Penske Automotive Group, Inc. (PAG)

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Penske Automotive Group, Inc. (PAG)

Q3 2009 Earnings Call

October 30, 2009 2:00 pm ET


Anthony R. Pordon - Senior Vice President, Investor Relations

Roger S. Penske - Chief Executive Officer


Richard Nelson - Stephens, Inc.

Matt Nemer - Wells Fargo Securities

John Murphy - Bank of America-Merrill Lynch

Mark Andre for Matthew Fassler - Goldman Sachs

Scott Stember - Sidoti & Company

Ravi Shankar - Morgan Stanley



Good afternoon ladies and gentlemen, and welcome to the Penske Automotive Group third quarter 2009 earnings conference call. (Operator Instructions) Please refer to Penske Automotive’s press release dated October 30, 2009, for specific information about how to access the replay. I would like to introduce Mr. Tony Pordon, Senior Vice President of Penske Automotive Group.

Anthony Pordon

Welcome everyone. A press release detailing Penske Automotive’s third quarter results was released this morning and is posted on the company’s Web site at

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 would 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, the ongoing restructuring of the U.S.-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 will be discussing certain non-GAAP items, such as adjusted income from continuing operations and adjusted earnings per share from continuing operations. Our adjusted third quarter 2009 earnings excluded $3.4 million, or $0.04 per share, of after-tax expenses relating to the company's terminated acquisition of the Saturn brand, our election close three franchises in the U.S., and costs associated with our interest rate hedges. Adjusted 2008 third quarter earnings exclude $2.7 million, or $0.03 per share, of after-tax expenses relating to severance, transaction termination fees and property damage deductibles. We believe that non-GAAP disclosure improves the comparability of our financial results from period to period and is useful in understanding our financial performance.

At this time, I would like to turn the call over to our chairman, Roger Penske.

Roger S. Penske

Good afternoon everyone and thanks for joining us this afternoon. Our retail operations continued to improve during the third quarter, generating sequential growth compared to the second quarter. As a result, I'm pleased to report a 21% increase in adjusted EPS from continuing operations compared to last year, and a 55% increase compared to the second quarter of this year. In total, adjusted income from continuing operations in the quarter was $30.9 million, or $0.34 per share, which compares to $26.6 million, or $0.28 per share, last year.

In the U.S. Cash for Clunkers provided a much-needed boost to overall vehicle sales, however, industry sales were still down approximately 10% during the quarter. For the U.K. I am pleased to report new vehicle registration has increased 8%. Despite the challenge of the difficult operating environment, our performance continues to demonstrate the resiliency of the automotive retail business model.

As noted in our press release, there were three nonrecurring items in our third quarter results. As you know, we terminated our agreement to acquisition the Saturn brand on September 30. In total, we incurred $3.3 million of transaction expenses relating to Saturn, $3.0 million of which was incurred in the third quarter.

We also elected to close three franchises in the U.S. during the third quarter. In total, we incurred $1.2 million of non-cash expenses in connection with these closures, including the write-off of $1.0 million of franchise value.

Finally, as you know, we have $300.0 million of interest rate swaps that were used to hedge a portion of our variable rate floor plan notes payable. Given the unprecedented decrease in our inventories over last year, our outstanding floor plan dropped below the level of our hedges. As a result, we were required to record $1.1 million of expense.

These items aggregate to $3.4 million, or $0.04 per share, on an after-tax basis.

Turning to our operating results, total retail unit sales were 67,122 units, down 5.7% compared to last year. Total retail revenues declined 13% compared to last year, including a 12% decline in same store retail revenue. Excluding the effect of foreign exchange rates, total revenues declined 8.4% while same store retail revenues were down 8%.

Our revenue mix in the quarter was U.S. 64%, international 36%, and our brand mix, domestic Big Three 5%, volume foreign 32%, and premium luxury 63%. And our mix of adjusted operating income was United States 50% and international 50%.

During the quarter our adjusted SG&A was down $32.0 million compared to last year and adjusted SG&A as a percentage of gross profit was 81.3%, a 90 basis point improvement compared to last year. Perhaps most importantly, we continued to experience sequential improvement in the business.

Compared to the second quarter of this year we experienced a 13.5% increase in total retail unit sales with revs up 11.6%. Same store total retail revenues increased 12.6%, including a 1.2% increase in service and parts.

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