Why Lithia Motors Shares Stalled Out

Is this meaningful or just another movement?

Sean Williams
Sean Williams
Feb 20, 2013 at 4:35PM
Consumer Goods

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 Lithia Motors (NYSE:LAD), an automotive retailer, fell as much as 11% after reporting its fourth-quarter earnings results.

So what: For the quarter, Lithia reported phenomenal results. Revenue rose 26% to $877.4 million as new vehicle same-store sales spiked 31% and used vehicle same-store sales advanced 20%. Quarterly profit rose 52% to $0.74 from the previous year. Both figures handily surpassed the $0.66 in EPS and $824.9 million Wall Street had been expecting. For 2013, Lithia is forecasting revenue of $3.7 billion to $3.8 billion, and EPS of $3.25 to $3.35. Current consensus estimates pegged Lithia at $3.66 billion in revenue and $3.26 in EPS.

Now what: Mr. Market seems to be unhappy with Lithia's historically conservative guidance, especially after reporting those aforementioned robust same-store sales figures. Keep in mind that Lithia has now crushed estimates by double digits in at least the past five quarters, so being conservative with its guidance isn't necessarily a bad thing. What'll be important for Lithia is if it can translate lower household incomes for consumers resulting from the payroll tax into consistent growth on its end. Based on its recent results, I'd say it's quite possible.

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