AutoNation Inc. (NYSE:AN), the second-largest dealership group in the United States by market capitalization, has issued a warning that the recent CDK Global software hack will significantly impact its second-quarter earnings. This cyberattack has disrupted operations and is expected to lead to a considerable profit hit.
The Cyberattack and Its Immediate Effects
On June 19, a cyberattack targeted CDK Global’s Dealer Management System, a critical tool that AutoNation and many other dealership groups rely on for sales and parts orders management. The attack resulted in a two-week outage, forcing dealerships to revert to manual tracking methods, such as pen and paper, to maintain operations.
While CDK Global restored service after the outage, the impact on AutoNation’s financials has been substantial. The dealership group estimates that the incident will negatively affect its earnings per share by approximately $1.50 for the quarter ended June 30, 2024, not accounting for any potential recoveries related to the incident.
Financial Impact and Adjusted Earnings
AutoNation’s estimated GAAP earnings per share for the quarter are now expected to range between $3.15 and $3.30, down from analysts’ pre-outage prediction of around $4.50 per share, according to Reuters. Despite this setback, AutoNation’s stock traded higher on Monday, reflecting broader market trends and investor resilience.
The financial impact of the outage is attributed to two main factors: lost income during the disruption period from June 19 to June 30 and one-time costs related to guaranteed compensation paid to certain salespeople and associates.
Ongoing Challenges with CDK Global Systems
Although the core functions of CDK Global’s DMS have been restored, AutoNation reported that some ancillary systems remain unavailable or limited. These systems, which automate orders, scheduling, and payments, are crucial for efficient dealership operations, and efforts to restore them are ongoing.
Broader Industry Implications
The CDK Global hack has not only affected AutoNation but also other major dealership groups. Investors and analysts are closely monitoring companies like Lithia Motors (NYSE:LAD), Penske Auto Group (NYSE:PAG), and Group 1 Automotive for updates on their Q2 financials. These groups have all indicated that their results will be impacted by the cyberattack.
CDK Global, owned by Brookfield Business Partners (NYSE:BBU), faces multiple lawsuits from clients ranging from local dealerships to service centers due to lost business. The disruption caused by the hack is expected to have significant financial repercussions for these businesses.
Market and Sales Projections
The disruption to dealership software systems has also affected vehicle sales figures for June. According to Thomas King, J.D. Power’s president of data and analytics, the hack will cause June sales to underrepresent actual consumer demand. Sales that would have occurred in June are now likely to shift to July, leading to projected overall June sales dipping from an initial 1.41 million units to between 1.27 million and 1.33 million units—a 2.6% to 7.2% decrease compared to a year ago.
Future Outlook and Full Financial Results
AutoNation plans to release its full financial results for the second quarter on July 31. The company’s ability to recover from this disruption and manage ongoing challenges with CDK Global systems will be critical for its performance in the coming quarters.
Conclusion
The CDK Global software hack has significantly impacted AutoNation’s second-quarter earnings, highlighting the vulnerability of essential digital systems in the automotive industry. As AutoNation and other dealership groups work to recover from this disruption, the incident underscores the importance of robust cybersecurity measures and contingency planning in safeguarding business operations.
The broader implications of the hack for the automotive market and future sales projections will be closely watched by investors and industry analysts as companies release their financial results and strategies to mitigate similar risks in the future.
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