Why Group 1 Automotive Shares Stalled Out

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Group 1 Automotive (NYSE: GPI  ) were moving in reverse today, falling as much as 10% after the company came up short in its third-quarter results.

So what: The car dealership chain delivered earnings per share of $1.20, below estimates of $1.43. Revenues, meanwhile, jumped 18.4% to $2.34 billion, in line with expectations. Net income increased just 4.6% in the quarter, while earnings per share actually fell 9.8% to $1.19 because of share dilution from convertible securities. CEO Earl Hesterberg blamed the lack of profit growth on "margin pressure in the U.S. and economic pressures in the Brazilian market," and said the company was "actively pursuing cost reduction opportunities."

Now what: To counter the effects of the share dilution, the board of directors increased Group 1's share repurchase authorization by 50% to $75 million, or about 5% of the company's market value. Hesterberg also expressed optimism about growth in the U.S. auto industry for the year ahead, so today's report may be nothing more than a speed bump. Since the U.S. contributes more than 80% of revenue to the company, that region will be the key driver of near-term profit. With the auto market improving both domestically and in Europe, Group 1 should be able to rebound if it can successfully implement the cost-cutting initiatives expressed above.  

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9/30/2016 4:02 PM
GPI $63.88 Up +2.38 +3.87%
Group 1 Automotive CAPS Rating: *****