EARNINGS: Quarterly profit drops as oil-dependent markets suffer

Group 1 Automotive earnings sputtered during the fourth quarter as impacts from the slowdown in oil and gas markets marred an otherwise record year for the Fortune 500 company.

The Houston-based auto sales company reported net fourth-quarter income of $35.7 million, down 12.3 percent from a year earlier. Adjusted diluted earnings per share for the quarter were $1.51, down 9.6 percent.

Annual adjusted net in- come for 2015 grew 8 percent to a record $165.5 million, and adjusted annual diluted earnings per share reached $6.87, an all-time high for the company.

The earnings, however, missed Wall Street expectations. Group 1’s stock ended Thursday trading down 3.4 percent to $52.02 per share.

Effects of low oil prices in oil-heavy markets ate into quarterly earnings, company president and CEO Earl J. Hesterberg told investors and media during a conference call.

Prime markets of the

Houston area, the rest of Texas and Oklahoma are being affected, Hesterberg said.

In those areas, the slowing economy is adding to margin pressures, as sharper deals are having to be cut with customers, chief financial officer John Rickel said in a later interview.

Group 1’s fourth-quarter sales in the Houston area were up 1 percent, which Hesterberg said outperformed the local market. Across Texas, statewide sales were flat, with metro areas like Austin and Dallas so far not heavily affected by the oil downturn. Oklahoma sales dropped 3 percent.

Another factor hurting margins in the U.S. is an oversupply of key luxury car brands, company officials said. A contributing factor are weakening foreign currencies, Rickel said, which make it more attractive to divert luxury vehicles once destined for China to the United States.

Political and economic turmoil in Brazil continued to drag on the auto market there during the fourth quarter.

Group 1’s same-store newvehicle sales for the Brazil- ian market decreased 19.1 percent during the quarter, but used vehicle sales increased 14.9 percent.

Company officials underscored their belief in the Brazilian market’s long-term potential, including population size and lack of public transit infrastructure, Rickel said.

During the fourth quarter, same-store new retail sales increased 2.1 percent in the U.S. and increased 11.3 percent in the United Kingdom. Quarterly used retail sales increased 7.1 percent in the U.S. and 12.1 percent in the U.K.

For 2016, Group 1 expects continued U.S. sales growth, to 17.6 million vehicles.

“Across the U.S., the conditions are still really good in the auto market, with low interest rates and high employment,” Hesterberg said.

Group 1 owns 162 dealerships and has 212 franchises in the U.S., U.K. and Brazil. The dealerships and franchises sell 34 vehicle brands.

The company recently announced that it divested three U.S. dealerships and acquired the 12-location U.K. auto sales group Spire Automotive.