. The after-sales gross profit margin improved by 60 basis points from Q2 2023 to 48.0%, and the company generated strong free cash flow. Year-to-date share repurchases amounted to $350 million, reflecting a continued focus on capital allocation.
Income Statement Highlights
| Metric | Q2 2024 | Q2 2023 | YoY Change |
|---|---|---|---|
| Revenue | $6.5 billion | $6.9 billion | -6% |
| Gross Profit | $1.2 billion | $1.3 billion | -13% |
| Operating Income | $275 million | $439 million | -37% |
| Net Income | $130.2 million | $272.5 million | -52% |
| Diluted EPS | $3.20 | $6.02 | -47% |
Segment Performance
AutoNation Inc (AN, Financial) operates in three segments: Domestic, Import, and Premium Luxury. The Domestic segment saw a revenue decrease of 11% to $1.7 billion, while the Import segment's revenue increased by 1% to $2.0 billion. The Premium Luxury segment experienced an 8% decline in revenue to $2.4 billion.
Capital Allocation and Liquidity
During the quarter, AutoNation repurchased 2.0 million shares of common stock for an aggregate purchase price of $311 million. As of June 30, 2024, the company had $1.6 billion of liquidity, including $86 million in cash and $1.5 billion of availability under its revolving credit facility. The company's covenant leverage ratio stood at 2.53x, with $4.0 billion of non-vehicle debt outstanding.
Analysis
AutoNation Inc (AN, Financial) faced significant challenges in Q2 2024 due to the CDK Global cyber incident, which impacted its financial performance. However, the company's strong free cash flow and focus on capital allocation, including substantial share repurchases, demonstrate resilience. The improvement in after-sales gross profit margin and operational continuity post-CDK outage are positive signs for future performance.
“An otherwise strong quarter for AutoNation was masked by the CDK outage. Margin performance in After-Sales and trends in vehicle margins were encouraging and our cash generation continues to support capital deployment focused on shareholder returns, including the repurchase of more than 5% of our shares outstanding year to date. We are encouraged by the health of the markets we serve and look forward to delivering a strong second half,” said Mike Manley, AutoNation’s Chief Executive Officer.
For more detailed information, please refer to the full 8-K filing.
Explore the complete 8-K earnings release (here) from AutoNation Inc for further details.
