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UPDATE 1-AutoNation posts higher profit, shares rise

(Corrects percentage change to stock price in third paragraph)

By Bernie Woodall

DETROIT, Oct 24 (Reuters) - AutoNation Inc the largest U.S. auto dealer, on Thursday posted a 13 percent increase in quarterly profit amid rising demand for both new and used 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 income was $81.6 million, or 66 cents a share.

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

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

"I feel like I've won four Super Bowls in a row and you're talking 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 shown that "earnings momentum appears to be slowing," said analyst Ravi Shanker of Morgan Stanley. This is being driven by falling gross margins and some higher operating costs, Shanker said.

Jackson said he expects the company to improve its gross margins in the fourth quarter because of stronger sales of luxury 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 of new vehicles sold and 35 percent of AutoNation's new-vehicle income.

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

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

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

Analyst James Albertine of Stifel Financial said a slightly higher tax rate of 38.8 percent and a slightly higher share count of 123.5 million contributed to the 2-cent miss from Wall Street expectations.


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

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

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

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

Those factors are pent-up demand, as the average vehicle on U.S. roads is over 11-years-old, easier financing and better product, particularly vehicles that have better fuel efficiency without sacrificing much on size and power.

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

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

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