One of the best performers on the S&P/ASX 200 Index (ASX: XJO) on Thursday has been the Eagers Automotive Ltd (ASX: APE) share price.
At one stage today the auto retailer’s shares were up as much as 9% to $12.20.
In afternoon trade the Eagers Automotive share price has dropped back a touch but is still up 7% to $11.99 at the time of writing.
Why is the Eagers Automotive share price zooming higher?
Investors have been buying the company’s shares today after it released a trading update for the nine months ended 30 September.
According to the release, Eagers Automotive, formerly known as AP Eagers, recorded an underlying operating profit before tax from continuing operations of $96.6 million for the nine months. This represents a sizeable 45.4% increase on the prior corresponding period.
This is all the more impressive when you consider that Eagers Automotive’s first half underlying operating profit before tax was down 24% to $40.3 million.
Based on this, it would appear as though third quarter underlying operating profit before tax was $56.3 million, which is 39.7% greater than what it achieved in the entire first half.
What were the drivers of this growth?
Management advised that vehicle sales have rebounded strongly in the Australian states and territories which are not currently locked down.
This follows the historical lows experienced during April and May 2020 when nationwide restrictions were in place.
Also supporting its impressive profit growth was its cost reduction program.
Management explained: “While customer orders have been strong, supply constraints caused by global manufacturer factory closures during the June quarter have resulted in lower vehicle deliveries to customers. The reduced inventory position combined with the company’s cost reduction programs, initiated following the merger with AHG and in response to COVID-19, have led to a strong rebound in Eagers Automotive’s underlying trading performance.”
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Returns as of 6th October 2020
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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