Note · Opinion, not rated
Earnings per share can hide a smaller business.
Earnings per share has two parts. One part is what the business earns. The other part is the number of owners who share it. AutoNation shows how far the two parts can separate.
The identity
Earnings per share is net income divided by the number of shares. Thus a change in earnings per share comes from two other changes. One is the change in net income. The other is the change in the share count.
| Net income change | Shares unchanged | Shares down 5% | Shares down 10% |
|---|---|---|---|
| -20% | -20.0% | -15.8% | -11.1% |
| 0% | 0.0% | +5.3% | +11.1% |
| +10% | +10.0% | +15.8% | +22.2% |
Look at the middle row. Net income does not change, and the share count falls 10%. Earnings per share then increases 11.1%. No part of that increase comes from the business.
AutoNation, 2021 to 2025
AutoNation sells and services cars in the United States. Its filings give the figures below. The table compares the full years 2021 and 2025.
| Measure | 2021 | 2025 | Change |
|---|---|---|---|
| Net income | $1,373.0M | $649.1M | -52.7% |
| Diluted shares | 75.0M | 38.1M | -49.2% |
| Diluted earnings per share | $18.31 | $17.04 | -6.9% |
Net income fell 52.7%. Earnings per share fell only 6.9%. The share count explains the difference, because it fell 49.2%.
An investor who read only earnings per share saw a small decrease. In fact, the business earned less than half of its 2021 profit. Each owner who stayed simply held a larger part of a smaller total.
This note does not say that AutoNation did badly. It says that earnings per share did not show what happened to the business.
What the buybacks cost
In 2021, AutoNation bought back 22.3 million shares for $2,303.2 million. The release does not give an average price. Our arithmetic gives $103.28 a share. That is 5.6 times the earnings per share for that year.
In 2025, it bought back 4.1 million shares for $784.8 million. The company gives the average price as $193 a share. That is 11.3 times the earnings per share for that year.
So in 2025, the company paid about twice the earnings multiple for each share that it retired. A buyback creates value only when the price is below the value of the share. Our note the price makes the buyback gives the arithmetic.
The long view
| Date | Shares outstanding |
|---|---|
| March 23, 2000 | 361.1M |
| February 24, 2006 | 262.5M |
| February 8, 2011 | 149.1M |
| February 6, 2017 | 100.9M |
| February 15, 2022 | 61.7M |
| July 29, 2026 | 33.1M |
The cover pages of AutoNation's annual and quarterly reports give the share count. The count fell 90.8% in 26.3 years. That is a decrease of 8.67% a year.
An owner who did nothing now owns 10.9 times the share of the company that the owner held in 2000. The decrease in the share count alone added about 9.5% a year to every per-share figure.
What to check
Read net income next to earnings per share. If the two numbers move differently, find the share count.
Find the price that the company paid. Divide the dollars spent by the shares bought. Compare the result with the earnings per share for that year.
Find the source of the money. A buyback with borrowed money increases debt. Our note leverage is a calendar explains why the dates of that debt are important.
We saw a smaller version of this in our Adobe report. There, revenue grew 13% and net income grew less than 2%. The buyback supplied most of the growth in earnings per share.
Sources
- AutoNation fourth quarter and full year 2021 earnings release, for 2021 net income, earnings per share, shares and repurchases.
- AutoNation fourth quarter and full year 2025 earnings release, for the same figures for 2025.
- AutoNation Form 10-K for 1999 and the Form 10-Q for the second quarter of 2026, for the first and last share counts. The other counts come from the cover pages of the 10-K reports for 2005, 2010, 2016 and 2021.