(Recasts first sentence, adds CEO comments and share movement, other details, byline)
By Justin Hyde
DETROIT, July 24 (Reuters) - AutoNation Inc. , the nation's largest new and used vehicle dealer, said on Thursday second-quarter profit rose slightly thanks to cost cuts, and it raised its outlook for the year despite worries about the economy.
"It remains a very difficult and challenging environment out there," AutoNation Chairman and Chief Executive Officer Mike Jackson told Reuters. "The trough, or valley, during these tough economic times has not been as deep as traditional, and I think the recovery will not be a springback of pent-up demand. It will just be a gradual recovery."
AutoNation said it earned $106.3 million, or 37 cents a share, compared with $103.8 million, or 32 cents a share, in the same quarter a year earlier. Analysts on average expected earnings of 30 cents a share, according to Reuters Research, a division of Reuters Group Plc.
AutoNation shares rose 3.1 percent to $17.39 on the New York Stock Exchange on Thursday morning.
The company said revenue from new vehicles, finance and insurance rose, while used vehicle revenue fell and parts sales were flat. Overall, revenue rose to $5.1 billion from $5.02 billion.
Sales, general and administrative costs fell by about 1 percent to $549 million, while interest costs rose.
While car and truck dealerships have traditionally been near recession-proof, recent economic conditions have hit dealerships in much of their business. New car sales are off about 2 percent nationwide this year, and steep incentives on new vehicles have driven down prices for both new and used vehicles
In the past, repair service and parts sales would make up some of the difference, but those businesses have also been reduced by more durable vehicles.
AutoNation raised its full-year earnings forecast from continuing operations by 7 cents to a range of $1.28 to $1.33 per share, excluding the benefit of a tax settlement in the first quarter. It also predicted third-quarter earnings of 34 cents to 36 cents a share.
Jackson said the outlook was boosted due to expectations of further cost cuts and revenue growth. Analysts had predicted third-quarter earnings of 34 cents a share, and full-year earnings of $1.21, according to Reuters Research.
AutoNation and other publicly traded dealer groups have boosted earnings in recent years through buying dealerships, but the pace of acquisitions has slowed in recent months. Jackson said the company had completed deals that add about $250 million in annual revenues, about half its goal for the entire year, but said it was having a harder time making deals that meet its financial goals.
"Whether the deals will come together for the balance of the year I can't say for sure, but it could happen," he said.