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Lithia Motors (LAD) Q4 Earnings Lag Estimates, Rise 7% Y/Y

Zacks

Lithia Motors Inc. LAD recorded a 7% rise in adjusted earnings per share to $1.86 in the fourth quarter of 2016 from $1.74 in the prior-year quarter. However, earnings missed the Zacks Consensus Estimate of $1.87. Adjusted net income rose almost 2% to $46.9 million from $46.1 million in the year-ago quarter.

Net income, on a reported basis, was $51.3 million or $2.03 per share compared with $47.7 million or $1.80 in the fourth quarter of 2015.

Revenues for the reported quarter went up 15% to $2.29 billion from $2 billion in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of $2.25 billion.

Revenues from new vehicle retail sales increased 14.4% to $1.3 billion in the quarter. New vehicle retail sales volume improved 12.2% to 38,547 units. Revenues per vehicle rose 1.9% to $34,655.

Revenues from used vehicle retail increased 19.2% to $559.7 million in the quarter. Revenues from used vehicle wholesale rose 10.2% to $69.5 million. Used vehicle retail sales volume improved 19.6% to 28,715 units, with revenues per vehicle declining 0.3% to $19,491.

Revenues from service body and parts went up 18.3% to $228.4 million. Meanwhile, the company’s finance and insurance business recorded a 21.9% rise in revenues to $84.5 million. Revenues from fleet and other decreased 54.1% to $14 million.

Gross profit increased 14.1% to $334.8 million in the reported quarter from $293.4 million in the year-ago quarter. Adjusted operating income improved 6% to $87 million from $82 million in the fourth quarter of 2015.


Lithia Motors, Inc. Price, Consensus and EPS Surprise


2016 Performance

Adjusted earnings for 2016 increased 6% to $7.42 per share from $7.02 in 2015. The figure missed the Zacks Consensus Estimate of $7.43. Including one-time items, earnings in 2016 was at $7.72, up from $6.91 in 2015.

Revenues for 2016 rose 10% to $8.68 billion but missed the Zacks Consensus Estimate of $8.76 billion.

Segment Details

Revenues at the Domestic segment increased 16.1% to $886.2 million as retail new vehicle unit sales rose 12.6% to 12,531 vehicles. The segment’s income dropped 7.4% to $21.8 million in the quarter under review.

Revenues at the Import segment went up 19.9% to $987.2 million on a 15.3% rise in retail new vehicle unit sales to 21,188 automobiles. Segment income improved 6.8% to $23.3 million in the reported quarter.

Revenues at the Luxury segment rose 2.7% to $417.5 billion. Retail new vehicle sales inched up 0.4% to 4,924 luxury vehicles. Meanwhile, the segment's income fell 8.4% to $9.7 million in the quarter.

Financial Details

Lithia Motors had cash and cash equivalents of $50.3 million as of Dec 31, 2016, up from $45 million as of Dec 31, 2015. Total debt was $790.9 million as of Dec 31, 2016, compared with $643.2 million as of Dec 31, 2015.

Dividend & Share Repurchase

Lithia Motors announced a quarterly dividend of 25 cents per share. The dividend will be paid on Mar 24, to shareholders on record as of Mar 10, 2017.

In the fourth quarter of 2016, the company repurchased 47,250 shares at an average price of $91.68 per share. In 2016, it repurchased 1.4 million shares for $113 million at an average price of $80.24 per share. Under the current share repurchase authorization of $250 million, Lithia Motors has around $193 million available for future repurchase.

Acquisition

In 2016, Lithia Motors completed the acquisition of 15 stores. These stores are expected to increase annual revenue by $1.1 billion.

Outlook

Lithia Motors anticipates earnings of $8–$8.30 per share for full-year 2017. The company expects revenues between $9.2 billion and $9.4 billion for 2017.

Price Performance

Lithia Motors has been outperforming the Zacks categorized Retail/Wholesale Auto/Truck industry for over the last three months. During the period, Lithia Motors gained 20.9% while the industry witnessed an 11.7% rise. Active share repurchase policy and expansion through acquisition should prove beneficial.


Zacks Rank & Key Picks

Lithia Motors currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the auto space include Honda Motor Co., Ltd. HMC, Fox Factory Holding Corp FOXF and General Motors Company GM. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected earnings growth rate of around 16.6% for the current year.
Honda has an expected earnings growth rate of around 27% for the current year, while the same for General Motors is pegged at 9.4%.

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