Lithia Motors Reports Record-Breaking Q3 Revenue, Eyes Expansion through Acquisitions

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Lithia Motors Reports Record-Breaking Q3 Revenue, Eyes Expansion through Acquisitions

Lithia Motors, Inc. (LAD) reported record revenue of $9.2 billion for the third quarter of 2024, marking an 11% increase year-over-year. The company's adjusted diluted earnings per share were $8.21. Lithia Motors CEO Bryan DeBoer highlighted the company's achievement of $200 million in annual cost savings and reduction of adjusted SG&A to 66% of gross profit. Despite market stress, particularly in the subprime segment, Lithia Motors demonstrated strong performance in its prime portfolio, with managed provisions amid slight increases in delinquencies. The company made new acquisitions, including three stores from Duval Motor Company, contributing approximately $6 billion in annual revenue. Lithia Motors remains committed to a balanced capital allocation strategy with optimism for future growth and profitability.

Key Points

  • Lithia Motors' Q3 revenue reached a record $9.2 billion, a 11% increase year-over-year.
  • Adjusted diluted earnings per share were reported at $8.21.
  • The company achieved $200 million in annual cost savings, targeting an additional $100 million by 2025.
  • Gross profits from new vehicles are expected to normalize between $4,200 and $4,500.
  • Aftermarket revenues rose by 5.1% with a gross profit margin of 56%.
  • Lithia Motors focuses on operational efficiency and strategic acquisitions.
  • The digital ecosystem achieved 12 million unique monthly visitors, with significant contributions from Driveway and GreenCars.

Company Outlook

  • Lithia Motors targets $2 billion to $4 billion in annual revenue from acquisitions.
  • The company plans to allocate 30% to 40% of its free cash flow to share repurchases.
  • Management emphasizes a commitment to enhancing customer experiences and operational excellence, maintaining optimism for future growth and profitability.
  • The full-year revenue target for 2024 is conservatively set at $350 million to $400 million.

Challenges

  • Total unit sales declined by 4%.
  • Used vehicle sales dropped by 9.6%.
  • Supply days for new vehicles decreased from 87 to 68.

Positive Aspects

  • New vehicle units increased by 2%.
  • The finance operations segment showed a profitability of $1 million.
  • The company repurchased 0.7% of its shares, maintaining a net leverage ratio of 2.7x.

Below Expectations

  • The company reported a 6% decline in total revenues and 8% decline in gross profit year-over-year.
  • Vehicle gross profit was $4,631, a decrease of $589 from the previous year.

Q&A Highlights

  • The market is experiencing stress primarily in the subprime segment, but the company's prime portfolio mitigates risks.
  • Delinquencies in the prime portfolio slightly increased but remain well-managed.
  • Seasonal factors are expected to affect SG&A costs, projected to remain around 66% to 67.5%.
  • Lithia Motors focuses on efficiently consolidating retail space and positioning for strategic acquisitions.

In conclusion, Lithia Motors' third-quarter earnings call reflected a company experiencing strong revenue growth and strategically managing market challenges. The focus on operational efficiency, strategic acquisitions, and balanced capital allocation suggests the company is well-positioned for sustained success in the automotive retail sector. With an optimistic outlook and clear strategy, Lithia Motors appears ready to capitalize on market opportunities in upcoming quarters.

InvestingPro Insights Lithia Motors' robust performance in Q3 2024 is supported by InvestingPro data. The company's market cap stands at $9.03 billion, reflecting its significant presence in the Specialty Retail industry. This aligns with the InvestingPro Insight, highlighting LAD as an "important player in the Specialty Retail sector."

The company’s price-earnings ratio of 9.5 (adjusted for the trailing twelve months as of Q2 2024) suggests the stock might be undervalued relative to earnings, potentially attractive for value investors. This is especially intriguing, given LAD is trading near its "52-week high," as noted in another InvestingPro Insight.

Lithia's 15.04% revenue growth over the trailing twelve months as of Q2 2024 corroborates the 11% year-over-year revenue increase reported in Q3. This sustainable growth trend supports management's optimistic outlook on future profitability.

Although Lithia Motors has shown strong financial performance, an InvestingPro Insight notes the company operates with "a significant amount of debt." This factor should be considered alongside the discussed growth strategies and capital allocation plans.

For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional insights on Lithia Motors, providing a deeper understanding of the company's financial health and market position.