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Lithia Motors Reports Adjusted EPS of $1.34 for the Second Quarter of 2014, an Increase of 28% Over the Prior Year
2014-07-23 07:28 ET - News Release
Lithia Motors Declares $0.16 Per Share Dividend for Second Quarter
Company Website: https://www.lithia.com
MEDFORD, Ore. -- (Business Wire)
Lithia Motors, Inc. (NYSE: LAD) reported the highest quarterly adjusted net income in Company history and an increase in adjusted net income from continuing operations of 29% for the second quarter 2014 over the prior year period.
2014 second quarter adjusted net income from continuing operations was $35.2 million, or $1.34 per diluted share. This compares to 2013 second quarter adjusted net income from continuing operations of $27.4 million, or $1.05 per diluted share.
Unadjusted net income from continuing operations for the second quarter of 2014 was $35.2 million, or $1.34 per diluted share, compared to $25.3 million or $0.97 per diluted share for the second quarter of 2013. As shown in the attached non-GAAP reconciliation tables, the 2014 second quarter adjusted results from continuing operations exclude non-core charges related to acquisition expenses for the pending DCH combination offset by non-core gains resulting from a tax attribute, resulting in no change to earnings per share. The 2013 second quarter adjusted results from continuing operations exclude a $0.09 per share expense related to non-core legal reserve related to a case filed in 2006, partially offset by a $0.01 per share benefit from a tax attribute.
Second quarter 2014 revenue from continuing operations increased $213 million, or 21%, to $1.2 billion from $1.0 billion for the second quarter of 2013.
Second Quarter-over-Quarter Operating Highlights:
- Total same store sales increased 11%
- New vehicle same store sales increased 12%
- Used vehicle retail same store sales increased 11%
- Service, body and parts same store sales increased 10%
- Same store F&I per unit increased $104 to $1,206
- Adjusted SG&A expense as a percentage of gross profit decreased 80 basis points to 65.2%
“For the first time in our history, same store sales experienced double digit increases in all four business lines,” said Bryan DeBoer, President and CEO. “Notably, we saw a record quarterly increase in service, body and parts sales, at 10%, driven by a 10% improvement in customer pay work and a 15% increase in warranty activity. The monthly SAAR accelerated throughout the second quarter, reaching a level of 16.9 million in June, the highest level since July 2006.”
For the first six months of 2014, adjusted net income per diluted share from continuing operations increased 25% to $2.36 from $1.89 for the first six months of 2013. Unadjusted net income from continuing operations was $2.27 per diluted share for the first six months of 2014, compared to $1.81 per diluted share for the first six months of 2013.
Chris Holzshu, SVP and CFO, said, “Our same store F&I per unit was $1,206, an increase of $104 per unit over the second quarter of 2013. Our adjusted SG&A as a percentage of gross profit improved by 80 basis points to a record result of 65.2% for the second quarter of 2014. Our incremental throughput, or the percentage of incremental gross profit remaining after deducting incremental SG&A expense, was 51% on a same store basis in the second quarter of 2014. We continue to target incremental throughput of 50% on a same store basis.”
Corporate Development
In April 2014, we acquired Access Ford Lincoln in Corpus Christi, Texas and opened Lithia Chrysler Jeep Dodge Ram of Wasilla in Wasilla, Alaska with $105 million in estimated total annual revenues. In June 2014, we acquired Vic Alfonso Cadillac and Braley & Graham Buick GMC in Portland, Oregon with $60 million in estimated total annual revenues.
In June 2014, we also entered into a definitive agreement with DCH Auto Group Limited to acquire 100 percent of the outstanding shares of DCH Auto Group Inc., one of the 10 largest dealer groups in the country. The DCH stores are estimated to generate approximately $2.3 billion in annualized revenue. The transaction is expected to be funded through the expansion of Lithia's existing credit facility by $600 million, mortgage financing of $200 million, and available cash flows from operations. The transaction is subject to customary closing conditions and expected to close in the fourth quarter.
Bryan DeBoer, President and CEO, stated, “The acquisition market remains robust. We purchased another three stores in the second quarter of 2014, bringing the total number of stores purchased or opened this year to eight. Last month we announced an agreement to combine the DCH Auto Group and Lithia, which will add their 27 locations and approximately $2.3 billion in annual revenue to our organization. The transaction with DCH remains on track to be completed in the fourth quarter of 2014. Additionally we continue to seek stores reflecting Lithia’s exclusive market strategy and believe the potential remains for more acquisitions in 2014.”
Balance Sheet Update
We ended the second quarter with $28 million in cash and $84 million in available credit on our credit facilities. Additionally, approximately $216 million of our operating real estate is currently unfinanced, which could provide an estimated additional $162 million in available liquidity, for total potential liquidity of $274 million.
Dividend Payment and Share Repurchase
Lithia announced that the Board of Directors has approved a dividend of $0.16 per share related to second quarter 2014 financial results. Lithia will pay the dividend August 22, 2014 to shareholders of record on August 8, 2014.
Lithia repurchased 30,000 shares in the second quarter of 2014 at a weighted average price of $75.36 per share.
Outlook for Third Quarter 2014
We project 2014 third quarter earnings of $1.36 to $1.38 per diluted share. These projections are based on the following assumptions around third quarter 2014 performance:
- Total revenues of $1.2 to $1.3 billion
- New vehicle same store sales increasing 13.0%
- New vehicle gross margin of 6.4% to 6.6%
- Used vehicle same store sales increasing 7.5%
- Used vehicle gross margin of 14.0% to 14.2%
- Service body and parts same store sales increasing 8.0%
- Service body and parts gross margin of 48.8% to 49.0%
- Finance and insurance gross profit of $1,200 per unit
- Tax rate of 39.5%
- Average diluted shares outstanding of 26.4 million
Outlook for Fourth Quarter 2014
We project 2014 fourth quarter earnings for the combined Lithia / DCH organization of $1.23 to $1.26 per diluted share and full-year 2014 earnings of $4.95 to $5.00 per diluted share. These projections include $1.10 to 1.12 per share in earnings related to Lithia and $0.13 to $0.14 per share in earnings related to the DCH organization assuming an October 1 closing date. Additionally, these projections exclude $0.04 to $0.06 per share in acquisition expenses and are based on the following assumptions around fourth quarter 2014 performance:
Combined Results
- Total revenues of $1.6 to $1.7 billion
- New vehicle sales increasing 65.0%
- New vehicle gross margin of 6.4% to 6.6%
- Used vehicle sales increasing 54.0%
- Used vehicle gross margin of 13.1% to 13.3%
- Service body and parts sales increasing 59.0%
- Service body and parts gross margin of 47.1% to 47.3%
- Finance and insurance gross profit of $1,145 per unit
- Tax rate of 40.0%
- Average diluted shares outstanding of 26.6 million
- Full year capital expenditures of $110 million
Same Store
- Total revenues of $1.1 to $1.2 billion
- New vehicle same store sales increasing 11.0%
- Used vehicle same store sales increasing 6.0%
- Service body and parts same store sales increasing 8.0%
- Finance and insurance gross profit of $1,200 per unit
These projections exclude the impact of future acquisitions, dispositions and non-core items. Actual results may be affected by items described under Forward-Looking Statements below.