AutoNation, Inc. (AN) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A suggest a mixed outlook. Positive factors include growth in CFS profit, after-sales revenue, and a disciplined M&A approach. However, challenges such as reduced EV incentives, affordability pressures, and unclear EV GPU normalization dampen sentiment. The company's cautious optimism and balanced approach to market conditions and inventory management suggest a stable outlook. Without a market cap, the impact on stock price is uncertain, leading to a neutral prediction.
Key Financial Performance
Revenue Growth 3% year-over-year increase. Reasons: Organic growth in volume, revenue, and aftersales margin.
Adjusted Net Income Growth 8% year-over-year increase. Reasons: Strong operational performance and disciplined capital allocation.
Adjusted Earnings Per Share (EPS) 16% year-over-year increase. Reasons: Four consecutive quarters of year-over-year EPS growth and disciplined capital allocation.
Adjusted Free Cash Flow Exceeded $1 billion, up approximately 39% year-over-year. Reasons: Strong operational performance, working capital focus, and recovery from CDK outage.
New Vehicle Sales Revenue Declined approximately 9% year-over-year in Q4. Reasons: Tougher sales comparisons, pull-ahead purchases due to tariff announcements, and expiration of government incentives for electric powertrains.
New Vehicle Unit Profitability Approximately $2,400 per unit in Q4, up 5% sequentially. Reasons: Strong commercial performance despite declining OEM dealer incentives.
Used Vehicle Unit Sales Decreased 5% year-over-year in Q4 on a same-store basis. Reasons: Higher growth in $40,000 price point offset by declines in lower-priced units.
Used Vehicle Gross Profit Increased 5% year-over-year for the full year. Reasons: Improved gross profit on retail and strong results in wholesale.
Customer Financial Services (CFS) Unit Profitability Grew 8% year-over-year in Q4. Reasons: Improved margins on vehicle service contracts and higher penetration of finance products.
Aftersales Gross Profit Increased 6% year-over-year in Q4. Reasons: Higher repair order count, higher value repair orders, and improved labor productivity.
AN Finance Portfolio Increased to $2.2 billion, up $700 million year-over-year. Reasons: Strong customer take-up and improved credit performance metrics.
Floorplan Interest Expense Decreased by $6 million (10%) year-over-year in Q4. Reasons: Disciplines around inventory and moderated average interest rates.
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Operating Highlights
New Vehicle Sales: Same-store unit sales of new vehicles decreased by 10% in Q4, with a 60% decline in battery electric vehicles and 10% in hybrid vehicles. However, new unit growth for the year was 2%, in line with the industry.
Used Vehicle Sales: Used vehicle unit sales decreased by 5% in Q4 on a same-store basis, but full-year used vehicle gross profit increased by 5%. The company sourced over 90% of vehicles through internal channels.
Customer Financial Services (CFS): CFS had a record quarter and year, with unit profitability growing 8% in Q4 and 6% for the year. Extended service contracts were the top offering, and finance penetration reached 75%.
Market Expansion: Expanded presence in three key markets with acquisitions of Ford and Mazda stores in Denver, Audi and Mercedes stores in Chicago, and a Toyota store in Baltimore.
Aftersales: Aftersales revenue and gross profit reached record levels, with Q4 gross profit close to $600 million. Same-store revenue increased 5% in Q4 and 6% for the year. Technician headcount increased by over 3% on a same-store basis.
AN Finance: AN Finance portfolio grew to $2.2 billion, with originations increasing by $700 million from 2024. The business turned profitable with a $10 million operating profit for the year.
Capital Allocation: Deployed over $1.5 billion in capital, with $460 million for M&A and $785 million for share repurchases, reducing share count by 10%.
Operational Focus: Focused on improving vehicle acquisition, pricing discipline, and cycle times. Continued investment in technician workforce and technology to drive productivity.
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Risk or Challenges
Decline in New Vehicle Sales: Fourth quarter new vehicle sales decreased by 9% year-over-year, with a 10% decline on a same-store basis. This was driven by reduced demand following tariff announcements and the expiration of government incentives for electric powertrains, as well as tougher sales comparisons to the prior year.
Electric Vehicle Sales Decline: Sales of battery electric vehicles dropped by 60% in the fourth quarter, contributing significantly to the overall decline in new vehicle sales.
