AutoNation's earnings fall short after dealership disruption caused by CDK Global cyberattack

By Ciara Linnane

Outage shaved $1.55 off per-share earnings, or $5 more than AutoNation had guided for

New- and used-car retailer AutoNation Inc. posted weaker-than-expected earnings on Wednesday, in the wake of the recent cyberattack at dealership-software company CDK Global that created disruption for car sellers across the U.S.

The attack shaved $1.55 off per-share earnings, the company said Wednesday, which was $5 more than AutoNation had warned about earlier in July.

The stock reversed early losses to trade up 7% midmorning, even after CFRA downgraded the stock to buy from strong buy.

Analyst Garrett Nelson raised his stock-price target, however, to $220 from $190, and said he expected superior profit growth in the medium term.

Nelson noted the company had accelerated its share buybacks in the quarter, buying back 2 million shares after buying back 200,000 in the first quarter.

"We think [AutoNation's] track record of buybacks (it has retired over half its share count since the end of 2020) should help it generate stronger EPS growth relative to peers," the analyst said.

The Fort Lauderdale, Fla.-based company had net income of $130.2 million, or $3.20 a share, for the second quarter, down from $272.5 million, or $6.02 a share, in the year-earlier period.

Adjusted earnings per share came to $3.99, below the $4.32 FactSet consensus.

Revenue fell 6% to $6.480 billion, also below the $6.717 billion FactSet consensus.

"An otherwise strong quarter for AutoNation was masked by the CDK outage," Chief Executive Mike Manley said in prepared remarks.

The $1.55 per-share earnings hit was divided between lost income and 79 cents in one-time costs, which the company had already disclosed were mostly in the form of guaranteed compensation paid to retain commission-based associates.

AutoNation has said it immediately took measures to protect its systems and data on learning about the cyberattack. But the event still caused outages of the company's dealer-management system and affected core functions, meaning sales, service, inventory, customer-relationship management and accounting.

For more, see: Car dealerships go 'old school' as CDK Global cyberattack forces some services to go back to paper

The company said Wednesday it has restored operational continuity after the attack.

"Margin performance in after-sales and trends in vehicle margins were encouraging and our cash generation continues to support capital deployment focused on shareholder returns, including the repurchase of more than 5% of our shares outstanding year to date," Manley said.

By segment, new-vehicle revenue fell 5% to $3.1 billion, while used-vehicle revenue fell 8% to $1.9 billion.

After-sales revenue fell 2% to $1.1 billion, and customer financial-services revenue was down 12% to $324 million.

New-vehicle retail unit sales were down 2% to 61,268, and used-vehicle retail unit sales were down 6% to 65,504.

On a call with analysts, Manley described how the company had to manually proceed close to 60,000 repair orders, "and you can imagine this slowed things down tremendously," he said, according to a FactSet transcript.

CDK parent Brookfield Business Partners LP's stock (BBU) wasn't active premarket but is down 2.3% in the year to date.

The stock is up 28% in the year to date, outperforming the S&P 500's 14% gain.

-Ciara Linnane

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07-31-24 1149ET

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