Carvana Co. raised its profit outlook as the used-car retailer said the momentum it saw from an early-year turnaround is carrying into the third quarter.
(Bloomberg) — Carvana Co. raised its profit outlook as the used-car retailer said the momentum it saw from an early-year turnaround is carrying into the third quarter.
Adjusted earnings before interest, taxes, depreciation and amortization will be more than $75 million in the current three-month period, according to a statement Wednesday. That compares with a prior outlook of “positive” adjusted ebitda and a consensus analyst estimate of $45.7 million.
The revised forecast is another hopeful sign for investors as Carvana looks to regain its footing after stumbling coming out of the pandemic. The Tempe, Arizona-based company has been grappling with heavy debt loads following an ill-fated expansion several years ago, an issue compounded by a slowdown in the used-car market.
The latest move comes just three weeks after the company reported better-than-expected second-quarter results and announced that it would restructure its debt, a relief for investors.
Carvana’s shares pared an early gain of as much as 9% to trade up 5.3% to $46.32 as of 9:33 a.m. Wednesday in New York. Despite an eye-popping rally that has sent its stock up more than 800% this year, it’s still down more than 85% from it’s early-pandemic peak.
What Bloomberg Intelligence Says:
“Carvana’s upward revision of adjusted Ebitda (a non-GAAP measure) to above $75 million for 3Q, from just positive Ebitda, does little to affirm the path toward long-term profitability. Vehicle sales collapsed to 77,000 units in 2Q from 112,000 a year earlier and, despite head-count reductions to slash costs, leave questions unanswered about the sustainability of the turnaround.”
— Kevin Tynan, transportation analyst
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Carvana has yet to post positive net income for a full year, in part because of significant interest expenses related to its debt. The recent restructuring agreement aims to tackle that by lowering borrowings by $1.2 billion and giving the company the opportunity to delay some interest payments for the next two years.
The guidance change was spurred by “significant fundamental gains” in vehicle profitability across both its retail and wholesale operations, Carvana said. The company now expects total gross profit per unit to top $5,500 in the quarter, up $500 from its prior forecast.
“Our strong execution is continuing to drive lasting business improvements,” Chief Financial Officer Mark Jenkins said in the statement.
–With assistance from David Welch.
(Updates with opening share trading in fifth paragraph)
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