Group 1 Automotive (GPI) Q1 Earnings Beat, Revenues Miss

Share price of Group 1 Automotive Inc. GPI increased 7% to $66.37 on Apr 27, after the company reported impressive first-quarter 2016 results. Group 1 Automotive reported an 8.2% year-over-year increase in earnings per share to $1.59 in the first quarter of 2016 that surpassed the Zacks Consensus Estimate by 9 cents. Adjusted net income rose 3.5% to $37.1 million from $35.8 million in the year-ago quarter.
 

 

Including net after-tax charges related to insurance deductibles associated with vehicle damage from hailstorms in the U.S. and charges for the divestment of four stores in Brazil in the reported quarter, Group 1 Automotive recorded a net income of $34.3 million or $1.47 per share.  In the prior-year quarter, the company recorded a net profit of $35.8 million or $1.47 per share.

Revenues increased 7.2% year over year to $2.61 billion but missed the Zacks Consensus Estimate of $2.63 billion. Revenues benefited from strong performance in the U.K and better used vehicle and service performance in the U.S segment.

Revenues from new vehicle retail sales rose 5.8% to $1.4 billion on a 3.9% increase in unit sales to 40,781 vehicles. Revenues from retailed used vehicles improved 10.4% to $688.2 million on a 9.4% rise in unit sales to 32,791 vehicles. Revenues from used vehicle wholesale sales inched up 1.4% to $101.6 million. Used vehicles' wholesale volume increased 3.1% to 14,366 units.

Revenues from the Parts and Service business improved 9.4% to $308.6 million. The company's Finance and Insurance business witnessed a 5.9% rise in revenues to $100.1 million.

Gross profit increased 6.9% to $389.1 million from $363.9 million in the year-ago quarter. Operating income improved 1.6% to $82 million from $80.7 million in the first quarter of 2015.

Segment Details

Revenues in the U.S. business rose 4.2% to $2.1 billion on the back of better performance in all operations. The segment recorded a 1.2% increase in new vehicle sales to $1.1 billion and an 8% rise in total used vehicles' sales to $627.6 million. Parts and Service revenue increased 8.4%, while Finance and Insurance revenues improved 3.6%.

Revenues in the U.K. business augmented 44.2% to $431.9 million from $299.5 million in the year-ago quarter. Retail new vehicle sales surged 63% to $246.5 million and total used vehicle sales escalated 21.3% to $142.1 million. Parts and Service revenue increased 35%, while Finance and Insurance revenues advanced 56.7%.

Revenues from the Brazil business fell 29.7% to $94.8 million in the reported quarter. New vehicle retail sales decreased 33.3% to $62.9 million, while total used vehicle sales declined 19.5% to $20 million. Parts and Service revenue went down 22.5%, while Finance and Insurance revenues plunged 32.3%.

Financial Details

Group 1 Automotive's cash and cash equivalents increased 71.7% to $22.4 million as of Mar 31, 2016, from $13 million as of Dec 31, 2015. Total debt amounted to $412.7 million as of Mar 31, 2016, compared with $372.3 million as of Dec 31, 2015.

Share Repurchase

During the first quarter of 2016, Group 1 Automotive repurchased 576,230 shares at an average price of $55.44 per share, for a total of $31.9 million. From Mar 31, 2016 through Apr 27, the company repurchased 911,270 shares at an average price of $54.87 per share, for a total of $50 million. As of Apr 27, 2016, the company had $68.1 million remaining under its share repurchase authorization.

Acquisitions & Dispositions

In Feb 2016, Group 1 Automotive completed the acquisition of 15 franchises in the U.K. In Apr 2016, the company acquired 2 franchises in Brazil, including BMW and Toyota, and started operations at the Land Rover and Jaguar open point. These dealerships are expected to boost Group 1 Automotive's revenues by $595 million per annum.

In addition, Group 1 Automotive disposed of a Volkswagen franchise and Toyota franchise in the U.S. From Jan 1, 2016 through Apr 27, the company also disposed of 3 stores in Brazil, including 2 Nissan franchises and a Peugeot franchise. The company also plans to dispose of another Peugeot store later this year. These dealerships generated $110 million in annual revenues.

Zacks Rank

Currently, Group 1 Automotive carries a Zacks Rank #3 (Hold).

Some better-ranked automobile stocks include Lear Corp. LEA, Federal-Mogul Holdings Corporation FDML and Superior Industries International, Inc. SUP. All three stocks sport a Zacks Rank #1 (Strong Buy).

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