UPDATE 1-AutoNation posts higher profit, shares rise

Reuters

(Corrects percentage change to stock price in third paragraph)

By Bernie Woodall

DETROIT, Oct 24 (Reuters) - AutoNation Inc thelargest U.S. auto dealer, on Thursday posted a 13 percentincrease in quarterly profit amid rising demand for both new andused vehicles.

Third-quarter net income of 75 cents per share on profit of$92.6 million missed analyst expectations of 77 cents per share,according to Thomson Reuters I/B/E/S. A year ago, its net incomewas $81.6 million, or 66 cents a share.

AutoNation Chief Executive Mike Jackson said the earningsper share miss was not consequential, as shown by the 1.2percent rise in the company's stock to $49.14 per share on theNew York Stock Exchange.

AutoNation set its fourth straight record for earnings pershare in the quarter.

"I feel like I've won four Super Bowls in a row and you'retalking about the point spread. I don't set the point spread,"Jackson said in an interview with Reuters.

While AutoNation reported record quarterly revenue of nearly$4.5 billion, it and other U.S. auto dealer groups have shownthat "earnings momentum appears to be slowing," said analystRavi Shanker of Morgan Stanley. This is being driven by fallinggross margins and some higher operating costs, Shanker said.

Jackson said he expects the company to improve its grossmargins in the fourth quarter because of stronger sales ofluxury vehicles, which typically increase in December.

The company makes a better profit margin on luxury vehicles,which in the third quarter made up 17 percent of the number ofnew vehicles sold and 35 percent of AutoNation's new-vehicleincome.

Operating costs as expressed by sales, general andadministrative expenses rose 11 percent in the quarter to $485million.

Revenue rose 14 percent to $4.47 billion, above the $4.44billion analysts had expected, and were up 14 percent from ayear ago.

New-vehicle sales of $2.56 billion rose 13 percent andused-vehicle sales of 1.04 billion rose 11.6 percent. Thecompany's sales are the highest among all U.S. auto dealers.

Analyst James Albertine of Stifel Financial said a slightlyhigher tax rate of 38.8 percent and a slightly higher sharecount of 123.5 million contributed to the 2-cent miss from WallStreet expectations.

U.S. AUTO SALES

Jackson said he expects 2013 U.S. new-vehicle sales to benear the midpoint between 15 million and 16 million vehicles.Auto sales could have been nearer to 16 million this year if thefederal government had not shut down this month, he said.

Jackson said he will issue the company's forecast for 2014U.S. sales in January, but added that it is clear "there is avery good chance that" sales will reach at least 16 millionvehicles next year.

LMC Automotive, an industry consultant, forecast next year'sU.S. new-vehicle sales of 16.0 million.

Jackson said the key drivers of U.S. auto sales have beenthe same for the past several years and will continue to be forat least the next two years, as part of a multi-year recoveryfrom the industry's downturn in 2009 and 2010.

Those factors are pent-up demand, as the average vehicle onU.S. roads is over 11-years-old, easier financing and betterproduct, particularly vehicles that have better fuel efficiencywithout sacrificing much on size and power.

"We no longer have to tell the American consumer they've gotto go slower and get something smaller to get better fuelefficiency," said Jackson. "People love this new technology oninternal-combustion engines that they don't have to compromise."

AutoNation announced it has signed agreements to buy theO'Hare Auto Group in the Chicago area, which had 2012 sales of$86.5 million and include a Honda Motor Co and aHyundai Motor Co dealerships.

(Additional reporting by Ben Klayman; Editing by Gerald E.McCormick and Dan Grebler)

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