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Lithia's 3Q profit not enough for investors

Lithia Motors shares took their biggest one-day hit ever Monday.

CEO Bryan DeBoer responded to the $16.85 per share loss as if it were a paper cut — a momentary sting — but no long-term harm. In essence, the $400 million loss in market capitalization (that's the number of shares times the price) goes with the territory.

"Markets move this way and that," DeBoer said Tuesday. "We manage our business the way we have, not by the value of our stock on any given day. It only affects you if you are selling right now, I know the fundamentals are sound."

After rampaging to an all-time high of $97.20 on July 7, Lithia shares bounced around a bit during the next three months, generally maintaining the rarefied $80-plus plateau. The broader market encountered turbulence following Sept. 19's all-time time Dow Jones Industrial Average close ($17,279.74) and Lithia's stock slipped, as well.

On Monday, the Dow lost more than 200 points and Lithia shares plummeted $16.85. The Medford auto retailer rebounded on Tuesday with shares gaining $2.02 to close at $66.03.

Perhaps investors already spooked by geo-political uncertainty were overly quick to react after Lithia issued an earnings warning earlier in the day, indicating the company won't hit anticipated profit levels.

Simply making multiple millions per quarter isn't enough in the fickle investment world. Lithia will post its profitable third-quarter earnings report on Oct. 30.

What investors responded to was something called guidance, which publicly held companies typically provide for investors. Despite producing the highest third-quarter earnings per share in the company's history, Lithia's bottom line will fall short of expectations. The retailer said its earnings were between $34 million and $34.8 million, equating to $1.30 to $1.32 per share. The company anticipated earnings of $1.36 to $1.38 per share. By way of comparison, Lithia's earnings were $1.13 per share.

Lithia said its year-over-year same-store sales grew 12 percent during the quarter, while used vehicle sales jumped 13 percent and new car sales advanced 11 percent.

"Those numbers are probably No. 1 in our sector," DeBoer said. "We'll see that in the next week or two. But we couldn't manage our costs as well as we would like to."

DeBoer said the primary reason for the company not meeting expectations during the quarter was the decline of used car prices nationwide during the summer. Prices fell from 2 to 5 percent, and Lithia didn't respond quickly enough to lower its inventory. By September, however, the company was back on track due to lower prices and incentives for its staff, but the damage was done.

"We took a lot of lumps in the third quarter and we had to move inventory," DeBoer said. "There are 50,000 to 70,000 extra vehicles coming into the U.S. wholesale market during the quarter, and that means we need to be lean and nimble, ultimately selling at a more competitive rate."

Reach reporter Greg Stiles at 541-776-4463 or business@mailtribune.com. Follow him on Twitter at www.twitter.com/GregMTBusiness, on Facebook at www.facebook.com/greg.stiles.31, and read his blog at www.mailtribune.com/Economic Edge.