Lithia Motors, Inc (LAD)

[Drmicrocap]

Lithia Reports Adjusted EPS of $2.03 for Third Quarter of 2015; Revenues Increase 61%

Declares $0.20 per Share Dividend for Third Quarter

.

Marketwired
Lithia Motors
October 21, 2015 6:55 AM








MEDFORD, OR--(Marketwired - Oct 21, 2015) - Lithia Motors, Inc. ( NYSE : LAD ) reported adjusted net income of $53.6 million for the third quarter of 2015, the highest quarterly net income in company history and a 54% increase over the prior year period.

2015 third quarter adjusted net income was $2.03 per diluted share. This compares to 2014 third quarter adjusted net income of $34.9 million, or $1.32 per diluted share.

Unadjusted net income for the third quarter of 2015 was $43.4 million, or $1.64 per diluted share, compared to $34.5 million, or $1.31 per diluted share, for the third quarter of 2014. As shown in the attached non-GAAP reconciliation tables, the 2015 third quarter adjusted results exclude a $0.39 non-core net charge related to a previously announced employee transition agreement partially offset by an equity investment. The 2014 third quarter adjusted results exclude a $0.01 non-core net charge related to acquisition expenses partially offset by a non-core benefit resulting from a tax attribute.

Third quarter 2015 revenue increased $788 million, or 61%, to $2.1 billion from $1.3 billion for the third quarter of 2014.

Third Quarter-over-Quarter Operating Highlights:
• Total same store sales increased 12%
• New vehicle same store sales increased 11%
• Used vehicle retail same store sales increased 13%
• Service, body and parts same store sales increased 10%
• Same store F&I per unit increased $71 to $1,274
• Adjusted SG&A expense as a percentage of gross profit was 66.0%

"Our third quarter earnings were the highest in company history," said Bryan DeBoer, President and CEO. "Same store sales in all four business lines grew by double digits, led by a 13% increase in used vehicle sales. Total revenues increased 61% and adjusted earnings per share increased 54% over the prior year period. A robust new vehicle sales environment, improving supply of late model used vehicles, and the continued growth in our service, body and parts business is allowing our store leaders to unlock new opportunities to improve performance across our company. We remain positive on the overall outlook for both organic and acquisition growth in 2016."

For the first nine months of 2015, revenue from continuing operations increased 63% to $5.9 billion from $3.6 billion in 2014.

For the first nine months of 2015, adjusted net income per diluted share increased 43% to $5.28 from $3.69 for the first nine months of 2014. Unadjusted net income from continuing operations was $5.10 per diluted share for the first nine months of 2015, compared to $3.58 per diluted share for the first nine months of 2014.

Chris Holzshu, SVP and CFO, said, "Adjusted SG&A as a percentage of gross profit was 66.0% in the third quarter of 2015, bringing the first nine months of the year down to 67.8%, thanks to strong performance from both Lithia and DCH. For the third quarter, incremental throughput, or the percentage of additional same store gross profit dollars that we retain after deducting incremental selling costs, was 49.3% We are targeting consolidated SG&A as a percentage of gross profit in the mid-60s on a full year basis. Additionally, same store F&I per unit was $1,274 per unit, an increase of $71 over the prior year. We still believe opportunity remains to improve this number given continued focus by our store personnel."

Corporate Development
As previously announced, in the third quarter of 2015 we acquired a Ford store in Missoula, Montana, an Acura store in Honolulu, Hawaii, and a Subaru Hyundai GMC store in Great Falls, Montana. Also as previously announced, in October, 2015 we acquired a Chrysler Jeep Dodge Ram Fiat store in Concord, California. We estimate these stores will contribute approximately $175 million in annual revenues.

Bryan DeBoer, President and CEO, stated, "We have purchased or opened six stores in 2015 which will add cumulative annual revenues of approximately $220 million. We are actively seeking stores in both our Lithia exclusive market strategy and in our DCH metropolitan market strategy. The acquisition market remains robust and we anticipate further transactions for both Lithia and DCH in the near term."

Balance Sheet Update
We ended the second quarter with $33 million in cash and $163 million in availability on our credit facilities. Additionally, approximately $144 million of our operating real estate is currently unfinanced, which could provide an estimated additional $108 million in available liquidity, for total potential liquidity of $304 million.

