What happened

Shares of AutoNation (NYSE:AN) stock jumped 7.7% in 10:35 a.m. EDT trading Thursday after the new-and-used-car dealer reported earnings well ahead of what Wall Street had expected.

For fiscal Q3 2021, analysts had forecast earnings of $4.20 per share on sales of $6.3 billion. Instead, the company reported earnings 22% higher than that -- $5.12 per share -- and on sales of $6.4 billion.  

Green stoplight against blue skies

Image source: Getty Images.

So what

AutoNation hit an all-time earnings high in Q3 2021, growing its profits 150% year over year on an 18% increase in sales. The company noted that sales were also up 18% in comparison to Q3 2019 -- two years ago and before the pandemic hit.  

AutoNation managed to increase its sales despite the fact that "consumer demand continued to outpace supply, driven by consumer desire for personal transportation and ongoing manufacturing supply chain disruptions." It used the supply chain disruptions to sell the cars that it could get its hands on at higher prices. This helped boost profits far in excess of sales growth, with net income from continuing operations nearly doubling. Then AutoNation turbocharged that profits growth by buying back "almost 11% of the shares outstanding."

This concentrated profits among fewer shares outstanding, resulting in the 150% increase in profits per diluted share.

Now what

And you can expect more of the same going forward. Although AutoNation gave no specific guidance for Q4 sales or earnings, management noted that it has received authorization from its board to buy back a further $1 billion worth of its common stock (about 11% of shares outstanding again), which will further concentrate profits among even fewer shares outstanding.

Additionally, AutoNation said it has agreed to buy privately owned Priority 1 Automotive Group, a dealership chain operating in Baltimore and Washington, D.C. The sales price was not disclosed, but AutoNation noted that Priority 1 is a $420 million-a-year business, and thus its acquisition should immediately accrue to AutoNation's top line -- and eventually its bottom line as well.

No wonder investors are pleased.

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