(Updates throughout with details, share price)
By Justin Hyde
DETROIT, July 30 (Reuters) - Auto dealer UnitedAuto Group Inc. reported flat second-quarter earnings on Wednesday despite higher sales, and said it had found and fixed $3.1 million in false revenue from an Arkansas dealership.
The news sent shares of the company down 96 cents, or 4.1 percent, to $22.24, in early-afternoon trading on the New York Stock Exchange. So far this year, its shares have soared about 60 percent above the Standard & Poor's 500 Index.
UnitedAuto said it earned $23.9 million, or 58 cents a share, compared with $23.9 million, or 56 cents a share, in the same quarter a year ago. Revenue increased 18.7 percent to $2.2 billion. It had told analysts it expected second-quarter earnings of 55 cents to 60 cents a share.
The company also said it had to take a $1.9 million reduction to earnings during the quarter due to the $3.1 million in false revenue found during an audit of its Arkansas dealerships.
UnitedAuto said the false revenue, booked between April 2001 and March 2003, was "immaterial" to its financial statements. Chairman Roger Penske said the employee responsible for the problem was no longer working at UnitedAuto, and that the company had reviewed its practices to make sure no similar problems cropped up elsewhere.
Detroit-based UnitedAuto has been increasing its earnings in recent years by buying privately owned franchises, with a focus on luxury and foreign brands that have growing U.S. market share. It has 137 franchises in the United States and 74 internationally, most in the United Kingdom.
While industry-wide U.S. new vehicle sales have fallen this year, and used vehicles have been weak, UnitedAuto's unit sales rose 15.5 percent in the quarter.
But while UnitedAuto's revenue grew in the quarter, so did its costs. Sales, general and administrative costs rose 21 percent, and interest paid on inventory rose 37 percent. Penske said some of the additional costs came from buying dealerships.
UnitedAuto stood by its earnings forecast of $1.96 to $2.06 per share for all of 2003, excluding accounting charges, with a third-quarter estimate of 58 cents to 62 cents per share.