Why Did This Auto Stock Dive Despite Record Earnings?

AutoNation (NYSE:AN), the largest automotive retailer in the United States, slid as much as 6.6 percent in morning trading on October 26. The company reported record third quarter 2012 earnings of $0.66 per share, up 38 percent from the quarter a year ago, and missing estimates by just $0.01. Revenue grew 12 percent year over year, coming in line at $3.93 billion, compared to $3.5 billion a year ago, but missing estimates of about $3.95 billion.

Minor misses, so why the huge slide? On CNBC, CEO Mike Jackson pointed at a slowdown in share buybacks as one possible reason. On the earnings call, John Murphy from Bank of America pressed the issue, asking if the money wasn’t going to buybacks, would it come back as dividends.

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“Who knows exactly what’s going to happen with the election in the fiscal cliff, in tax rates, on dividends at all next year. But if we saw a stock that stayed in the mid-40s and you didn’t buy back stock this quarter, it seems like you might be a little bit more inclined to pay a dividend than you have historically.”

Jackson emphasized in his answer that, second to a strong balance sheet, the company’s strategy is “opportunistic, it changes as we go forward and I can’t tell you what’s going to happen.”

Jackson does, however, predict the auto recovery to continue. The company’s stock price is up almost 30 percent this year to date.

The company’s domestic unit — selling vehicles manufactured by Ford (NYSE:F), General Motors (NYSE:GM), and Chrysler — saw new vehicle sales increase by 9 percent.

The company’s import unit — selling vehicles manufactured by Toyota (NYSE:TM), Honda (NYSE:HMC), Hyundai, and Nissan — saw new vehicle sales increase 35 percent.

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