October 24, 2019 / 2:53 PM / 5 months ago

Group 1 posts better-than-expected profit on strong U.S. market demand

DETROIT, Oct 24 (Reuters) - Group 1 Automotive Inc posted a far better-than-expected quarterly profit on Thursday as strong U.S. demand offset weakness in other markets, sending shares soaring about 14%.

“Our achievement of new quarterly records for total revenue and adjusted EPS in a flat U.S. new vehicle sales market, as well as a U.K. market in political turmoil, is a testimony to the strong operating execution of our entire team - especially in the U.S.,” the No. 3 U.S. auto dealership group’s Chief Executive Earl Hesterberg said in a statement.

He called U.S. same-store used vehicle and parts and services profit growth of 8.2% and 8.7%, respectively, “remarkable.”

J.P. Morgan analysts said in a research note the results were well above expectations, calling out “solid execution” in the U.S. market despite struggles in its British and Brazilian markets. They said the British market was weak for the company but better than expected.

Group 1’s net income in the second quarter rose more than 9% to $38 million, or $2.04 a share, from $34.8 million, or $1.74 a share, in the year earlier quarter.

Excluding one-time items, Group 1 earned $3.02 a share. Analysts were expecting $2.72 a share, according to IBES data from Refinitiv.

Revenue rose 7.9% to $3.12 billion, above the $2.95 billion analysts had expected.

The Houston-based company, with dealerships in the United States, Britain and Brazil, reported a 7% increase in gross profit in the quarter as revenue from new-vehicle sales rose 7.3%, and retail used-vehicle revenue increased almost 10%.

Same-store revenue rose 9.7% in the United States, while it fell 2.3% in Britain.

Group 1’s U.S. operations accounted for almost 78% of total revenue and about 83% of gross profit, while British operations accounted for almost 19% and 14%, respectively.

Group 1 said continued weakness on consumer confidence and the overall auto market due to the turmoil over Britain’s plan to leave the European Union is hurting new-vehicle sales and profits.

Shares of Group 1 were up 13.9% at $106.98 in morning trading. (Reporting by Ben Klayman in Detroit Editing by Sonya Hepinstall)

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