Dividend Payment
Our Board of Directors has approved a dividend of $0.20 per share related to third quarter 2015 financial results. We will pay the dividend November 20, 2015 to shareholders of record on November 6, 2015.

2015 Outlook
We project 2015 fourth quarter earnings of $1.61 to $1.65 per diluted share and 2015 full year earnings of $6.89 to $6.93 per diluted share. Both projections are based on the following annual assumptions:

Continuing Operations Projections
• Total revenues of $7.8 to $7.9 billion
• New vehicle sales increasing 48%
• New vehicle gross margin of 6.0% to 6.2%
• Used vehicle sales increasing 41%
• Used vehicle gross margin of 12.4% to 12.6%
• Service body and parts sales increasing 44%
• Service body and parts gross margin of 48.8% to 49.2%
• Finance and insurance gross profit of $1,190 per unit
• Tax rate of 39.0%
• Average diluted shares outstanding of 26.5 million

Same Store Projections
• Total revenues of $5.7 to $5.9 billion
• New vehicle same store sales increasing 9%
• Used vehicle same store sales increasing 12.5%
• Service body and parts same store sales increasing 10%
• Finance and insurance gross profit of $1,230 per unit

2016 Earnings Guidance
We project 2016 first quarter earnings of $1.46 to $1.50 per diluted share and 2016 full year earnings of $7.15 to $7.35 per diluted share. Both projections are based on the following annual assumptions:
• Total revenues of $8.3 to $8.4 billion
• New vehicle sales increasing 5.5%
• New vehicle gross margin of 5.9% to 6.1%
• Used vehicle sales increasing 6%
• Used vehicle gross margin of 12.4% to 12.6%
• Service body and parts sales increasing 5%
• Service body and parts gross margin of 49.0%to 49.4%
• Finance and insurance gross profit of $1,210 per unit
• Tax rate of 40.0%
• Average diluted shares outstanding of 26.6 million

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.

Third Quarter Earnings Conference Call and Updated Presentation
The third quarter conference call may be accessed at 11:00 a.m. ET today by telephone at 877-407-8029. An updated presentation highlighting the third quarter results has been added to www.lithiainvestorrelations.com .

To listen live on our website or for replay, visit www.lithiainvestorrelations.com and click on webcasts.

About Lithia
Lithia Motors, Inc. is one of the largest automotive retailers in the United States. Lithia sells 31 brands of new vehicles and all brands of used vehicles at 135 stores in 14 states. Lithia also arranges finance, warranty, and credit insurance contracts; and provides vehicle parts, maintenance, and repair services at all of its locations.

Sites
www.lithia.com
www.lithiainvestorrelations.com
www.lithiacareers.com

Lithia Motors on Facebook
http://www.facebook.com/LithiaMotors

Lithia Motors on Twitter
http://twitter.com/lithiamotors

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as "project," "outlook," "expect," "anticipate," "intend," "plan," "believe," "estimate," "may," "seek," "would," "should," "likely," "goal," "strategy," "future," "maintain," "continue," "remain," "target" or "will" and similar references to future periods. Examples of forward-looking statements in this press release include, among others, statements regarding:
• Future market conditions;
• Expected operating results, such as improved store performance; continued improvement of SG&A as a percentage of gross profit; generating 2015 fourth quarter earnings per share of $1.61 to $1.65 per diluted share and 2015 full year earnings of $6.89 to $6.93 per diluted share; generating 2016 first quarter earnings per share of $1.46 to $1.50 per diluted share and 2016 full year earnings of $7.15 to $7.35 per diluted share and all projections set forth under the headings "2015 Outlook", "Continuing Operations Projections", "Same Store Projections" and "2016 Earnings Guidance";
• Anticipated continued success and growth of DCH;
• Anticipated ability to improve store performance; ability to find accretive acquisitions; and additions of dealership locations to the company's portfolio in the future; and
• Anticipated availability of liquidity from our unfinanced operating real estate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity and development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements in this press release. The risks and uncertainties that could cause actual results to differ materially from estimated or projected results include, without limitation, future economic and financial conditions (both nationally and locally), changes in customer demand, our relationship with, and the financial and operational stability of, vehicle manufacturers and other suppliers, risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms), government regulations, legislation and others set forth throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Part I, Item 1A. Risk Factors of our most recent Annual Report on Form 10-K, and from time to time in our other filings with the SEC. We urge you to carefully consider this information and not place undue reliance on forward-looking statements. We undertake no duty to update our forward-looking statements, including our earnings outlook, which are made as of the date of this release.

