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Why the AP Eagers share price crashed 16% lower today

The AP Eagers Ltd (ASX: APE) share price has come under pressure on Thursday following the release of a trading update.

The auto retailer’s shares crashed as much as 16% lower in early trade. They have since recovered but are still down 4% to $11.38 at the time of writing.

What did AP Eagers announce?

This morning AP Eagers warned that external trading conditions in the national automotive retail sector remain challenging.

The release explains that the overall market for new vehicle sales has been in decline for 19 consecutive months. This represents a decrease of 126,000 units sold over the same period.

For the 10 months ended October 31 2019, national new vehicle sales were down 8% on the prior corresponding period.

This has of course had an impact on AP Eagers’ profits. According to the release, its underlying operating profit before tax for the 10 months is down 6%.

This excludes gains on the sale of non-core operations and property during the period. Also excluded are the one-off costs relating to its merger with Automotive Holdings Group.

Speaking of which, management provided an update on the Automotive Holdings Group business.

Merger update.

The release advises that the core Automotive Holdings Group business has been impacted by the external conditions across the board.

However, one area of the business which has been particularly poor has been the EasyAuto123 business. It is significantly underperforming and has contributed a loss of $2.5 million. Management is taking urgent action to improve trading results.

Outside that, the integration of Automotive Holdings Group is progressing to plan. As a result, AP Eagers is on track to deliver the full $30 million synergy savings target. This comprises an initial $13.5 million (annualised) by December 31 and the balance within 12 months.

AP Eagers CEO Martin Ward said: “AP Eagers is not immune to the external trading environment which remains challenging. The AHG business has been a wholly owned subsidiary of AP Eagers for only sixty days and, while its operating profit contribution since July is disappointing, it is not unexpected. It remains our firm belief that combining these two businesses to build a truly national footprint will place us in the strongest possible position to thrive as the industry continues to evolve and change.”

“With the right strategy in place, a strong financial position, a focus on innovation, an appetite for investment and a keen management eye on efficiency, we are well placed to bring these two businesses together in a way that delivers value to our customers, our partners and ultimately our shareholders,” he concluded.

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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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