AutoNation (AN) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenue declined 6% year-over-year to $6.48 billion, with net income down 52% to $130.2 million and adjusted net income down 43% to $163 million, primarily due to the CDK Global cyber outage, which reduced EPS by $1.55 including $0.79 in one-time costs.

• Gross profit fell 13% to $1.2 billion, with all major business lines affected by the outage and market normalization; after-sales gross profit margin improved by 60 basis points to 48.0%.

• New vehicle units fell 2% and used vehicle units dropped 5% year-over-year; after-sales and customer financial services showed resilience, with positive trends in margin stabilization and finance originations.

• Operational continuity has been restored post-CDK outage, and management anticipates a strong second half of 2024, supported by healthy market conditions and inventory normalization.

• Free cash flow conversion remained strong, supporting $350 million in YTD share repurchases, representing over 5% of shares outstanding.

Financial highlights

• Q2 2024 revenue was $6.48 billion, down 6% year-over-year, with gross profit at $1.2 billion (18% of revenue), and net income at $130.2 million, down 52%.

• Adjusted net income was $163 million, and adjusted EPS was $3.99, down 43% and 37% year-over-year, respectively.

• Free cash flow for H1 2024 was $519 million, with improved conversion relative to income.

• Floorplan interest expense increased to $54 million, up $21 million year-over-year, due to higher inventory and rates.

• SG&A as a percentage of gross profit was 71.0% (67.3% adjusted), up from 63.1% in Q2 2023.

Outlook and guidance

• Management expects a strong second half of 2024, with recovery in market share and volume as new and used vehicle inventories normalize.

• After-sales business and AutoNation Finance originations are expected to deliver increasing growth, with originations projected to exceed $700 million in 2024.

• Anticipate residual adverse impacts from the CDK outage in early Q3 2024, with normalization expected mid-quarter.

• Ongoing expansion of used vehicle stores and focus on growing captive finance penetration.