• Revenue: $9.2 billion, an 11% increase from Q3 of last year.
• Adjusted Diluted Earnings Per Share (EPS): $8.21.
• Adjusted SG&A as a Percentage of Gross Profit: Decreased from 67.9% in Q2 to 66% in Q3.
• Annualized Cost Savings: $200 million, primarily from personnel-related reductions.
• Total Unit Sales: Decreased 4% in the quarter.
• Total Vehicle Gross Profit: $4,631, consistent with the prior sequential quarter, down $589 year-over-year.
• New Vehicle Units: Increased 2% year-over-year.
• Used Vehicle Units: Down 9.6% year-over-year.
• Aftersales Revenue: Increased 5.1% compared to the prior year.
• Aftersales Gross Profit Margin: 56%.
• Financing Operations Profitability: $1 million this quarter, compared to a loss of $4 million in the same quarter last year.
• Adjusted EBITDA: $421 million in the third quarter.
• Free Cash Flows: $273 million generated during the quarter.
• Share Repurchases: $54 million or 0.7% of outstanding shares.
• Net Leverage: 2.7 times, below the bank covenant requirement of 5.75 times.

• Warning! GuruFocus has detected 6 Warning Signs with LAD.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Lithia Motors Inc (NYSE:LAD) achieved record revenues of $9.2 billion in Q3 2024, marking an 11% increase from the previous year.
• The company successfully implemented cost-saving measures, achieving $200 million in annualized savings, primarily from personnel-related reductions.
• Lithia Motors Inc (NYSE:LAD) reported strong performance in its aftersales business, with revenues up 5.1% year-over-year and a gross profit margin of 56%.
• The financing operations segment, primarily driven by Driveway Financial Corporation (DFC), turned profitable with $1 million in earnings this quarter, compared to a loss in the same quarter last year.
• The company continues to expand its digital ecosystem, with Driveway and GreenCars contributing to 3 million monthly unique visitors, enhancing its omnichannel strategy.

Negative Points

• Used vehicle units were down 9.6% year-over-year, with declines focused on certified and core units, indicating challenges in the used vehicle market.
• Total revenues declined by 6% and gross profit declined 8% on a same-store basis, highlighting some operational challenges.
• The company experienced a sequential increase in used inventory days supply, indicating inefficiencies in inventory management.
• Lithia Motors Inc (NYSE:LAD) faces challenges with certain manufacturers, particularly Stellantis, which has underperformed compared to other domestic brands.
• Interest expenses have increased, impacting free cash flows, and the company faces headwinds from higher floor plan interest expenses.

Q & A Highlights

Q: What is Lithia Motors' strategy for addressing the increase in used inventory days supply and underperformance in unit sales compared to the industry? A: Adam Chamberlain, Executive Vice President and COO, explained that Lithia Motors derives about 54% of its inventory through trade-ins, which positions them well. However, they faced challenges in sourcing core models due to a missing 10-12 million cars in the industry. The focus is on improving performance in value autos, which grew by 14.4% in the quarter, and addressing core model shortages. Bryan DeBoer, President and CEO, added that they are increasing acquisitions from customers, with 72.2% of vehicles sold coming from customer sources.

Q: Can you discuss the positive operating income for Driveway Financial Corporation (DFC) and any concerns about the provision for managed receivables? A: Chuck Lietz, Senior Vice President of Finance, noted that while the market shows stress, particularly in the subprime segment, DFC has focused on derisking by maintaining a prime segment portfolio. Although there are signs of increased delinquency in the prime portfolio, it is considered seasonal, and the portfolio is well-provisioned, not expected to impact profitability going forward.

Q: How has Lithia Motors exceeded its cost-cutting targets, and what are the expectations for further reductions? A: Bryan DeBoer stated that the organization responded quickly to cost reduction efforts, achieving $200 million in savings, exceeding the initial target of $150 million. They now expect to achieve over $300 million in savings, with further reductions in SG&A and interest costs on flooring. The remaining $100 million in savings is expected to be realized by late Q1 2025.

Q: What impact do Stellantis' incentives have on Lithia Motors' sales and pricing environment? A: Bryan DeBoer mentioned that Stellantis has been challenging in terms of year-over-year sales, but there was improvement in September. The demand for Stellantis products is good, but pricing outpaced affordability. Adam Chamberlain added that incentives have increased to about 7.3% of MSRP, indicating a return to a more incentivized environment, particularly for BEVs.

Q: What are the implications of lower interest rates for Lithia Motors? A: Bryan DeBoer explained that a 100 basis point improvement in interest rates could impact Lithia Motors by approximately $0.70 per share on a quarterly basis. This would turn the headwinds of interest rate increases into tailwinds, significantly benefiting the organization.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.