Used Vehicle Market Constraints: Used vehicle sales decreased by 5% on a same-store basis in the fourth quarter, with higher acquisition costs and a tightening supply market impacting profitability.
Higher SG&A Expenses: Fourth quarter SG&A expenses were flat as a percentage of gross profit but included increased advertising expenditures and higher service loaner fleet costs, which could pressure margins.
Interest Rate and Debt Pressures: Non-vehicle interest expenses increased by 7% year-over-year in the fourth quarter due to higher average balances and slightly higher blended interest rates, which could impact financial flexibility.
Delinquency Rates in AN Finance: Delinquency rates in the AN Finance portfolio are expected to normalize to around 3%, which could increase credit risk and impact profitability.
Tight Used Vehicle Supply: The industry-wide tight supply of used vehicles continues to constrain growth opportunities and could lead to higher acquisition costs.
Customer Sensitivity to Monthly Payments: Customer sensitivity to monthly payments remains a key concern, particularly in the context of rising interest rates and economic uncertainties.
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Guidance & Outlook
Market Expectations for 2026: The company expects the market to be slightly down in 2026 compared to 2025, with potential benefits from known tailwinds such as withholding tax rates, refunds, and bonus depreciation.
New Unit Profitability: New unit profitability is expected to remain stable at levels seen in the second half of 2025, at least for the coming months.
Used Vehicle Market: The used vehicle market is anticipated to remain constrained but show year-over-year improvements.
Customer Financial Services (CFS): The company aims to maintain strong performance in CFS while being mindful of customer sensitivity to monthly payments. Expansion of the AN Finance portfolio and its profitability is a priority, which will also drive more SG&A leverage.
Aftersales Growth: Aftersales is expected to continue delivering mid-single-digit growth, supported by resource allocation and operational levers.
Capital Deployment and Financial Position: The company plans to continue delivering strong cash flow, enabling significant capital deployment. It will leverage its investment-grade balance sheet and disciplined operations to sustain growth.
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Shareholder Return Plan
Share Repurchase: In 2025, AutoNation repurchased $785 million worth of shares, representing 10% of the shares outstanding at the beginning of the year. This was done at an average price of $193 per share. Over the last three years, the company has repurchased a total of $2.1 billion, reducing the share count by 36% at an average price of $170 per share.
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Key Q&A
Q:Was there a temporary trade-off decision made in the quarter around profitability versus sales in the new car business?
A:Michael Manley explained that there were several factors, including a reduction in OEM dealer-facing incentives and a significant drop in EV and BEV volumes (from 30% to 20% of the mix year-over-year). The company balanced volume and margin, leading to a sequential improvement in new vehicle margin.
Q:What is the expected profitability trajectory for AutoNation Finance over the next year or beyond?
A:Thomas Szlosek stated that the portfolio's growth is promising, with $6 million achieved in Q4. He expects continued income improvement throughout 2026, with confidence in net interest margin and well-managed delinquencies.
Q:What is the upper end of penetration for AutoNation Finance's portfolio in the medium term?
A:Thomas Szlosek and Michael Manley highlighted strong penetration in the used car market and partnerships with OEMs for new vehicles. They see further penetration opportunities, particularly in the used car market, while maintaining discipline in resource allocation.
Q:Will capital spending in 2026 differ from 2025 levels?
A:Thomas Szlosek indicated that 2025 levels are a reasonable starting point for 2026, with spending focused on maintaining properties and supporting service growth.
Q:What is the outlook for the M&A market and its balance with share buybacks?
A:Michael Manley and Thomas Szlosek emphasized a disciplined approach to M&A, focusing on high-quality brands and regions with operational synergies. They also consider shareholder returns and incremental EBITDA from acquisitions.
Q:How did hybrid GPUs trend in the quarter, and when might EV GPUs normalize with combustion engine vehicles?
A:Michael Manley noted a significant pullback in OEM incentives for hybrids and BEVs, with hybrid GPUs largely flat. He expects hybrid margins to improve in 2026 but does not anticipate EV GPU normalization until after 2026.
Q:What are the expectations for lease returns in the second half of the year, particularly for EVs?
A:Michael Manley expects increased lease returns to benefit the dealership business, provided OEMs manage residual values and market prices effectively. He believes OEMs have already accounted for potential residual value issues.
Q:How are affordability pressures and consumer credit availability affecting the market?
