Shares of Group 1 Automotive (NYSE:GPI), owner and operator of 186 automotive dealerships, jumped over 20% higher Tuesday after the company released preliminary third-quarter results that included a number of positive developments for investors.
The COVID-19 pandemic hit the automotive industry with plunging showroom traffic and production disruptions that have had negative ripple effects since March. However, demand for new vehicles has broadly rebounded and Group 1 Automotive's preliminary third-quarter results support the idea the industry is gaining momentum. Management expects third-quarter adjusted earnings per share to check in between $6.40 to $6.80, well above analysts' estimates of $3.73 per share. The upbeat third-quarter earnings weren't the only positive development as management noted that higher gross margin helped offset lower sales volumes. Management also announced a $200 million share repurchase authorization and expects to reinstate its quarterly cash dividend in mid-November.
While the automotive industry has seen some recovery since COVID-19 swept the nation, and Group 1 Automotive's third-quarter results were certainly welcome news to investors, we aren't out of the woods just yet. Investors can be cautiously optimistic thanks to third-quarter results and a return in demand, but there are still vehicle supply issues due to temporarily halted production and there's still a lot of uncertainty surrounding economic stability and a potential stimulus, as well as a second wave of COVID-19.