Lithia Motors Inc (LAD) Q4 2024 Earnings Call Highlights: Record Revenue and Strategic Growth ...

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Thu, Feb 13, 2025, 12:12 AM 4 min read

Adjusted Diluted Earnings Per Share (EPS): $7.79 for Q4 2024.
Revenue: $9.2 billion, a 20% increase from Q4 of last year.
Operating Profit: First year-over-year increase in nine quarters.
SG&A as a Percentage of Gross Profit: 66.3% during the quarter.
Same-Store Sales Revenue Growth: Increased by 3.1% year over year.
Total Unit Sales: Increased 1.7% year over year.
New Vehicle Units: Increased 7.4% year over year.
Used Vehicle Units: Decreased 4.3% year over year.
Aftersales Revenue: Increased 3.4% year over year with a 55.8% gross profit margin.
Financing Operations Profitability: $9 million in Q4 2024, compared to a loss of $2 million in the same quarter last year.
Free Cash Flow: $180 million generated in the fourth quarter.
Share Repurchases: $93 million or 0.9% of outstanding shares repurchased during the quarter.
Net Leverage: 2.5 times, below the long-term target of 3 times.

Warning! GuruFocus has detected 8 Warning Signs with LAD.

Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Lithia Motors Inc (NYSE:LAD) reported a record revenue of $9.2 billion for the fourth quarter, marking a 20% increase from the previous year.
The company achieved its first year-over-year operating profit increase in nine quarters, driven by market share gains and disciplined cost management.
Lithia Motors Inc (NYSE:LAD) successfully realized $200 million in annual cost savings, contributing to two consecutive quarters of sequential decreases in SG&A expenses.
The company's financing operations segment, primarily driven by Driveway Finance Corporation (DFC), turned profitable with $9 million in earnings this quarter, compared to a loss in the same quarter last year.
Lithia Motors Inc (NYSE:LAD) continues to focus on growth through strategic acquisitions and share buybacks, with $93 million repurchased in the quarter, reflecting confidence in its long-term strategy.

Negative Points

Used vehicle unit sales were down 4.3% year over year, indicating challenges in this segment despite improvements in certified and core unit trends.
The company experienced a decline in gross profits by 3.7%, primarily due to the normalization of gross profit per unit (GPU).
New vehicle GPUs decreased sequentially, which was not in line with some peers who reported flat or increased GPUs.
The UK operations are still facing challenges, with SG&A as a percentage of gross profit remaining above the target, indicating room for improvement.
The company noted that acquisition pricing remains high, which could limit opportunities for accretive acquisitions in the near term.

Q & A Highlights

Q: What are you seeing in the current market environment, and how do tariffs impact your operations? A: Bryan DeBoer, President and CEO, noted that they are optimistic about the year, expecting a return to a 17 million SAAR by year-end and potentially 18 million in the future. Tariffs could impact 36% to 38% of their vehicles, but with a 50-plus days' supply, they are well-positioned to manage any tariff-related disruptions.

Q: Your 2025 new vehicle GPU outlook seems conservative compared to peers. Can you explain your approach? A: Bryan DeBoer explained that they are conservative with GPUs to ensure cost structures remain aligned. They expect new vehicle GPUs to be between $2,500 to $2,700 for the year, with a normalized level around $2,300 to $2,500, plus an additional $2,000 from F&I.

Q: Can you elaborate on the significant improvement expected in used vehicle sales and profitability? A: Adam Chamberlain, Chief Customer Officer, highlighted a focus on driving used vehicle sales in 2025, noting that 55% of used cars are sourced through trade-ins. They expect some upside in used car GPUs, despite volatility in pricing.

Q: What are the opportunities for SG&A improvements, particularly in the UK and US? A: Adam Chamberlain mentioned that they realized $200 million in cost savings and see further opportunities in inventory management and personnel costs. Bryan DeBoer added that they aim for SG&A reductions of 1.5% over the next five years, driven by top-line growth and ecosystem efficiencies.

Q: How do you plan to accelerate growth in parts and services, given the current performance? A: Bryan DeBoer acknowledged the need for improvement in aftersales growth, targeting high single-digit to low double-digit growth in the coming quarters. They are focusing on enhancing service advisor efficiency and leveraging the Lithia & Driveway Partners Group to drive performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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