Why Is Group 1 Automotive (GPI) Up 49.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Group 1 Automotive (GPI). Shares have added about 49.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Group 1 Automotive due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Group 1 Automotive Q1 Earnings & Sales Beat Estimates

Group 1 reported adjusted earnings per share of $1.66 in first-quarter 2020, beating the Zacks Consensus Estimate of $1.05. Higher-than-expected revenues from new and used vehicles led to the outperformance. The bottom line, however, declined from the prior-year quarter’s $2.06 per share. Weak contribution across U.S., U.K. and Brazil segments acted as a dampener.

Revenues of $2.69 billion fell 4.2% year over year. The top line, however, beat the Zacks Consensus Estimate of $2.35 billion.

Q1 Highlights

New-vehicle retail sales declined 5.1% from the prior-year quarter to $1.34 billion. However, the figure surpassed the Zacks Consensus Estimate of $1.18 billion. Used-vehicle sales fell 5% from the year-ago quarter to $865.6 million. However, the metric beat the consensus mark of $775 million. For the Parts and Service business, the top line improved 0.4% from a year ago to $370.6 million. However, revenues from the Finance and Insurance business were down 0.8% from the prior-year period to $112.5 million.

Segments in Detail

Revenues in the U.S. business segment fell 2.7% year over year to $2 billion. The segment’s gross profit also dropped 1.7% year over year to $340.9 million. In the reported quarter, retail new-vehicle, used-vehicle, and wholesale used-vehicle units sold were 24,495, 27,668 and 7,027, respectively.

Revenues declined 8% year over year to $590.7 million for the U.K. business segment. Gross profit was $64.8 million, marking a 9.9% decrease from the first quarter of 2019. In the quarter under review, retail new-vehicle, used-vehicle, and wholesale used-vehicle units sold were 8,894, 8,024 and 4,584, respectively.

Revenues for the Brazil business segment slid 10.5% year over year to $92.5 million. The segment’s gross profit also declined 15.2% year over year to $10.7 million. In the reported quarter, retail new-vehicle, used-vehicle, and wholesale used-vehicle units sold were 1,971, 1,098 and 475, respectively.

Financial Details

Group 1’s cash and cash equivalents fell to $19.2 million as of Mar 31, 2020 from $23.8 million on Dec 31, 2019. Long-term debt was $1,137.7 million as of Mar 31, 2020, marking a decrease from $1,432.1 million recorded on Dec 31, 2019. Long-term debt to capital stands at 49.2%.

Actions Amid COVID-19

Group 1 has implemented a number of actions to boost its cash position and preserve financial flexibility in the face of rising global market uncertainty due to coronavirus-induced crisis. The company has furloughed 4,800, 2,800 and 450 employees in the United States, United Kingdom and Brazil, respectively. Moreover, Group 1 has reduced corporate compensation, with cuts as much as 50% for the firm’s CEO. The company is also putting efforts to trim U.S. marketing costs by more than 75%. To preserve liquidity, the firm has suspended payouts and scrapped the buyback program.

Looking Forward

Amid coronavirus-led uncertainty, Group 1 has refrained from providing any guidance. Depressed demand for vehicles amid weak consumer confidence is expected to reflect on its second-quarter results.The firm expects the service business to recover more quickly than vehicle sales.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 76.47% due to these changes.

VGM Scores

Currently, Group 1 Automotive has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.

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