AutoNation signals improved Q4 margins and strategic inventory positioning as BEV mix moderates

Earnings Call Insights: AutoNation (AN) Q3 2025

MANAGEMENT VIEW

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CEO Michael Manley reported strong third quarter results, highlighting "25% adjusted EPS growth, generated strong cash flow and deployed significant capital for share repurchases and acquisitions while maintaining our leverage at the lower half of our targeted range." He noted that overall market conditions for new and used vehicles "are reasonable and holding up well," with industry inventory remaining below pre-pandemic levels and OEMs adjusting production accordingly.

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Manley explained that the expiration of government incentives for EVs led to "a significant increase in sales of hybrid vehicles, which were up 25% from a year ago and BEVs, which increased 40%." The company reduced BEV inventory by 55% from year-end, ending with approximately 1,550 units.

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He stated, "Customer Financial Services gross profit was the highest we have ever reported in a quarter, increasing 12% from a year ago," and emphasized record results in After-Sales and continued growth at AN Finance.

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CFO Thomas Szlosek announced, "Our total revenue for the quarter was $7 billion, an increase of 7% a year ago on both total store and same-store basis." He added, "Gross profit of $1.2 billion increased by 5% from a year ago," with strength in Customer Financial Services and After-Sales offsetting a decline in new vehicle gross profit.

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Szlosek stated, "Adjusted operating income increased by 9% and margin of 4.9% increased modestly from a year ago," and confirmed strong capital allocation with over $1 billion deployed year-to-date in 2025.

OUTLOOK

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Manley indicated that Q4 comparisons will be tougher as the company laps higher SAARs from the previous year and expects "a much better dynamic with regard to supply and demand on BEVs in Q4" with improved balance in inventory and margins.

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Szlosek projected that "for the fourth quarter, we expect the mix of new unit sales to improve, including less battery electric vehicles and a higher percentage of Premium Luxury, reflecting seasonal strength during the holiday season."

FINANCIAL RESULTS

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AutoNation reported total revenue of $7 billion, up 7% from a year ago, and gross profit of $1.2 billion, up 5%. Adjusted net income was $191 million compared to $162 million a year ago, an increase of 18%.

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Adjusted EPS for the quarter was $5.01, up 25% year-over-year, excluding $40 million in business interruption insurance recoveries. Year-to-date adjusted free cash flow is 1.7x that of 2024.

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New vehicle same-store sales increased 4.5%; Domestic segment led with 11% growth, while Import brands rose and Premium Luxury was slightly down. Hybrid vehicle sales represented 20% of volume and BEVs nearly 10%.

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Used vehicle gross profit increased 3%, with unit sales up 4% overall. Customer Financial Services gross profit grew 12%, and After-Sales gross profit increased 7% with margin expansion of 100 basis points.

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AN Finance portfolio exceeded $2 billion, with delinquencies at 2.4% and ongoing plans for a second ABS transaction before Q1 2026.

Q&A

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Michael Ward, Citigroup: Asked about the decline in variable gross per unit and the drivers behind it. Manley responded that "the highest contribution was our domestic sales," citing "too much pressure on our domestic mix" in the middle of the quarter, partially reversed by quarter end. He expects a "much better dynamic" in Q4.

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Ward also questioned the sustainability of record finance and insurance per unit. Manley replied, "Our expectation is that their performance will continue... It is and will continue to be mitigated by increased penetration of AN Finance."

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Rajat Gupta, JPMorgan: Inquired about auto credit trends and delinquencies. Szlosek responded, "The trends are all in line with what we expected. Our reserving has reflected those expectations."

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Gupta followed up on used car business initiatives. Manley detailed, "We're going to hold the line with higher inventory on used for a period of time while we continue to work on the other levers to get our run rate to get back to the turn levels that we would expect," acknowledging "some downward pressure" on margins due to increased depreciation.

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Jeffrey Lick, Stephens Inc.: Sought details on After-Sales margin expansion. Szlosek cited balanced growth between volume and price, with "initiatives that Christian and the team are driving around technicians and the hiring and training of technicians as well as having appropriate capacity from a service bay perspective."

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Daniela Haigian, Morgan Stanley: Asked about forward demand and pricing post-tariffs. Manley indicated, "my view on this is look at pricing and what's come through the system so far, it looks broadly in line with normal pricing that we would expect for the model year changeover."

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Bret Jordan, Jefferies: Queried on luxury demand and domestic ICE GPU pressure. Manley said luxury demand is "more muted than last year" and described domestic ICE margin pressure as partly "self-inflicted," which was "corrected as we came out of the quarter."

SENTIMENT ANALYSIS

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Analysts pressed on margin sustainability, used inventory strategies, and demand outlook, with a slightly cautious tone, especially regarding margin pressure and inventory choices.

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Management maintained a confident posture in prepared remarks, with Manley using phrases like "We are very pleased," but expressed more nuance during Q&A, acknowledging "self-inflicted" pressures and a "better dynamic" ahead.

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Compared to the previous quarter, both management and analysts displayed greater focus on margin compression, used inventory, and evolving BEV dynamics, with management sounding slightly more measured.

QUARTER-OVER-QUARTER COMPARISON

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Guidance language shifted to address tougher Q4 comps and a more cautious view on margin recovery.

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Strategic focus moved toward managing BEV inventory, optimizing domestic sales mix, and sustaining After-Sales growth.

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Analysts concentrated on margin trends and inventory strategy, while management acknowledged margin pressures and outlined specific corrective actions.

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Key financial metrics saw revenue rise 7% versus 8% last quarter, and adjusted EPS growth moderated from 37% in Q2 to 25% in Q3. New vehicle unit profitability declined by $500 year-over-year.

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Sentiment from both management and analysts was slightly more reserved, with increased scrutiny on profitability levers and inventory management.

RISKS AND CONCERNS

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Management highlighted the risk of margin pressure due to BEV mix and domestic ICE competition, acknowledging "self-inflicted downward pressure" in the quarter.

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Used inventory levels remain elevated, potentially impacting depreciation and margins; management is holding inventory to "work through other levers" but may rebalance if market conditions warrant.

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Analysts raised questions about credit quality, consumer demand, and the impact of tariff-related changes, with management pointing to stable delinquencies and ongoing monitoring.

FINAL TAKEAWAY

AutoNation's third quarter showcased strong adjusted EPS growth, robust cash flow generation, and continued capital deployment for share repurchases and acquisitions. Management is proactively managing inventory, especially in BEVs and used vehicles, to optimize margin and sales opportunities, while acknowledging margin headwinds in domestic ICE and BEV segments. With improved cost controls, record After-Sales and Customer Financial Services results, and a focus on correcting recent margin pressures, the company is positioning itself for balanced growth and improved profitability as it enters the fourth quarter.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/an/earnings/transcripts]

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* AutoNation, Inc. 2025 Q3 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4832428-autonation-inc-2025-q3-results-earnings-call-presentation]
* AutoNation: Built To Withstand Auto Tariff Challenges [https://seekingalpha.com/article/4825136-autonation-built-to-withstand-auto-tariff-challenges]
* AutoNation Q3 2025 Earnings Preview [https://seekingalpha.com/news/4506840-autonation-q3-2025-earnings-preview]
* Wholesale used vehicle prices declined slightly in September ahead of concerns for Q4 trends [https://seekingalpha.com/news/4502405-wholesale-used-vehicle-prices-declined-slightly-in-september-ahead-of-concerns-for-q4-trends]