Q4 2024 Earnings Summary
- Significant expected growth in Driveway Finance Corporation (DFC) profitability, with DFC's earnings projected to increase from $15 million in 2024 to $50-$60 million in 2025, and targeting $500 million long-term earnings at a 20% penetration rate. This substantial growth in their financing operations could bolster overall profitability.
- Focus on share repurchases indicates management believes the stock is undervalued, with the company repurchasing nearly 1% of outstanding shares during the quarter and planning to allocate 30%-40% of free cash flow to share buybacks. Management notes the attractiveness of their own shares relative to acquisition opportunities. , ,
- Positive outlook on the automotive market, with the company expecting SAAR to return to historical levels of 17 million units by year-end, and potentially reaching 18 million units in the future, given 11-12 million units of suppressed demand over the last five years. This could drive significant growth in new and used vehicle sales for the company.
- The company's aftersales revenue growth was 3.5%, which did not meet market expectations and underperformed compared to peers who achieved higher growth. This indicates potential weaknesses in their parts and service business.
- SG&A cost savings of $200 million were fully realized in the fourth quarter, suggesting limited further SG&A improvements in the future, which could impact profitability as cost-saving opportunities diminish.
- High acquisition multiples are limiting Lithia's ability to grow through acquisitions, as current market pricing does not make sense for the company. This could potentially affect future growth prospects as acquisition opportunities become less attractive.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +20% | Total revenue rose from $7,674.3 million in Q4 2023 to $9,222.1 million in Q4 2024, driven by continued expansion through acquisition activity and improved performance in key segments such as new vehicle sales and aftersales—building on the growth momentum seen in previous quarters. |
Fleet and Other | +426% | Fleet and Other revenue jumped from $39.4 million to $207.3 million, representing a dramatic turnaround from earlier volatility (up 134% in Q3 2023 then down 31.4% in Q3 2024). This surge suggests a robust recovery driven by enhanced fleet sales contracts and acquisition synergies. |
Operating Income | +12% | Operating income increased from $372.5 million to $416.3 million. This improvement reflects better cost management and successful execution of cost-saving initiatives that moderated the impact of rising SG&A expenses noted in previous periods. |
New Vehicle Retail | +18% | New Vehicle Retail revenue grew from $3,974.8 million to $4,706.0 million, primarily due to strong acquisition activity and increased unit volumes, although pressures on same-store profitability continue from earlier trends. |
Net Income | +1.7% | Net income edged up slightly from $213.5 million to $217.2 million. The modest increase reflects that, while revenue and operating income improved, higher SG&A and interest costs—persisting from earlier quarters—continued to weigh on profitability. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Margin Rate for Service | FY 2025 | no prior guidance | Expected to drop from around 56% to between 52% and 55% | no prior guidance |
Used Vehicles and F&I | FY 2025 | no prior guidance | Anticipates improvement in the used vehicle market, with normalization and opportunities to enhance performance through better inventory management and pricing strategies | no prior guidance |
Parts and Services Revenue Growth | FY 2025 | no prior guidance | Aims to accelerate parts and services revenue growth to mid‑single digits for the full year, with potential to reach high single digits or low double digits within 3 to 4 quarters | no prior guidance |
Earnings Per Share (EPS) | FY 2025 | no prior guidance | Long‑term goal of achieving $2 of EPS per $1 billion in revenue in a normalized environment | no prior guidance |
Total Revenue | FY 2025 | no prior guidance | Expects to reach $2 billion in total revenue for FY 2025, with 90% of it expected to come from the United States | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue Growth | Q4 2024 | Focus on continued revenue growth | Revenue of $9,222.1M, up from $7,674.3MIn Q4 2023 | Met |
SG&A as % of Gross Profit | Q4 2024 | Aiming for mid-50% range | SG&A $902.1MVs. Gross Profit $1,371.5M ($9,222.1M - $7,850.6M) ⇒ ~65.8% | Missed |
Inventory Management | Q4 2024 | Targeting a reduction in new vehicle inventory by $540M | Decreased only $188.5M from $6,100.2MIn Q3 2024 to $5,911.7MIn Q4 2024 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
SG&A cost savings | Achieved and raised targets from $150M (Q1 ) to $200M+ (Q2 , Q3 ) with ongoing cost discipline | Realized $200M and identified additional $50M-$70M in interest and $50M in personnel cost savings, targeting a total of $320M ; two consecutive quarters of sequential SG&A decreases | Expanded targets and continued focus on cost controls |
Financing operations and DFC profitability | Progressed from near breakeven (Q1 ) to $7.2M profit (Q2 ) and $1M profit (Q3 ) | Achieved $9M profit in Q4 and $15M for full year, with strong loan origination of $501M | Continued improvement and confidence in future earnings contribution |
Share repurchases and capital allocation | Allocated ~30%-40% of free cash flow to buybacks, with ongoing repurchases each quarter (Q1 , Q2 , Q3 ) | Repurchased nearly 1% of shares at ~$377, with $469M authorization left , focusing on share buybacks near term | Consistent strategy balancing acquisitions and shareholder returns |
