Penske Automotive Group, Inc. (PAG)

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Penske Automotive Group, Inc. (PAG)

Q4 2009 Earnings Call Transcript

February 19, 2010 2:00 pm ET

Executives

Tony Pordon – SVP

Roger Penske – Chairman and CEO

Analysts

Nathan Mendes – Stephens

Matt Nemer – Wells Fargo Securities

John Murphy – Bank of America

Christian Buss – Thomas Weisel

Scott Stember – Sidoti & Company

Ravi Shankar – Morgan Stanley

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Penske Automotive Group fourth quarter 2009 earnings conference call. The call today is being recorded and will be available for replay, approximately, one hour after completion through February 26, 2010. Please refer to Penske Automotive’s press release dated February 4, 2010, for specific information about how to access the replay.

I would now like to introduce Tony Pordon, Senior Vice President of Penske Automotive Group. Sir, please go ahead at this time.

Tony Pordon

Thank you, Laurie, and good afternoon, everyone and welcome to our call. Press release detailing Penske Automotive’s fourth quarter results was released this morning and we posted it on our Web site at www.penskeautomotive.com.

Participating on the call today are Roger Penske, our Chairman, Bob O’Shaughnessy, the Chief Financial Officer and J.D. Carlson, the Controller.

At the end of the call we’ll also open the line up for questions, after which we will be available by phone to answer any additional questions you may have.

Before we begin, I would like to remind you that we may make forward-looking statements relating to Penske Automotive on this call. Actual results may vary because of risks and uncertainties, including external factors such as consumer credit conditions, interest rate fluctuations, changes in consumer spending, macroeconomic factors or adverse conditions affecting a particular manufacturer or part supplier and other factors over which management has no control.

Any such statements should be evaluated together with the information about Penske Automotive and 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. There are no adjustments relating to the fourth quarter of 2009. Adjusted earnings discussed on this call exclude the items outlined in the reconciliations included in the selected data tables at the end of our press release.

We believe this 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’d like to introduce the Chairman of Penske Automotive, Roger Penske.

Roger Penske

Thank you, Tony, and good afternoon, everyone, and thanks for joining us this afternoon. Today, we reported fourth quarter EPS from continuing operations of $0.21 per share which compares to an adjusted loss of $0.05 per share last year in the same quarter.

And income from continuing operations attributable to PAG of 19.3 million which compares to an adjusted loss of 4.2 million last year. I think Q4 results were driven by strong performance in the UK, our brand mix, our geographical diversification, the continuing benefit of the cost saving initiatives we implemented during 2009.

Turning to our operating results, total retail unit sales were up 58, 702 units, up 10.9% compared to last year, and our total revenues increased 13.4%compared to last year including a 15.5% increase in same-store retail revenue.

Excluding the effect of changes in foreign exchange rates, same-store retail revenues were up 13.7%. On a same-store basis, our business generated double-digit increases in new vehicle, used vehicle and F&I revenues in the quarter.

The service and parts business was down 1.6% on the same-store basis due in large part in the decline of warranty repairs, our pre-delivery inspections and overall used car reconditioning. However, we did experience improvement in customer pay during the quarter.

Looking at our revenue mix in Q4, domestically, we were at 62%, internationally 38%, and that compares to the same quarter in 2008 when the U.S. was 69% and international was 31%. The big three was 4%, our volume foreign business was 29% and our premium luxury was 67%.

During the quarter, our gross profit was up 47 million and our overall gross margin was 16.1% consistent with last year and our retail margin was 17.2%, which is also consistent with last year.

At the retail level, our margin remained strong. New vehicle of 8.4%, used vehicle 7.6% and service and parts at 55.9%. However, our margin on the distribution business was negatively impacted by 1.4 million or $0.02 per share for reserves for incremental incentives we established relating to our '09 model year inventory.

During the quarter, our adjusted SG&A was up 18 million due to largely to the increase in compensation relating to the increase in gross profit. However, SG&A declined as a percentage of gross profit to 83.3%.

Let’s move on to the balance sheet. Our total inventory was 1.2 billion, up 131 million since September, but down 277 million since the end of last year. The increase in September included was up approximately 120 million on new and 12 million on used.

At the end of the quarter, our worldwide day supplies was 52 days on new compared to 105 days at the end of '08 and 41 days compared to 42 days . Our CapEx expenditure in '09, our gross CapEx was 90 million on a net basis it was 88 million.

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