Group 1 Automotive (GPI) Q2 Earnings Beat, Revenues Miss

Share price of Group 1 Automotive Inc. GPI increased 5.4% to $62.32 on Jul 29, after the company reported second-quarter 2016 results. Group 1 Automotive reported a 9.1% year-over-year increase in earnings per share to $2.16 in the second quarter of 2016 that surpassed the Zacks Consensus Estimate by 6 cents. Adjusted net income dropped 1.1% to $47.4 million from $47.9 million in the year-ago quarter.
 

On reported basis, Group 1 Automotive recorded a net income of $46.6 million or $2.12 per share.  In the prior-year quarter, the company recorded a net profit of $46.3 million or $1.91 per share.

Revenues increased 2.1% year over year to $2.78 billion but missed the Zacks Consensus Estimate of $2.89 billion. The top line benefited from strong performance in the U.K.

Revenues from new vehicle retail sales rose 0.4% to $1.5 billion despite a 2.5% decrease in unit sales to 43,644 vehicles. Revenues from retailed used vehicles improved 4.9% to $715.8 million on a 4.8% rise in unit sales to 32,951 vehicles. Revenues from used vehicle wholesale sales declined 5.2% to $96.3 million. Used vehicles' wholesale volume fell 6.4% to 13,684 units.

Revenues from the Parts and Service business improved 6.2% to $322.1 million. The company's Finance and Insurance business witnessed a 2.2% rise in revenues to $107.6 million.

Gross profit increased 4.7% to $410.1 million from $391.6 million in the year-ago quarter. Operating income dipped 0.7% to $97.4 million from $98 million in the second quarter of 2015.

Segment Details

Revenues in the U.S. business fell 3.5% to $2.2 billion. The segment recorded a 6% decrease in new vehicle sales to $1.2 billion and a 1.3% decline in total used vehicles' sales to $637.3 million. Parts and Service revenue increased 2.4%, while Finance and Insurance revenues decreased 1.6%.

Revenues in the U.K. business augmented 51.8% to $467.8 million from $308.2 million in the year-ago quarter. Retail new vehicle sales surged 63.5% to $262 million and total used vehicle sales escalated 33.6% to $156.2 million. Parts and Service revenue increased 58.5%, while Finance and Insurance revenues advanced 66.1%.

Revenues from the Brazil business fell 18% to $107.3 million in the reported quarter. New vehicle retail sales declined 20.1% to $75.4 million, while total used vehicle sales fell 11.2% to $18.5 million. Parts and Service revenue went down 16.7%, while Finance and Insurance revenues improved 5.9%.

Financial Details

Group 1 Automotive's cash and cash equivalents increased 91.5% to $25 million as of Jun 30, 2016, from $13 million as of Dec 31, 2015. Total debt amounted to $403.1 million as of Jun 30, 2016, compared with $372.3 million as of Dec 31, 2015.

Share Repurchases

During the second quarter of 2016, Group 1 Automotive repurchased 1,462,144 shares at an average price of $56.97 for $83.3 million. From Jul 1, 2016 to Jul 27, 2016, Group 1 Automotive repurchased an additional 244,205 shares at an average price of $50.61 for $12.4 million. As of Jul 27, 2016, the company had $22.4 million remaining under the prior share repurchase authorization.

Year to date, Group 1 Automotive has repurchased 2.3 million shares representing a 10% reduction from the previously announced share count as of Dec 31, 2015.

Acquisitions & Dispositions

In Apr 2016, Group 1 Automotive acquired two franchises in Brazil, including BMW and Toyota, and started operations at the Land Rover and Jaguar open point. These acquisitions will boost the company's revenues by $20 million per annum.

In addition, Group 1 Automotive disposed of a Peugeot franchise in Brazil in Apr 2016. In Jun 2016, it completed the disposition of the last Peugeot store in its portfolio. These dealerships generated $15 million in annual revenues.

Zacks Rank

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

Some better-ranked automobile stocks include The Goodyear Tire & Rubber Company GT, Johnson Controls Inc. JCI and Gentex Corp. GNTX, each carrying a Zacks Rank #2 (Buy).

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