AutoNation Sinks as Profit Falls Short of Estimates on Costs

Jul 17, 2014 4:24 pm ET

(Updates with closing share price in second paragraph.)

July 17 (Bloomberg) -- AutoNation Inc. fell the most in five years after the largest U.S. new-vehicle retailer reported quarterly profit that missed analysts’ estimates as investment in an online sales system increased costs.

The shares dropped 8.2 percent to $55.82 at the close in New York, the biggest daily decline since March 2009. The Fort Lauderdale, Florida-based company’s stock has gained 12 percent this year, as the Standard & Poor’s 500 Index rose 5.9 percent.

AutoNation is accelerating spending on its digital brand to $100 million during next few years. By the end of this year, the site should let consumers reserve vehicles, Chief Executive Officer Mike Jackson said in an interview today. AutoNation wants to reduce dealings with companies such as TrueCar Inc. and Cars.com that sell leads of interested car and truck buyers.

“We’re in an investment period in brand and digital,” Jackson said. “You have to make an adjustment as an investor whether you think that will be a worthwhile investment or not.”

AutoNation’s websites now are mostly informational, he said. Later this year, customers also will be able to make a down payment, schedule service appointments and get an offer on a trade-in, Jackson said.

The company’s net income rose 12 percent to $100.4 million, or 83 cents a share, from $89.9 million, or 73 cents, a year earlier, according to a statement today. That trailed the 87- cent average of 11 analyst estimates compiled by Bloomberg.

Revenue increased 8.2 percent to $4.79 billion, in line with projections. AutoNation’s profit was curbed as its sales cost rose 8.4 percent to $4.04 billion.

New-Vehicle Surge

U.S. shoppers are snapping up new vehicles at the fastest pace in almost eight years, encouraged by a strengthening economy and available credit. Last month, light-vehicle sales rose 1.2 percent to 1.42 million, while analysts had predicted a 2.6 percent decline.

U.S. new-vehicle sales may rise 3 percent to 5 percent to more than 16 million this year, Jackson reaffirmed in the statement. Last month, the annualized selling rate, adjusted for seasonal trends, rose to 16.98 million, the highest since July 2006, from 15.9 million a year earlier.