Key Highlights

  • Adjusted EPS of USD 10.34 rose 9%, above consensus near USD 9.70.
  • Record revenue of USD 9.9 billion rose 2.8% year over year.
  • Used retail gross profit per unit climbed 11.1% to USD 1,970.
  • Quarterly dividend rose 7% to USD 0.75 per share.

Lithia & Driveway (NYSE:LAD) reported third-quarter results on Wednesday, Oct. 21, with adjusted diluted EPS of USD 10.34, up 9% from USD 9.50 a year earlier. Consensus estimates sat near USD 9.70 to USD 9.77, and revenue of USD 9.95 billion was above the roughly USD 9.73 billion to USD 9.75 billion estimate.

The company describes itself as the largest global automotive retailer, with stores across the United States, Canada and the United Kingdom. Shares were up 5.66% in premarket trading on Wednesday at USD 316.86, against a USD 299.89 close.

Earnings Quality and Margins

Reported diluted EPS was USD 13.22, up 54%, lifted by an unrealized gain on the company's investment in Pinewood Technologies Group. Net income was USD 292.9 million, up 34.0%, while adjusted net income fell 5% to USD 229.3 million.

Gross profit rose 2.0% to USD 1,495.8 million, with the gross margin at 15.0% against 15.2%. Income from operations eased 0.3% to USD 420.2 million as selling, general and administrative expense rose 3.8%.

Share count did much of the work for per-share growth. Diluted shares fell 12.7% to 22.0 million, and the company bought back USD 85 million of stock in the quarter, or 1.1% of shares outstanding.

Vehicle Sales, Aftersales and Finance

New vehicle revenue rose 1.6% to USD 4,868.6 million on 1.1% more units, but gross profit per new unit fell 5.7% to USD 2,635. Used retail units rose 0.6%, and gross profit per used unit climbed USD 197, or 11%, to USD 1,970.

Aftersales gross margin widened to 59.4% from 58.3%, and same-store aftersales gross profit grew 2.4%. Finance and insurance revenue declined 4.5%.

Financing operations income rose 69.1% to USD 32.3 million on record originations of USD 937 million and an 18.3% penetration rate. Average managed finance receivables reached USD 5,558.0 million, up from USD 4,541.8 million.

Capital Returns and Governance

The board declared a USD 0.75 quarterly dividend, a 7% increase, payable on Nov. 20 to holders of record on Nov. 6. The company repurchased about 246,000 shares at a weighted average price of USD 345, with roughly USD 535 million of authorization left.

Bryan DeBoer, the president and chief executive officer, became chairman effective Oct. 19 and keeps the chief executive role. The company's founder moves to vice chairman, and an independent director remains lead independent director. DeBoer said strategy and priorities are unchanged.

The company added two stores in the quarter and sold two, then acquired two Hyundai and two Kia stores in Memphis in October. Year-to-date acquisitions represent USD 1.17 billion in annualized revenue.

Items to Watch

Net debt to adjusted EBITDA was 3.07x against 2.63x a year earlier, with floor plan notes payable up 34.9% to USD 6,566.8 million. New vehicle gross profit per unit, used margins, Driveway Finance provisioning and that leverage ratio are the figures to follow. The company's call began at 10:00 a.m. Eastern on Wednesday.