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AutoNation Earnings: What to Watch

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AutoNation Inc. is scheduled to deliver its first-quarter earnings report Wednesday morning. Heres what to look for.

EARNINGS FORECAST: Analysts forecast the largest US car dealer group to report adjusted earnings of 88 cents per share, up 17% from 75 cents for the quarter in 2014. Profit growth expectations come despite a plateau in new-car margins and rising administrative costs. Revenueexpected to hit $4.83 billion, up 10.6% from last yearis growing amid continued momentum in the US market.

USED-VEHICLE PRICES: Record-high used car prices continue to drive profits for dealers like AutoNation. Soaring new-vehicle transaction pricesunderpinned by favorable financing, lower oil prices and fewer vehicle incentivescould keep used-car prices higher for longer despite rising off-lease supply, analysts say.

ONLINE OVERHAUL: AutoNations $100 million-plus overhaul to its systems that allow buyers to purchase cars online is underway. Investments in a host of related digital initiatives could drag on operating margins, analysts say, but the potential positives for share and gross margins arent yet certain as the dealer group waits on the response of third party lead generators and customer acceptance. Still, investors are curious about indicators that this direction is the right one.

ACQUISITION ACTIVITY: AutoNation continues to ride the consolidation wave sweeping the car-retailing industry. As the dealer group looks to continue its expansion, it has competition from a growing field of interested buyers. The online car-buying service area has become saturated of late, with newcomers like looking to grab a slice of the market. AutoNation president Mike Jackson has said he sees no change in the pace of consolidation and that a gradual evolution to larger players is inevitable. And as AutoNation continues to add stores, investors are wondering if double digit parts and service same store sales are sustainable.

LOWER GAS PRICES: With gas prices sticking around $2.50 a gallon, customers continue to ease into trucks and SUVS. Spiked demand has dealers short on popular SUVs and crossovers. Investors will want to know about supply constraints as auto makers have vamped up production.

FINANCING AND CREDIT: Auto lenders are helping non-prime borrowers drive away in larger, pricier vehicles with 6- and 7-year car loans, which might lead to more loan losses. Investors are wondering when to worry about risks with a credit market that hasnt tightened up, and where interest rates are headed. Mr. Jackson has insisted subprime loans are a small part of AutoNations business. Senator Elizabeth Warren this month compared the auto loans market to the pre-crisis housing market, and called on Congress to give the Consumer Financial Protection Bureau authority to supervise car loans.

2015 OUTLOOK: AutoNation reiterated its forecast at the end of last quarter for 17 million industry new vehicle unit sales in 2015. Thats up 3% from last year. Investors and analysts will look to Mike Jackson to gauge industry trends for the rest of the year, especially on vehicle mix.

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