Penske Automotive Group, Inc. (PAG)

PAG 
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Industry: Consumer Durables
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Penske Automotive Group (PAG)

Q3 2013 Earnings Call

October 29, 2013 2:00 pm ET

Executives

Anthony R. Pordon - Executive Vice President of Investor Relations and Corporate Development

Roger S. Penske - Chairman, Chief Executive Officer, Chairman of Executive Committee

Analysts

James J. Albertine - Stifel, Nicolaus & Co., Inc., Research Division

John Murphy - BofA Merrill Lynch, Research Division

N. Richard Nelson - Stephens Inc., Research Division

Brett D. Hoselton - KeyBanc Capital Markets Inc., Research Division

Simeon Gutman - Crédit Suisse AG, Research Division

Brian Sponheimer - Gabelli & Company, Inc.

David Whiston - Morningstar Inc., Research Division

Scott L. Stember - Sidoti & Company, LLC

Presentation

Operator

Ladies and gentlemen, good afternoon, and thank you for standing by. Welcome to the Penske Automotive Group Third Quarter 2013 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately 1 hour after completion through November 7, 2013, on the company's website under the Investor Relations tab at www.penskeautomotive.com. I will now introduce Mr. Tony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Please go ahead, sir.

Anthony R. Pordon

Thank you, Tom. Good afternoon, everyone. A press release detailing Penske Automotive Group's third quarter 2013 results was issued this morning and is posted on our website, along with the presentation designed to assist you in understanding our financial results. Joining me for today's call are Roger Penske, our Chairman; Dave Jones, our Chief Financial Officer; and J.D. Carlson, our Controller.

On this call today, we will be discussing certain non-GAAP financial measures, such as adjusted income from continuing operations; EBITDA, earnings before interest tax, depreciation and amortization; and adjusted EBITDA. We have reconciled these items to the most directly comparable GAAP measures in this morning's press release, which is again available on our website.

Also we may make forward-looking statements on the call today. Our actual results may vary because of risks and uncertainties outlined in today's press release, which may cause the actual results to differ materially from expectations. Additional discussion and factors that could cause results to differ materially are contained in our public SEC filings, including our Form 10-K.

I will now turn the call over to Roger Penske.

Roger S. Penske

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that our business produced another outstanding quarter. Today we announced the highest third quarter and 9 months income from continuing operations and earnings per share in the history of our company. Record third quarter income from continuing operations was $66 million and related earnings per share was $0.73. The record results were driven by a 13.5% increase in total retail unit sales and a 14.6% increase in total revenue to $3.8 billion.

We also leveraged our general and administrative selling expenses as a percent of gross profit by 150 basis points, improved operating margin income by 25.3% and improved operating margin by 30 basis points. As a result, income from continuing operations increased 21%. Related earnings per share increased 22% when compared to the adjusted figures for the same period last year, which excludes the debt redemption cost associated with the refinancing of our 7.75% senior subordinated debt. Based on our strong results, our PAG Board of Directors increased the third quarter dividend by 6.3% to $0.17 per share, which now has a yield of 1.8% and a payout of approximately 25%.

Let's now turn to the specifics of our third quarter. Total retail unit sales increased 13.5% to 97,000 share -- units, and total revenues increased 14.6% to $3.8 billion. On a same-store basis, retail revenue increased 12%, including 11.3% in the U.S. and 13.3% internationally. Foreign exchange rates negatively affected same-store revenue growth by 70 basis points or approximately $20 million. Excluding the effect of foreign exchange, same-store retail revenue increased 12.7%, including 15.1% in our international markets. Our total revenue mix during Q3, U.S. represented 63% and our international business, 37%. Breaking it down, Premium/Luxury was 68%, volume foreign 28% and the Big Three 4%.

Looking at new vehicles, we outperformed both the U.S. and the U.K. markets during the quarter. New units retail increase 13.4% to 53,500 units, representing a growth of 11.6% in the U.S., an 18.2% increase internationally. Our Premium/Luxury was up 14.9%; volume foreign, up 12.2%; the Big Three, up 14.4% for a total of 13.4%. Total same-store new units retail increased 12.1%. U.S. was up 8.9%, and international was up 20.3%. Total new vehicle revenue increased 15% to $2 billion.

Average vehicles selling prices on new improved 1.3%, while new vehicle gross profit per unit was $2,791. I look back and compared this to the third quarter in 2008 when we were $2,802, just $11 less roughly. Our margin was 7.5% compared to 7.7% last year in the same quarter. Supply of new vehicles was at 52 days at the end of September compared to 50 days last year.

Looking at our used vehicle business. We retailed 43,500 units in the quarter, representing an increase of 13.7%. Our Premium/Luxury used was up 9.8%, our volume foreign was up 18.8%, the Big Three was up 11.9%, for a total, again, of 13.7%. Our used to new ratio was 0.81:1, which was flat with last year. Total same-store used units retail increased 11.8%. We're up 13.3% in the U.S, and we're up 8.8% internationally. Total used vehicle revenue increased 13.3% to $1.1 billion. Used vehicle average transaction prices declined 0.3%, while used vehicle gross profit per unit was $1,870, and our gross margin increased 10 basis points to 7.4%.

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