Non-GAAP Financial Measures
This press release and the attached financial tables contain non-GAAP financial measures such as adjusted net income and diluted earnings per share from continuing operations, adjusted SG&A as a percentage of revenues and gross profit, adjusted operating margin, adjusted operating profit as a percentage of gross profit, and adjusted pre-tax margin. Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We present cash flows from operations in the attached tables, adjusted to include the change in non-trade floor plan debt to improve the visibility of cash flows related to vehicle financing. As required by SEC rules, we have reconciled these measures to the most directly comparable GAAP measures in the attachments to this release. We believe the non-GAAP financial measures we present improve the transparency of our disclosures; provide a meaningful presentation of our results from core business operations, because they exclude items not related to core business operations and other non-cash items; and improve the period-to-period comparability of our results from core business operations. These presentations should not be considered an alternative to GAAP measures.



Lithia Motors, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)

Three months ended %
September 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 1,227,080 $ 732,121 $ 494,959 67.6 %
Used vehicle retail 505,885 340,522 165,363 48.6
Used vehicle wholesale 69,472 48,853 20,619 42.2
Finance and insurance 76,633 46,855 29,778 63.6
Service, body and parts 189,796 120,772 69,024 57.2
Fleet and other 15,979 7,988 7,991 100.0
Total revenues 2,084,845 1,297,111 787,734 60.7
Cost of sales:
New vehicle retail 1,149,923 684,473 465,450 68.0
Used vehicle retail 443,598 296,624 146,974 49.5
Used vehicle wholesale 68,892 48,349 20,543 42.5
Service, body and parts 95,846 62,351 33,495 53.7
Fleet and other 15,399 7,474 7,925 106.0
Total cost of sales 1,773,658 1,099,271 674,387 61.3
Gross profit 311,187 197,840 113,347 57.3
Asset impairments 4,131 - 4,131 NM
SG&A expense 223,728 131,627 92,101 70.0
Depreciation and amortization 10,531 6,067 4,464 73.6
Income from operations 72,797 60,146 12,651 21.0
Floor plan interest expense (4,951 ) (3,127 ) 1,824 58.3
Other interest expense (4,900 ) (2,051 ) 2,849 138.9
Other (expense) income, net (307 ) 1,027 (1,334 ) NM
Income before income taxes 62,639 55,995 6,644 11.9
Income tax expense (19,248 ) (21,458 ) 2,210 10.3
Income tax rate 30.7 % 38.3 %
Net income $ 43,391 $ 34,537 $ 8,854 25.6 %

Diluted net income per share:
Net income per share $ 1.64 $ 1.31 $ 0.33 25.2 %

Diluted shares outstanding 26,480 26,359 121 0.5 %

NM - not meaningful




Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

Three months ended %
September 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Gross margin
New vehicle retail 6.3 % 6.5 % (20) bps
Used vehicle retail 12.3 12.9 (60) bps
Used vehicle wholesale 0.8 1.0 (20) bps
Finance and insurance 100.0 100.0 - bps
Service, body and parts 49.5 48.4 110 bps
Fleet and other 3.6 6.4 (280) bps
Gross profit margin 14.9 15.3 (40) bps

Unit sales
New vehicle retail 37,401 21,320 16,081 75.4 %
Used vehicle retail 26,206 17,710 8,496 48.0
Total retail units sold 63,607 39,030 24,577 63.0
Used vehicle wholesale 10,239 6,989 3,250 46.5

Average selling price
New vehicle retail $ 32,809 $ 34,340 $ (1,531 ) (4.5 )%
Used vehicle retail 19,304 19,228 76 0.4
Used vehicle wholesale 6,785 6,990 (205 ) (2.9 )

