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Lithia revenues soar after 27th straight record quarter

Lithia Motors is on the brink of being a $10 billion company.

The Medford auto retailer estimates its final revenue figure for 2017 will land between $9.6 billion and $9.9 billion, with earnings of between $8.35 and $8.50 per share.

Lithia announced record second-quarter revenue and per-share earnings, with revenue soaring 16 percent to $2.5 billion from $2.1 billion a year ago, and net earnings edging up 3 percent to $53.2 million from $51.4 million.

It was the 27th straight record quarter for the auto retailer. Wall Street liked what it saw as shares rose nearly 7 percent to $107 at the end of Friday trading.

Lithia has outperformed its publicly traded auto retailer peers by several measures, including compounded annual growth rate and debt.

"We continue to execute our strategy of acquiring strong franchises that underperform their potential and improving earnings as they season," said Bryan DeBoer, president and CEO, while addressing analysts on a conference call.

After purchasing dealership groups in western Pennsylvania and New England, DeBoer said Lithia is ready to expand its holdings. With national new-vehicle sales levels slowing, smaller dealers are seeing profit constraints.

Last week, the company announced it sold $300 million worth of senior notes, which generated about $295 million in cash for company coffers.

"The opportunity to consolidate ownership in our industry will never be greater," DeBoer said. "The acquisition market remains robust, and sellers' expectations appear to be more reasonable. We purchase stores at attractive forward-looking multiples and generate greenfield-like growth and compelling return on investment, while creating more incremental dry powder for future growth."

He hinted that the second half would produce more activity than the first six months.

"The pipeline is extremely full and it seems to be expanding," DeBoer said. "There's multiple drivers of that expansion, too. ... We've talked about the idea of some pent-up demand still from the Great Recession."

Venture capital that worked into auto retailing during the recession is now exiting, he said.

"We believe that could actually affect pricing a little bit and maybe have an oversupply, which can bring things a little bit back into our realities," he said.

During the first half of 2017, revenue increased 14 percent to $4.7 billion from $4.1 billion during the first six months of 2016. First-half profit was up 13.3 percent to $103.9 million, up from $91.7 million.

DeBoer said two-thirds of Lithia's revenue base was added in the last three years and is still seasoning. Much of that comes through used-vehicle sales.

Stores operated by managers in the Lithia Partners Group program, which rewards top managers with increased stock ownership, sell an average of 97 used vehicles monthly versus 67 across the entire company. DeBoer said dealerships under Lithia's umbrella for less than two years averaged only 50 units.

"The used-vehicle market is approximately 2.5 times bigger than the new-vehicle market and, therefore, is one of the largest performance opportunities within both our existing store base and future acquisitions," he said.

More recently, Lithia raised its goal to sell 85 used units per month, which would produce about $80 million in incremental gross profit.

 — 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.