Penske Automotive Group, Inc. (PAG)
Q4 2008 Earnings Call
February 17, 2009 2:00 pm ET
Anthony R. Pordon – Senior Vice President
Roger S. Penske – Chairman of the Board & Chief Executive Officer
Robert T. O’Shaughnessy – Chief Financial officer & Executive Vice President
J.D. Carlson – Controller
Joe Amaturo – Buckingham Research
Matt Nemer – Thomas Weisel
Rich Kwas – Wachovia
Matt Fassler – Goldman Sachs
N. Richard Nelson – Stephens, Inc.
John Murphy – Merrill Lynch
Scott Stember – Sidoti & Company
Rex Henderson – Raymond James
[Carl Dorff – Dorff Asset Management]
Previous Statements by PAG
» Penske Automotive Group, Inc. Q3 2009 Earnings Call Transcript
» Penske Automotive Group, Inc. Q2 2009 Earnings Call Transcript
» Penske Automotive Group, Inc. Q1 2009 Earnings Call Transcript
Anthony R. Prodon
A press release detailing Penske Automotive Group’s fourth quarter results was released this morning and is posted on our website at www.PenskeAutomotive.com. Participating with us on the call today are Roger Penske our Chairman, Bob O’Shaughnessy our Chief Financial Officers and J.D. Carlson our Controller and as always at the conclusion of our remarks we’ll open the call up for questions and I’ll be available afterwards to accept any questions you may have by dialing my office.
Before we begin I’d like to remind you that we may make forward-looking statements relating to Penske Automotive on this call. We caution you that these statements are only predictions and are subject to risks and uncertainties relating to general economic conditions, interest rate fluctuations, changes in consumer credit and spending and other factors over which management has no control.
Our actual results may vary materially from these predictions. Any such statements should be evaluated together with the information about Penske Automotive in our public filings including our annual report on Form 10K. During this call we will be also discussing certain non-GAAP financial measures including adjusted income from continuing operations and adjusted earnings per share from continuing operations.
As outlined in our press release, our results for the fourth quarter and full year in 2008 and 2007 included items we have identified as being unusual in nature. The adjusted earnings discussed on this call exclude those items. I would like to point out that the press release we issued this morning contains a reconciliations of actual earnings to adjusted earnings for all relevant periods. We believe addressing the adjusted earnings improves the comparability of our financial results from period to period and will be useful to you when evaluating our financial performance.
At this time I’d like to turn the call over to Roger who will have some comments.
Roger S. Penske
Today we reported a loss from continuing operations of $5.55 per share for the fourth quarter. This loss includes after tax charges of $502 million or $5.52 per share including $493 million relating to intangible asset impairments. Despite the charges it’s important to note that Penske Automotive Group is in compliance with all of the financial covenants included in its credit agreements. I’d like to point out that we have included a summary of our debt covenant compliance in our press release this morning.
As you all know the fourth quarter was extremely difficult and our revenues declined 29%. We experienced a significant decline in traffic, vehicle sales due to the overall weakening of the economy, consumer confidence and credit markets in the US and overseas. In fact, during the fourth quarter US new vehicle industry unit sales declines 35% and market registrations in the UK declined 27%. Our business experienced similar declines.
As I look back over the quarter, October business was weak but November was substantially weaker. December improved somewhat compared to November in part due to increased incentive programs offered by manufacturers. As business conditions deteriorated during the fourth quarter we accelerated the cost reductions we highlighted to you during our last call.
Let me provide you at this time some additional detail on the charges we recorded during the quarter. Adverse markets conditions, deteriorating credit markets and the decline in our stock price during the fourth quarter caused us to write down our goodwill and franchise value pursuant to FASB 142. As I noted a moment ago the after tax non-cash charge for this was $493 million or $5.42 per share.
We also continued our efforts to improve our operational efficiency and cost effectiveness. As part of these efforts we consolidated or relocated franchises in certain markets to better align on business with market conditions. In particular, we consolidated our Jaguar and Land Rover dealerships in Phoenix with our Jaguar and Land Rover business is North Scottsdale. We expect the consolidation of these business will generate savings of approximately two million per year. We also relocated a Honda business in California to a new facility.
We recorded after tax charges of $5.8 million or $0.06 per share for redundant lease costs and fixed asset impairments relating to those efforts. We also continued to reduce our work force during the fourth quarter. As a result we recorded an addition $2.5 million or $0.03 per share of after tax severance costs during the fourth quarter. Combined with our efforts in the third quarter we have reduced our work force by approximately 10% during the second half of 2008 and we estimate this will result in savings of approximately $50 million on an annual basis.