Automotive market SAAR and sales outlook | Limited specifics in Q1/Q2, noted a missing 10-12M cars and a SAAR in the 14-15M range in Q3 | Expressed optimism for a 17M SAAR by 2025 and potential 18M long term | Improved sentiment on market recovery |
Aftersales revenue growth | Mixed trends: +3% in Q1 , -1.4% in Q2 due to CDK outage , +5.1% in Q3 | Increased by 3.4% year-over-year, with a 55.8% gross margin ; warranty work +19.9% in gross profit | Steady contributor with ongoing upside despite Q2 disruption |
E-commerce platforms (Driveway, GreenCars) | Reduced burn rate 40-50%, improved customer satisfaction, and steadily growing digital volume in Q1/Q2/Q3 | Rolling out MyDriveway portal with 70,000 customers added by March 2025 and targeting a 50% lift in platform performance | Ongoing scale-up and nearing profitability |
Pendragon integration in the UK | Q1: Restructuring and headcount reductions , no Q2 mention, Q3: Divest/close ~40-50 assets, improved F&I metrics | No specific mention of Pendragon in Q4, focus on small UK store closures | Less discussion suggests near completion of major integration steps |
Used vehicle strategies and margins | Focus on trade-ins, older vehicles (Q1 ), addressing depressed GPUs but seeing opportunity in Q2 , stable GPUs in Q3 | Used units down 4.3% yoy; GPU stable yoy but down sequentially $177; improving sourcing mix | Continued effort to optimize sourcing and recover margins |
New vehicle GPU normalization | Declined moderately each quarter, aiming for total GPU (new+used+F&I) of $4,200-$4,500 (Q1-Q3 ) | Targeting $2,300-$2,500 new GPU plus ~$2,000 F&I, totaling $4,300-$4,500 | Soft landing as GPUs approach expected norms |
Delinquencies in prime financing | Q1: 3.8% delinquency, stable year-over-year , no Q2 mention, Q3: mild seasonal stress mostly in subprime (5% of portfolio) | No mention in Q4 2024 | No recent changes highlighted; remains well-managed |
Inventory adjustments and wholesale losses | Q1: $21M in liquidation losses , Q2: not mentioned, Q3: reducing new inventory by $540M; no significant wholesale losses cited | Further $200M in inventory reduction with another $50M-$70M targeted ; no mention of wholesale losses | Continued inventory right-sizing with minimal wholesale impact |
Acquisition multiples and growth prospects | Acquiring at 3-6x normalized EBITDA or 15-30% of revenue; long-term target $2-$4B acquired revenue annually (Q1-Q3 ) | Emphasized 25% after-tax returns historically, near-term focus on share buybacks over higher M&A multiples | Disciplined M&A approach, balancing acquisitions with buybacks |
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SAAR Outlook
Q: What's the outlook on the new vehicle market and SAAR?
A: Management expects SAAR to reach 17 million by year-end and sees potential for an 18 million unit year in the future, noting about 11-12 million units have been suppressed over the past five years. -
New Vehicle GPU Guidance
Q: Why is the 2025 new vehicle GPU outlook conservative compared to peers?
A: Management remains conservative to align GPUs with their cost structure, targeting $2,500 to $2,700 for the year, viewing the normalized level as $2,300 to $2,500. -
Acquisition Multiples and Capital Allocation
Q: Are acquisition multiples too high, and how does that affect capital allocation?
A: Management notes acquisition multiples are elevated at 6x to 10x EBITDA, making share buybacks more attractive, as high prices lead to low to mid-single-digit returns when their forward-looking multiple is in the high single digits to low double digits. -
Used Vehicle Performance
Q: What are the plans to improve used vehicle sales and margins?
A: Management acknowledges disappointment in the decline of used vehicle performance and is focusing on driving used sales in 2025, noting that 55% of used cars are sourced from trade-ins and aiming to capture market opportunity. -
SG&A Cost Reductions
Q: How are SG&A costs being managed and reduced?
A: They've completed $200 million in cost reductions, with an additional $50-70 million in interest savings from inventory, and $50 million in personnel and tech cost savings to be realized in the first half of 2025, totaling nearly $320 million. They aim to reduce SG&A by 1.5% over the next five years through top-line growth and disciplined cost management. -
Aftersales Growth
Q: How will you accelerate parts and service revenue growth?
A: Management is not satisfied with the 3.5% revenue growth in aftersales and aims for high single-digit or low double-digit growth. They plan to inspire service teams to better capture market share and improve efficiency. -
UK Operations Efficiency
Q: How are UK operations improving in efficiency and SG&A?
A: They've improved cost management in the UK, rightsized the organization, and closed or sold 30-50 underperforming businesses, expecting to see improvements in same-store sales results. -
New GPUs Below Peers
Q: Why were new vehicle GPUs down sequentially when peers were flat or up?
A: Management admits there's room for improvement and believes it's due to internal factors. They aim to change the mindset of their people to better capture the robust market opportunity. -
Used Vehicle GPU Recovery
Q: What drives the expected improvement in used vehicle GPU and F&I?
A: Management believes they've reached the trough on used vehicle GPUs and expect a $200 to $400 improvement in front-end gross profit on used vehicles. They also see potential for F&I profitability growth due to higher financing amounts from increased ASPs. -
Aftersales Margin Outlook
Q: What's affecting the aftersales gross margin outlook?
A: The expected margin decline to 52-55% is due to a higher mix of parts sales versus labor, as parts carry lower margins but higher dollar contribution. As vehicles become more complex, parts content increases relative to labor.