Average gross profit per unit
New vehicle retail $ 2,063 $ 2,235 $ (172 ) (7.7 )%
Used vehicle retail 2,377 2,479 (102 ) (4.1 )
Used vehicle wholesale 57 72 (15 ) (20.8 )
Finance and insurance 1,205 1,200 5 0.4
Total vehicle (1) 3,406 3,559 (153 ) (4.3 )

Revenue mix
New vehicle retail 58.8 % 56.4 %
Used vehicle retail 24.3 26.3
Used vehicle wholesale 3.3 3.8
Finance and insurance, net 3.7 3.6
Service, body and parts 9.1 9.3
Fleet and other 0.8 0.6

Adjusted As reported
Three months ended
September 30, Three months ended
September 30,
Other metrics 2015 2014 2015 2014
SG&A as a % of revenue 9.9 % 10.1 % 10.7 % 10.1 %
SG&A as a % of gross profit 66.0 66.1 71.9 66.5
Operating profit as a % of revenue 4.6 4.7 3.5 4.6
Operating profit as a % of gross profit 30.6 30.8 23.4 30.4
Pretax margin 4.2 4.4 3.0 4.3
Net profit margin 2.6 2.7 2.1 2.7


(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
null



Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)

Three months ended %
September 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues
New vehicle retail $ 810,720 $ 727,924 $ 82,796 11.4 %
Used vehicle retail 381,773 338,400 43,373 12.8
Used vehicle wholesale 54,088 48,600 5,488 11.3
Finance and insurance 54,099 46,607 7,492 16.1
Service, body and parts 132,331 120,099 12,232 10.2
Fleet and other 8,137 7,990 147 1.8
Total revenues $ 1,441,148 $ 1,289,620 $ 151,528 11.7

Gross profit
New vehicle retail $ 50,730 $ 47,211 $ 3,519 7.5 %
Used vehicle retail 49,016 43,716 5,300 12.1
Used vehicle wholesale 690 544 146 26.8
Finance and insurance 54,099 46,607 7,492 16.1
Service, body and parts 64,822 58,100 6,722 11.6
Fleet and other 563 516 47 9.1
Total gross profit $ 219,920 $ 196,694 $ 23,226 11.8

Gross margin
New vehicle retail 6.3 % 6.5 % (20) bps
Used vehicle retail 12.8 12.9 (10) bps
Used vehicle wholesale 1.3 1.1 20 bps
Finance and insurance 100.0 100.0 - bps
Service, body and parts 49.0 48.4 60 bps
Fleet and other 6.9 6.5 40 bps
Gross profit margin 15.3 15.3 - bps

Unit sales
New vehicle retail 23,219 21,163 2,056 9.7 %
Used vehicle retail 19,255 17,566 1,689 9.6
Total retail units sold 42,474 38,729 3,745 9.7
Used vehicle wholesale 7,226 6,916 310 4.5

Average selling price
New vehicle retail $ 34,916 $ 34,396 $ 520 1.5 %
Used vehicle retail 19,827 19,265 562 2.9
Used vehicle wholesale 7,485 7,027 458 6.5

Average gross profit per unit
New vehicle retail $ 2,185 $ 2,231 $ (46 ) (2.1 )%
Used vehicle retail 2,546 2,489 57 2.3
Used vehicle wholesale 96 79 17 21.5
Finance and insurance 1,274 1,203 71 5.9
Total vehicle(1) 3,638 3,565 73 2.0

(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail




Lithia Motors, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)

