Why Is Group 1 Automotive (GPI) Down 8.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Group 1 Automotive (GPI). Shares have lost about 8.4% in that time frame, outperforming the S&P 500.

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

Group 1 Automotive Puts Up a Stellar Q4 Show

Group 1 Automotive reported adjusted earnings per share of $3.01 in fourth-quarter 2019, beating the Zacks Consensus Estimate of $2.76. The bottom line improved from the prior-year quarter’s $2.31. Results were aided by a stellar performance in the United States along with strong focus on used vehicles, service, finance & insurance businesses, and cost control, partially offset by weakness in the U.S. and U.K. market for new vehicles.

Revenues of $3.11 billion rose 6.94% year over year. Revenues beat the Zacks Consensus Estimate of $3.04 billion.

Reportedly, the company’s adjusted net income rose 28.54% year over year to $56.3 million.

Q4 Highlights

Revenues from new-vehicle retail sales rose 6.9% to $1.68 billion. The same from used-vehicle retail sales improved 8.8% to $838.8 million. However, revenues from wholesale used-vehicle sales declined 5% to $81.8 million.

For the Parts and Service business, the top line improved 6.9% to $379.2 million. Revenues from the Finance and Insurance business rose 4.6% to $129.7 million.

Segments in Detail

Revenues in the U.S. business segment grew 6.8% year over year to $2.4 billion. The segment’s gross profit rose 9% year over year to $384.3 million. In the reported quarter, retail new-vehicle and used-vehicle, and wholesale used-vehicle units sold were 32,347; 29,717 and 7,034, respectively.

Revenues rallied 9.2% year over year to $572.5 million for the U.K. business segment. Gross profit was $66.5 million, marking a 2.4% increase from the fourth quarter of 2018. In the quarter, retail new-vehicle and used-vehicle, and wholesale used-vehicle units sold were 8,626; 7,837 and 4,661, respectively.

Revenues for the Brazil business segment grew 0.6% year over year to $119 million. However, the segment’s gross profit declined 5.1% year over year to $13.9 million. In the reported quarter, retail new-vehicle and used-vehicle, and wholesale used-vehicle units sold were 2,564; 1,117 and 548, respectively.

Financial Details

Group 1 Automotive’s cash and cash equivalents grew to $23.8 million as of Dec 31, 2019, from $15.9 million as of Dec 31, 2018. Long-term debt was $1,432.1 million as of Dec 31, 2019, marking an increase from $1,281.5 million recorded as of Dec 31, 2018. The long-term debt-to-capital ratio stands at 53.28%.

Share Repurchases

In fourth-quarter 2019, the company repurchased 163,484 shares at an average price per common share of $98.28, for $16.1 million. As of Feb 5, 2020, the company had remaining share repurchase authorization of $58.9 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -6.12% due to these changes.

VGM Scores

At this time, Group 1 Automotive has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Group 1 Automotive has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.