For auto retailers, pandemic-era revenue enhance in rear-view mirror

For auto retailers, pandemic-era revenue enhance in rear-view mirror

July 19 (Reuters) – Revenue development at U.S. automobile sellers is prone to lose momentum

July 19 (Reuters) – Revenue development at U.S. automobile sellers is prone to lose momentum within the second quarter, because the auto business struggles to ramp up manufacturing as a consequence of components scarcity, whereas inflation-fueled worth hikes maintain patrons out of the market.

Desire for private transport from cash-flushed Individuals throughout the pandemic turbo-charged auto gross sales final yr, regardless of worth hikes, serving to retailers reminiscent of 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 shopper spending, auto sellers will discover it robust to match their efficiency within the comparable interval as automobile costs are set to fall from report highs.

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“Costs are nonetheless hitting report highs however there’s concern that there might be a decline within the second half of the yr with a recession wanting an increasing number of possible,” CFRA analyst Garrett Nelson mentioned.

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

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

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

Buyers will likely be anticipating feedback from business executives for warning indicators on shopper habits in a hyper-inflationary surroundings. (https://reut.rs/3INok32)

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

Different sellers reminiscent of 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

Business executives and analysts say demand for autos has been sturdy up to now, regardless of worth hikes, which have additionally protected earnings at retailers and automakers reminiscent of Normal Motors Co (GM.N) and Ford Motor Co (F.N).

Nonetheless, current 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 autos, and we’re assuming some step-down in GPUs and unit gross sales,” Stephens analyst Daniel Imbro mentioned.

Retail gross sales of latest autos 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 powerful, 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 yr

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 yr

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 yr

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 yr

WALL STREET SENTIMENT

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

* The median worth goal is $147

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

* The median worth goal is $450

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

* The median worth goal is $300

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

* The median worth goal is $232.5

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

Our Requirements: The Thomson Reuters Belief Rules.

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