Group 1 Automotive Inc., the auto dealership operator, was profitable in the fourth quarter of 2010 but failed to meet profit margin expectations. In a research note, Morgan Stanley analyst Ravi Shanker said that GPI continues to show solid cost traction in the quarter and top line was strong even as the gross margins in all segments “looked soft” compared to its expectations.
Group 1's net income in the fourth quarter surged to $10.6 million, or 46 cents a share, compared with a net loss of $1.95 million, or 8 cents a share, in the same quarter last year.
Excluding one-time items, earnings were 64 cents a share, two cents better than analysts surveyed by Thomson Reuters I/B/E/S had expected. Revenue increased by 25% to $1.44 billion, higher than the $1.33 billion analysts had predicted.
The growth was buoyed up by a 24.2% increase in retail unit sales. Shanker, who has an "underweight" rating on the stock, said that new vehicle revenue was weaker than anticipated; however, used vehicle revenue and parts and service were both stronger.
According to a research note by J.P. Morgan analyst Himanshu Patel, the overall gross margin, at 15.1%, was below the 16.6% he expected.
About 60% of the sales of Group 1, which operates 100 dealerships, come from stores in Texas, California and Massachusetts. In terms of new car sales, Toyota is its largest manufacturer making up about 37% of its sales. [via autonews - sub. required]