A:Michael Manley acknowledged significant growth in monthly payments and expects some relief in APRs later in the year. He anticipates a 2%-5% decline in the new car market and stable used car market volumes, with potential shifts to lower-priced vehicles.
Q:Have there been changes in consumer behavior in the aftersales business?
A:Michael Manley noted increased price sensitivity, particularly for older vehicles, and emphasized the importance of competitive pricing and service to capture market share in the 3-year-old plus aftersales market.
Q:What is the strategy for the used car market, especially with off-lease volumes returning?
A:Michael Manley highlighted strong performance in the $40,000+ segment but acknowledged underperformance in the sub-$20,000 range. The company aims to improve inventory in lower price bands while maintaining quality standards.
Q:What caused the decline in used GPUs in the second half of the year, and what is the outlook for 2026?
A:Thomas Szlosek attributed the decline to market tightness and emphasized actions like acquiring at the right price and efficient reconditioning. He expects used GPUs to return to target levels, with long-term investments in digital capabilities.
Q:What is the outlook for new GPUs in 2026?
A:Michael Manley and Thomas Szlosek expect stabilization in new GPUs, with continued discipline in balancing market competitiveness and margin pressures.
Q:What is the outlook for aftersales growth and margins in 2026?
A:Michael Manley and Thomas Szlosek expect sustainable growth in aftersales, driven by increased repair orders and wholesale business. Margins may face downward pressure due to mix changes but remain healthy.
Q:What is the target for SG&A as a percentage of revenue, and what actions are being taken to reduce costs?
A:Thomas Szlosek reaffirmed the target of 66%-67% and mentioned investments in advertising and loaner pools. He highlighted initiatives to improve productivity, manage energy costs, and standardize usage models.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the normalization timeline for EV GPUs, stating it would not happen in 2026 but without offering a clear timeline. Additionally, while discussing affordability pressures, they did not provide concrete strategies for addressing consumer credit availability challenges.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ABS offering
AutoNation Conference
Baltimore
CFS aftersales
Chicago
Finance portfolio
advance rate
aftersales margin
asset
capital repurchase
colleague
customer pay
cycle time
debt status
discipline
floorplan expense
floorplan interest
flow cash
headcount store
increase share
interest rate
interruption insurance
methodology
norm
portfolio line
profitability increase
profitability unit
recovery CDK
retail
retention
revenue
sale decline
sale price
sale store
sale unit
service contract
sic
status portfolio
unit CFS
unit line
AN Transcript
AutoNation, Inc. (AN) Q4 2025 Earnings Call Transcript
Unknown2-6
The earnings call summary and Q&A suggest a mixed outlook. Positive factors include growth in CFS profit, after-sales revenue, and a disciplined M&A approach. However, challenges such as reduced EV incentives, affordability pressures, and unclear EV GPU normalization dampen sentiment. The company's cautious optimism and balanced approach to market conditions and inventory management suggest a stable outlook. Without a market cap, the impact on stock price is uncertain, leading to a neutral prediction.
AutoNation, Inc. (AN) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call summary shows a balanced performance with growth in used vehicle sales, strong adjusted cash flow, and improved service margins. The Q&A section reveals management's confidence in maintaining finance and insurance performance, healthy auto credit, and growth potential in the used car business. Despite some margin pressures and competitive challenges, the overall outlook remains positive with expected improvements in Q4. The sentiment is bolstered by strategic initiatives and robust financial health, leading to a positive stock price outlook.
AutoNation, Inc. (AN) Q2 2025 Earnings Call Transcript
Positive7-25
The earnings call highlighted several positive developments: improved operating income margin, strong growth in AutoNation Finance, and increased used vehicle inventory. The Q&A revealed management's cautious but optimistic outlook on M&A and market growth, with a focus on shareholder value. Despite some uncertainty due to tariffs and M&A specifics, the overall sentiment remains positive, supported by operational efficiency and strategic focus on growth areas like the used car market and after-sales services.
AutoNation, Inc. (NYSE:AN) Q1 2025 Earnings Call Transcript
Unknown4-26
The earnings call summary presents mixed signals. Financial performance shows modest growth in EPS and revenue, but a decline in net income and free cash flow. Share repurchases are a positive, but challenges in inventory and economic factors are concerning. The Q&A highlights management's optimism about demand and finance performance, but also hints at uncertainties with tariffs and industry forecasts. Overall, the sentiment is balanced, leading to a neutral prediction.
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Frequently Asked Questions
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