Asbury’s Q2 net drops 13% to $32 million

on Jul26

Asbury CEO Craig Monaghan: “Softening automotive retail environment.”

UPDATED: 7/25/17 4:15 pm ET – adds stock close

Asbury Automotive Group Inc.’s second-quarter net income dropped 13 percent as declines in vehicle sales were mitigated in part by the dealership group’s performance in two key departments.

Asbury’s revenue inched up less than a percent to $1.63 billion, the dealership group said in a statement Tuesday. On a same-store basis, total revenue rose 2 percent to $1.58 billion.

For the six-month period ending June 30, Asbury’s total revenue of $3.18 billion was flat with the prior-year period. Net income was down at $65.9 million compared with $67.7 million.

“In a softening automotive retail environment, we are pleased to have increased our same-store revenue and gross profit by 2 percent this quarter compared to the prior year,” said CEO Craig Monaghan in a statement.

Wall Street reacted by pushing down Asbury shares 5.8 percent to close at $53.50.

Asbury said it still can deliver low- to mid-single-digit earnings per share growth in the remaining quarters.

“Even though we experienced margin pressure, our ability to drive incremental used sales, enhance F&I [per vehicle revenue], and grow parts and service enable us to deliver industry leading operating margins,” said David Hult, Asbury’s COO, in a statement. “Our investments in digital technologies and lead management initiatives are yielding solid results and we will continue to invest in this area in the future.”

Asbury sold 25,131 new vehicles in the quarter, a 2 percent decline from the year-earlier period. The average gross profit per new unit sold was down 12 percent to $1,631. But it saw gains in used vehicle sales, selling 20,263, up 3 percent. There too, average gross profits per used vehicle sold fell by 10 percent to $1,604.

New-vehicle sales comprised 54.1 percent of Asbury’s revenue mix; used-vehicle retail sales made up 26.4 percent.

On a same-store basis, new-vehicle sales declined 1 percent from the year-earlier period to 24,369 vehicles, beating the new light-vehicle sales industrywide drop of 2.7 percent in the second quarter, according to the Automotive News Data Center. Asbury’s used sales rose 6 percent to 19,531 vehicles.

Its average gross profit per new vehicle sold declined 13 percent to $1,625; on used cars, it was down 11 percent to $1,592.

Analyst reaction

Wells Fargo analyst David Lim described the report as “not good.” 

“What stood out was both new and used vehicle gross margins were unimpressive reporting yr/yr compression,” he wrote in a Tuesday report after the earnings release. “In our view, new vehicle margins were likely sacrificed to maintain volume.”

On a same-store basis, the F&I average gross profit per unit increased 6 percent to $1,522.

Asbury’s new-vehicle revenue was flat at $857 million in the second quarter. Used-vehicle revenue rose 4 percent to $463.8 million.

Wholesale used-vehicle revenue dropped 5 percent to $47.4 million in the second quarter.

Parts and service revenue was up 6 percent to $197.1 million.

Asbury is headquartered in Duluth, Ga. It ranks No. 7 on Automotive News‘ list of top 150 dealership groups in the U.S. with retail sales of 102,360 in 2016. It operates 79 dealerships across the U.S.

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