Nine months ended %
September 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 3,384,408 $ 2,006,127 $ 1,378,281 68.7 %
Used vehicle retail 1,457,617 952,890 504,727 53.0
Used vehicle wholesale 198,476 135,832 62,644 46.1
Finance and insurance 213,700 130,324 83,376 64.0
Service, body and parts 545,966 339,726 206,240 60.7
Fleet and other 70,803 32,120 38,683 120.4
Total revenues 5,870,970 3,597,019 2,273,951 63.2
Cost of sales:
New vehicle retail 3,176,135 1,873,461 1,302,674 69.5
Used vehicle retail 1,273,195 824,129 449,066 54.5
Used vehicle wholesale 194,329 132,493 61,836 46.7
Service, body and parts 276,828 174,291 102,537 58.8
Fleet and other 68,272 30,444 37,828 124.3
Total cost of sales 4,988,759 3,034,818 1,953,941 64.4
Gross profit 882,211 562,201 320,010 56.9
Asset impairments 14,391 - 14,391 NM
SG&A expense 610,956 378,919 232,037 61.2
Depreciation and amortization 30,544 17,399 13,145 75.6
Income from operations 226,320 165,883 60,437 36.4
Floor plan interest expense (14,255 ) (9,326 ) 4,929 52.9
Other interest expense (14,700 ) (5,894 ) 8,806 149.4
Other (expense) income, net (1,030 ) 3,110 (4,140 ) NM
Income from continuing operations before income taxes 196,334 153,773 42,561 27.7
Income tax expense (61,067 ) (59,372 ) 1,695 2.9
Income tax rate 31.1 % 38.6 %
Income from continuing operations $ 135,267 $ 94,401 $ 40,866 43.3 %
Income from discontinued operations, net of tax - 3,179 (3,179 ) NM
Net income $ 135,267 $ 97,580 $ 37,687 38.6 %

Diluted net income per share:
Continuing operations $ 5.10 $ 3.58 $ 1.52 42.5 %
Discontinued operations - 0.13 (0.13 ) NM
Net income per share $ 5.10 $ 3.71 $ 1.39 37.5 %

Diluted shares outstanding 26,500 26,337 163 0.6 %

NM - not meaningful




Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

Nine months ended %
September 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Gross margin
New vehicle retail 6.2 % 6.6 % (40) bps
Used vehicle retail 12.7 13.5 (80) bps
Used vehicle wholesale 2.1 2.5 (40) bps
Finance and insurance 100.0 100.0 - bps
Service, body and parts 49.3 48.7 60 bps
Fleet and other 3.6 5.2 (160) bps
Gross profit margin 15.0 15.6 (60) bps

Unit sales
New vehicle retail 103,136 59,040 44,096 74.7 %
Used vehicle retail 75,099 50,112 24,987 49.9
Total retail units sold 178,235 109,152 69,083 63.3
Used vehicle wholesale 28,822 18,889 9,933 52.6

Average selling price
New vehicle retail $ 32,815 $ 33,979 $ (1,164 ) (3.4) %
Used vehicle retail 19,409 19,015 394 2.1
Used vehicle wholesale 6,886 7,191 (305 ) (4.2 )

Average gross profit per unit
New vehicle retail $ 2,019 $ 2,247 $ (228 ) (10.1) %
Used vehicle retail 2,456 2,569 (113 ) (4.4 )
Used vehicle wholesale 144 177 (33 ) (18.6 )
Finance and insurance 1,199 1,194 5 0.4

Revenue mix
New vehicle retail 57.6 % 55.8 %
Used vehicle retail 24.8 26.5
Used vehicle wholesale 3.4 3.8
Finance and insurance, net 3.6 3.6
Service, body and parts 9.3 9.4
Fleet and other 1.3 0.9

Adjusted As reported
Nine months ended
September 30, Nine months ended
September 30,
Other metrics 2015 2014 2015 2014
SG&A as a % of revenue 10.2 % 10.4 % 10.4 % 10.5 %
SG&A as a % of gross profit 67.8 66.5 69.3 67.4
Operating profit as a % of revenue 4.3 4.8 3.9 4.6
Operating profit as a % of gross profit 28.7 30.4 25.7 29.5
Pretax margin 3.9 4.4 3.3 4.3
Net profit margin 2.4 2.7 2.3 2.6


...

Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)

Nine months ended %
September 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues
New vehicle retail $ 2,190,337 $ 1,988,665 $ 201,672 10.1 %
Used vehicle retail 1,071,691 943,360 128,331 13.6
Used vehicle wholesale 148,249 135,173 13,076 9.7
Finance and insurance 148,232 129,155 19,077 14.8
Service, body and parts 371,432 336,881 34,551


Contact:


John North
VP Finance and Chief Accounting Officer
[phone]