For auto retailers, pandemic-era profit boost in rear-view mirror

July 19 (Reuters) – Revenue progress at U.S. automobile sellers is prone to lose momentum within the second quarter, because the auto business struggles to ramp up manufacturing on account of components scarcity, whereas inflation-fueled value hikes maintain consumers out of the market.

Desire for private transport from cash-flushed Individuals throughout the pandemic turbo-charged auto gross sales final 12 months, regardless of value hikes, serving to retailers akin to AutoNation Inc (AN.N), Lithia & Driveway (LAD.N), Group 1 Automotive Inc (GPI.N) and Asbury Automotive Group Inc (ABG.N).

Nonetheless, with inflation posing a menace to total client spending, auto sellers will discover it robust to match their efficiency within the comparable interval as car costs are set to fall from report highs.

“Costs are nonetheless hitting report highs however there’s concern that there may very well be a decline within the second half of the 12 months with a recession trying increasingly more doubtless,” CFRA analyst Garrett Nelson stated.

Retailer margins are set to reasonable “fairly materially” within the second half, Nelson added.

American’s affordability of latest automobiles slipped in June from a 12 months earlier, when costs had been decrease and incentives greater, in keeping with the Cox Automotive/Moody’s Analytics Car Affordability Index.

The business’s struggles with chip scarcity and provide chain disruptions have additionally led to a 25% drop in stock initially of June, which is a 3rd of the pre-pandemic degree, in keeping with analytics agency Wards Intelligence.

Buyers can be awaiting feedback from business executives for warning indicators on client conduct in a hyper-inflationary surroundings. (https://reut.rs/3INok32)

AutoNation Inc (AN.N), the biggest U.S. retailer, is predicted to report its slowest quarterly revenue progress since 2020 when it stories outcomes on Thursday.

Different sellers akin to Lithia & Driveway (LAD.N), Group 1 Automotive Inc (GPI.N) and Asbury Automotive Inc (ABG.N) are additionally anticipated to report weak earnings over the subsequent few weeks.

THE CONTEXT

Trade executives and analysts say demand for automobiles has been sturdy up to now, regardless of value hikes, which have additionally protected earnings at retailers and automakers akin to Basic Motors Co (GM.N) and Ford Motor Co (F.N).

Nonetheless, latest knowledge and business evaluation present that inflation is slowly consuming into gross sales.

“Channel checks recommend demand has softened, significantly in mid- to low-priced automobiles, and we’re assuming some step-down in GPUs and unit gross sales,” Stephens analyst Daniel Imbro stated.

Retail gross sales of latest automobiles in June fell 18.2%, a report from auto business consultants J.D. Energy and LMC Automotive confirmed.

Nonetheless, demand for high-end automobiles is robust, J.P. Morgan analysts say, and may cushion falling gross sales of lower- and mid-range automobiles.

FUNDAMENTALS

AutoNation:

* Analysts estimate Q2 income to develop 0.3% to $7 billion when it stories outcomes on July 21

* Earnings per share (EPS) estimated at $6.22

* The inventory has gained about 0.3% of its worth this 12 months

Lithia & Driveway:

* Analysts estimate Q2 income to develop 21.1% to $7.279 billion

* EPS estimated at $12.05

* The inventory has misplaced about 4.4% of its worth this 12 months

Group 1 Automotive:

* Q2 income is predicted to develop 10.8% to $4.1 billion

* EPS estimated at $10.74

* The inventory has misplaced about 13% of its worth this 12 months

Asbury Automotive:

* Asbury Automotive Q2 income is predicted to develop 51% to $3.9 billion

* EPS estimated at $8.82

* The inventory has misplaced about 3.9% of its worth this 12 months

WALL STREET SENTIMENT

* For AN, 6 out of 11 analysts price the inventory “purchase” or greater, whereas 5 have a “maintain” ranking

* The median value goal is $147

* For LAD, 11 out of 13 analysts price the inventory “purchase” or greater, whereas one has a “maintain” ranking and one “promote” ranking

* The median value goal is $450

* For GPI, 5 out of 8 analysts price the inventory “purchase” or greater, whereas 2 have a “maintain” ranking and one “promote” ranking

* The median value goal is $300

* For ABG, 4 out of 8 analysts price the inventory “purchase” or greater, whereas 3 have a “maintain” ranking and one “promote” ranking

* The median value goal is $232.5

Reporting by Kannaki Deka and Nathan Gomes in Bengaluru; Enhancing by Anil D’Silva

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