Lithia Motors ((LAD)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Lithia Motors’ recent earnings call conveyed a generally positive sentiment, highlighting strong growth in revenue and earnings per share (EPS), primarily driven by robust performance in used vehicle sales and aftersales. The company also made significant strides in finance and insurance (F&I) revenue and inventory management. However, challenges were acknowledged, including decreased vehicle gross profit per unit, efficiency issues in selling, general, and administrative (SG&A) expenses, and underperformance in the UK market.
Revenue and EPS Growth
Lithia Motors reported quarterly revenue of $9.7 billion, marking a 4.9% increase compared to the previous year. The adjusted diluted EPS rose by 17% to $9.50, reflecting strong performance across all business lines. This growth underscores the company’s ability to execute effectively and capitalize on market opportunities.
Used Vehicle and Aftersales Segments
The used vehicle segment showed impressive growth, with retail revenue increasing by 11.8% and unit growth up by 6.3%. The aftersales segment also performed well, with revenue rising by 3.9% and gross profit increasing by 9.1%, resulting in expanded margins of 58.4%.
F&I Revenue Growth
Finance and insurance revenue saw a 5.7% increase, with F&I per retail unit reaching $1,847, which is $20 higher than the previous year. This growth highlights the company’s effective strategies in enhancing its F&I offerings.
Improved Vehicle Inventory Management
Lithia Motors improved its vehicle inventory management, reducing the new day supply to 52 days, an 11-day sequential decrease. This improvement in inventory management is crucial for maintaining operational efficiency and cost control.
Driveway Finance Penetration Growth
Driveway Finance achieved a significant milestone with a 15% penetration rate, contributing to stable earnings. This achievement was reached earlier than expected, showcasing the company’s strategic focus on expanding its finance operations.
Share Buyback and Capital Strategy
The company repurchased 5.1% of its outstanding shares, emphasizing its commitment to long-term accretion and maintaining a strong balance sheet. This strategic capital allocation is aimed at enhancing shareholder value.
Decreased Vehicle Gross Profit per Unit
Despite the overall positive performance, Lithia Motors faced a decrease in total vehicle gross profit per unit (GPU), which was $4,109, down $216 year over year. The new GPU also saw a sequential decline of $348, indicating challenges in maintaining profit margins.
SG&A Efficiency Challenges
The company struggled with SG&A efficiency, as adjusted SG&A as a percentage of gross profit increased to 67.9% from 66% a year ago. This indicates ongoing challenges in controlling operational costs.
UK Market Performance
Lithia Motors experienced a 2.4% decline in profitability in the UK market, attributed to labor market changes and regulatory costs. This underperformance highlights the challenges faced in international markets.
Forward-Looking Guidance
Looking ahead, Lithia Motors remains optimistic about its financial performance, with expectations of sustained growth driven by strong execution across business lines. The company plans to focus on high-margin segments and disciplined capital allocation, including significant share repurchases, to enhance shareholder value. The strategic emphasis on cost control and expanding finance operations is expected to support continued growth.
In summary, Lithia Motors’ earnings call reflected a positive outlook with strong revenue and EPS growth, driven by used vehicle sales and aftersales. While challenges in vehicle gross profit and SG&A efficiency were noted, the company’s strategic initiatives in finance operations and inventory management position it well for future growth. The focus on shareholder value through capital strategy further underscores its commitment to long-term success.