AutoNation Inc. (AN:US), the largest U.S. retailer of new vehicles, reported quarterly profit that beat analysts’ estimates and said a housing rebound will help make the auto market’s growth sustainable.
Second-quarter net income rose to $78.6 million from $71.9 million a year earlier, the Fort Lauderdale, Florida-based company said today in a statement. Profit from continuing operations climbed to 66 cents a share, topping the 59-cent average estimate (AN:US) of 13 analysts surveyed by Bloomberg. Sales increased 17 percent to $3.9 billion.
Pent-up demand that has helped fuel the U.S. auto market’s growth since industry sales plunged to a 27-year low in 2009 is also starting to show in the housing market, Mike Jackson, AutoNation’s chief executive officer, said in a phone interview. New-home construction has historically performed in tandem with deliveries of pickups in the U.S.
“If you look at the sustainability of the automotive recovery, there are fundamental drivers there that are going to push through a weak economy,” Jackson said. “The same thing is about to happen in the housing industry.”
Population growth continued even as home construction came to a “practical standstill,” Jackson said. That’s helped clear much of the oversupply of U.S. homes, he said.
“The formation of new households is going to resume, and therefore you’re going to have to build houses again,” Jackson said. “We’re coming up on that inflection point. People only live with their parents so long. My sense is we’re coming up on that moment.”
AutoNation fell 3.9 percent to $40.78 at the close today in New York. The shares, which ended trading yesterday at the highest since September 1990, have climbed 11 percent this year.
Housing starts rose 6.9 percent to a 760,000 annual pace in June, the highest level in almost four years, the Commerce Department reported yesterday in Washington. Confidence among U.S. homebuilders increased in July by the most since September 2002, the National Association of Home Builders/Wells Fargo index showed on July 17.
A recovering housing market and improvements in the fuel economy of pickups such as Ford Motor Co. (F:US)’s F-Series will help sustain growth in truck sales, Michael Maroone, AutoNation’s chief operating officer, said in a phone interview. General Motors Co. (GM:US) plans to introduce redesigned trucks next year after Chrysler Group LLC begins selling refreshed light-duty pickups in this year’s fourth quarter.
“It’s not going to be back to pre-disruption levels until you see a bigger pickup in housing, but you’ve got trucks that are very old, very beat up on the road and there is a pent-up demand,” Maroone said. “The new products and the fuel efficiency will all stimulate it.”
AutoNation boosted new-vehicle sales by 19 percent in the year’s first six months to 128,503 cars and light trucks, according to the company’s statement. The industry’s gain for the period was 15 percent, according to researcher Autodata Corp.
AutoNation benefited in the quarter from the resurgence of Toyota Motor Corp. (7203) and Honda Motor Co. (7267), whose U.S. vehicle sales increased by more than the industrywide gain in May and June. Japan-based automakers, which make up more than half of AutoNation’s new-vehicle sales, shipped fewer autos to dealers a year ago due to parts shortages after the nation’s tsunami.
New-vehicle supply at AutoNation’s dealership ended the quarter at 49,200, Maroone said on a conference call, a 26 percent increase from a year earlier.
U.S. sales are on pace to rise by at least 10 percent for three straight years for the first time since 1973. Light- vehicle sales increased 11 percent in 2010 and 10 percent last year after falling to 10.4 million in 2009, the lowest annual total since 1982, according to Woodcliff Lake, New Jersey-based Autodata.
AutoNation forecasts industrywide light-vehicle sales will be “mid-14 million” this year.
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