(Adds CEO comments from interview)
By Bernie Woodall
April 27 (Reuters) - First-quarter profit for Group 1 Automotive, the No. 3 U.S. auto dealer group, beat analyst expectations as company revenue rose 7.2 percent, but its chief executive said profits could slide unless major automakers cut back on production.
After earnings were issued Wednesday morning, Group 1 shares gained as much as 10 percent, and by the afternoon were trading at $66.12, up 6.6 percent.
Group 1 Chief Executive Earl Hesterberg, in an interview with Reuters, said major automakers must cut production in order for dealers to keep healthy profit margins. He said the company’s U.S. dealers have 20 percent to 25 percent more new vehicles than they would like on sales lots.
“We simply have too much,” Hesterberg said. “More of the manufacturers are pushing more inventory. They are making more than they really need.”
Mike Jackson, CEO of AutoNation Inc, the largest U.S. auto dealer group, said production cuts are needed - especially for cars - at a time when consumers want pickup trucks and SUVs.
Hesterberg said he plans to cut orders, particularly for luxury cars. Of the brands sold by Group 1, only the namesake brands of Toyota Motor Co (7203.T> and Honda Motor Co are not oversupplied, he said.
The leading German luxury brands, BMW, Daimler AG’s Mercedes-Benz and Volkswagen AG’s Audi, are each over 90 days of supply at Group 1 stores. Hesterberg said the optimum inventory level for those brands is 45 days.
Group 1 reported first quarter record earnings adjusted for one-time items of $37.1 million, up 3.4 percent, or $1.59 per share, compared to expectations of $1.49 per share by analysts polled by Thomson Reuters I/B/E/S. Revenue was $2.61 billion, in line with expectations.
Group 1’s net earnings, however, fell 4.3 percent to $34.3 million, or $1.47 per diluted share. About $2.5 million of costs were linked to hail storms in Texas and selling four dealerships in Brazil.
The hail storms increased costs and low oil prices cut sales in Texas, where the company made 38 percent of its new-vehicle sales by volume, Hesterberg said.
Hesterberg cited advantageous share prices for the company’s purchase of 1.49 million shares at about $55 each since the start of the year, of which 61 percent has been bought in April.
Since the start of the year, outstanding shares volume has dropped nearly 6 percent. (Reporting by Bernie Woodall in Detroit; Editing by Bill Trott)