Alas, consolidators still unimpress Wall Street

Sales and earnings flying high. Stock prices grounded.

That's the third-quarter and nine-month story from all of the major publicly owned dealer consolidators, whose "patriarch," H. Wayne Huizenga, continues to voice his bafflement at investor coolness.

In an analyst conference call after his top-ranked megadealer network, AutoNation Inc., reported $15 billion in sales for January-September, Mr. Huizenga says it's wrong for investors to prefer Internet car-buying services over his company.

Mr. Huizenga's lament comes despite higher sales and profits for not only the nearly 300 AutoNation dealers but for all five of the other publicly owned consolidators -Sonic Automotive, UnitedAuto Group, Group 1 Automotive, Lithia Motors and CarMax Group.

Says Mr. Huizenga, "Investors do not believe the value of the franchises we have. They do not believe in the strength of our company."

The icy reaction to consolidators' stocks has hit the other networks as well, although none of their chairmen was a voluble as Mr. Huizenga in expressing their dismay at Wall Street's so-what reaction to their upbeat nine-month reports.

"It was really a good quarter for the group," says auto analyst H.B. Thomson, of First Union Securities, New York.

"New-car sales drove the revenue gains in most cases."

In early November, a week after the consolidators issued their third-quarter and year-to-date results, the New York Stock Exchange picture for the publicly owned dealer networks was as follows:

AutoNation (AN), hovering at around $10, vs. 52-week high of $18.38 and low of $9.56.

CarMax (KMX), $2.87, vs. high of $7.13 and low of $1.75.

Group 1 Automotive (GPI), $16.87, vs. high of $30 and low of $13.50.

Lithia Motors (LAD), $19.37, vs. high of $23.75 and low of $13.25.

Sonic Automotive (SAH), $10, vs. high of $18.94 and low of $9.44.

United Auto Group (UAG), $12.50, vs. high of $14.94 and low of $5.75.

Except for the small run-up in UAG stock - since its takeover last summer by auto industry mogul Roger S. Penske - and Lithia's steady rally, the other issues have skidded.

Analysts attribute that to continuing high fixed costs that reduce profit growth opportunities despite rising sales.

Says David Andrea of CSM Forecasting, Northville, MI, "Analysts and major fund stock traders don't see a growth curve from dealership consolidators compared to that for high-tech or Internet stocks.

"If AutoNation, UAG and the rest can roll back their service, inventory and advertising costs, and if strong sales hold up, maybe they'll meet Wall Street expectations. But that may not be easy to do quickly in a mature business like franchised dealerships."

Here's a rundown of what the consolidators reported for the nine-month 1999 period, with comments from top executives:

* AutoNation: Revenue - $15 billion, vs. $9 billion 1998; net income - $686 million vs. $384.2 million year-ago.

"We have come to understand the auto industry is a very complex story. To get people to understand it will just take time," says President Michael E. Maroone.

* CarMax Group (first fiscal half): Revenue - $1 billion vs. $746,000 year-ago; net earnings - $1.4 million vs. $1.4 million loss.

"Improved profitability is being driven by better results from our used-car superstores. In addition, we continue to see strong new-car sales, especially at franchises that are co-located with a used-car superstore," says Richard L. Sharp, chairman and CEO of parent company, Circuit City Stores.

* Group 1 Automotive: Revenue - $1.8 billion vs. $1.1 billion year-ago; net earnings - $25.9 million vs. $15.3 million.

"Our operating leverage has been significant. We have proven that select acquisitions can produce solid earnings growth," Ben B. Hollingsworth, Jr., chairman, president and CEO.

* Lithia Motors: Revenue - $889 million vs. $515 million year-ago; net earnings - $13.4 million vs. $7.4 million.

"This is the 12th consecutive quarter that we have posted growth in earnings in excess of 20%," says CEO Sidney B. DeBoer.

* Sonic Automotive: Revenue - $2.1 billion vs. $1.1 billion year-ago; net earnings - $29.3 million vs. $12.2 million.

"Sonic has continued its trend of exceeding analysts' consensus expectations since going public in 1997. More importantly, the third quarter of 1999 also marks our eighth consecutive quarter of greater than 50% growth in earnings per share," says CEO O. Bruton Smith.

* UnitedAuto Group: Revenue - $3 billion vs. $2.5 billion year-ago; net earnings, $21.6 million vs. $17.4 million.

"We continue to be pleased with our operation progress in the third quarter as we position the company to initiate certain operational and strategic changes we believe will enhance UnitedAuto's profitability," says Mr. Penske.