Penske Automotive Group, Inc. (PAG)

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Penske Automotive Group, Inc. (PAG)

Q2 2009 Earnings Call

July 29, 2009 2:00 pm ET

Executives

Roger Penske – Chairman

Robert O’Shaughnessy – EVP & CFO

Anthony Pordon – SVP

JD Carlson - Controller

Analysts

Richard Nelson - Stephens, Inc.

Joe Amaturo - Buckingham Research

John Murphy - Bank of America/Merrill Lynch

Matt Fassler - Goldman Sachs

Hamanshu Patel - JPMorgan

Scott Stember - Sidoti & Company

Ed Antoian – Chartwell

Chris Sommers – Greenlight

Presentation

Operator

Good afternoon ladies and gentlemen, and welcome to the Penske Automotive Group second quarter 2009 earnings conference call. (Operator Instructions) Please refer to Penske Automotive’s press release dated July 10, 2009, for specific information about how to access the replay. I would now like to introduce Mr. Anthony Pordon, Senior Vice President of Penske Automotive Group; please go ahead sir.

Anthony Pordon

Welcome everyone. A press release detailing Penske Automotive’s second 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 today I’d like to remind you that we may make forward-looking statements relating to Penske Automotive Group 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, spending, and ongoing restructuring of the US based automobile and auto parts 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 may discuss certain non-GAAP items including adjusted income from continuing operations and adjusted earnings per share from continuing operations. At this time I’d like to introduce the Chairman of Penske Automotive, Roger Penske.

Roger Penske

Thank you Anthony, good afternoon everyone and thanks for joining us today. Today we reported second quarter income from continuing operations of $19.8 million or $0.22 per share. The company’s performance in the second quarter represents an improvement over the first quarter and exhibits the resiliency of our business model. And I think it also shows that the retail auto business through these tough times can sustain its profitability.

As you know the economics in both the US and the UK continue to struggle and as a result US new vehicle industry unit sales declined 32% and market registrations in the UK declined 21% compared to last year.

Our revenues declined 30% compared to the second quarter last year however, excluding the foreign exchange rate effect the decline was 24%. Despite the difficult operating environment I am encouraged by the performance of our business.

The cost saving initiatives we discussed with you on our last call contributed to a positive earnings results. In fact our SG&A was down $65 million compared to last year. More importantly we’ve seen an improvement in our results versus the first quarter of this year.

The following are some highlights of our second quarter performance compared to Q1. New and used unit retail sales increased 3% to almost 60,000. Total revenue increased $164 million or 7.6% to $2.3 billion in the second quarter.

On a same store basis new units were up 7.8% and used units were down 3.5%. Same store retail revenues increased 8.1% versus the first quarter and same store F&I was up 12.2%. Its also important to note that our service and parts business remained resilient at 1% increase on a same store basis versus the first quarter.

We achieved the increase in our service and parts business despite a continued reduction in the pre delivery and inspection due to the decline in our new vehicle inventories. Our revenue mix in the second quarter in the United States was 64%, internationally was 36% and when you look at our brand mix as far as revenue is concerned, domestic big three was 5%, volume foreign was 30%, and premium was 65%.

And this is pretty much consistent with last year’s Q2 and also Q1 of 2009. Our mix adjusted operating income was 54% in the United States, and 46% internationally. During the quarter we realized higher margin in most areas of the business compared to the first quarter. New vehicle margins increased 60 basis points to 7.9%.

Used vehicle margins remained strong at 9% and F&I per unit increased $76.00 per unit or $923.00 per unit. And our service and parts margin increased 100 basis points to 55.1%, in total our 17% margin was consistent with Q1 due to an increase in lower margin vehicle revenues as a percentage of our total revenues.

Moving on to SG&A, the cost curtailment efforts we have discussed on the last two earnings conference calls continued to benefit our operating results. As I noted earlier SG&A spend is down $65 million versus the second quarter last May and on a same store basis its down $74 million.

More importantly our SG&A as a percentage of gross profit improved 186 basis points versus Q1 to 83.2%. Our tax rate for the quarter was 34.2% reflecting the relative strength of our operations in foreign markets with a lower tax rate. We currently expect our annual tax rate to be approximately 36%.

Read the rest of this transcript for free on seekingalpha.com