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Penske Automotive Group, Inc. (PAG)
Q1 2009 Earnings Call
May 5, 2009 2:00 pm ET
Roger Penske – CEO
Robert O’Shaughnessy – EVP & CFO
JD Carlson – Controller
Anthony Pordon - SVP
Matt Nemer - Thomas Weisel
Richard Nelson - Stephens, Inc.
Matt Fassler - Goldman Sachs
Rich Kwas - Wachovia
Joe Amaturo - Buckingham Research
John Murphy - Banc of America/Merrill Lynch
Scott Stember - Sidoti & Company
Jonathan Chin – Private Management Group
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. Q4 2008 Earnings Call Transcript
Please refer to the Penske Automotive press release dated April 22, 2009 for specific information about how to access the replay. I would now like to introduce Anthony Pordon, Senior Vice President of Penske Automotive Group; please go ahead.
Welcome everyone. A press release detailing Penske Automotive Group’s first quarter results was released this morning and is posted on the company’s website at www.penskeautomotive.com. Participating on the call today are Roger Penske our Chairman; Robert O’Shaughnessy our Chief Financial Officer; and J.D. Carlson our Controller.
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 economic conditions, interest rates, consumer credit, confidence, and spending, potential restructuring of the US automotive sector, 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 10-K.
During this call we will be also discussing certain non-GAAP items including adjusted income from continuing operations and adjusted earnings per share from continuing operations.
As outlined in our press release today, our first quarter 2009 results include a $6.5 million or $0.07 per share gain relating to our repurchase of 69 million of our 3.5% convertible notes. We believe addressing adjusted earnings improves the comparability of our financial results and will be useful to you on evaluating our financial performance.
We would also like to point out a couple of changes in the financial statements accompanying our press release. We have adopted new accounting standards relating to our convertible notes and minority interests. Our prior year financial information has been restated so the financial statements are comparable for all periods presented.
If you have any questions about these items, please call me or Robert O’Shaughnessy for further clarification.
At this time I would like to introduce our Chairman, Roger Penske.
Thank you Anthony and good afternoon everyone and thanks for joining us today. Today we reported income from continuing operations of $16.2 million or $0.18 per share for the first quarter. This includes the after-tax gain Anthony mentioned earlier. The company’s performance in the first quarter represents an improvement over the fourth quarter of 2008.
The improved performance is due in large part to the efforts of our entire team particularly through their efforts to reduce costs and inventory levels. As you all know the first quarter was extremely difficult in the US, in the UK and our revenues declined 32%.
Excluding the effect of foreign exchange rates the decline was 23%. We experienced a significant decline in traffic and vehicle sales compared to the first quarter of last year due to the continued weakness of the economy, lower consumer confidence, and rising unemployment.
In fact during the first quarter US new vehicle industry unit sales declined 30% and market registrations in the UK declined 30% including the March registration period. Our business experienced similar declines. While the new vehicle market was difficult it was a very different story for us in used vehicles.
Our used vehicle business performed well as total unit sales increased almost 2% and were up 24% sequentially over the fourth quarter of 2008. And compared to Q1 last year same store used vehicle sales in the UK increased 3%.
In addition total gross profit margin on used vehicle sales increased 80 basis points to 9.1% as consumers moved down the value chain in response to the difficult economic times.
Let me update you on our cost actions, as mentioned on our last call we initiated actions that we expect to provide approximately $100 million in annualized cost savings excluding interest expense. Our cost curtailment efforts appear to be yielding positive results to date.
Total SG&A declined $81 million compared to Q1 last year including a $91 million decline on a same store basis. The same store decline includes a reduction in variable compensation due to the decrease in gross profit compared to last year.
However is you compare our SG&A as a percent of gross profit to Q4 last year, the ratio improved from 89.4% on an adjusted basis to 85% in the first quarter and that’s an improvement of approximately 440 basis points.
Based on our projection of current SG&A cost we think we’re on track to achieve the $100 million annualized cost reduction we outlined to you previously. I’m also pleased to note that despite the challenging market conditions we are in compliance with all of our financial covenants included in our credit agreements, and this was included in our information we provided in our press release this morning.