Penske Automotive (PAG) - 2025 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Q1 2025, highlighting total assets of $16.9 billion, revenue of $7.6 billion, and net income of $245.0 million Consolidated Condensed Balance Sheet Highlights (Unaudited) | Metric (In millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $6,053.6 | $5,927.8 | | Total assets | $16,931.9 | $16,720.9 | | Total current liabilities | $6,702.1 | $6,485.9 | | Total liabilities | $11,519.2 | $11,493.6 | | Total equity | $5,412.7 | $5,227.3 | Consolidated Condensed Statement of Income Highlights (Unaudited) | Metric (In millions, except per share amounts) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total revenues | $7,604.5 | $7,447.8 | | Gross profit | $1,269.0 | $1,245.2 | | Operating income | $315.5 | $327.6 | | Gain on sale of dealership | $52.3 | $— | | Net income | $245.0 | $216.2 | | Diluted earnings per share | $3.66 | $3.21 | Consolidated Condensed Statement of Cash Flows Highlights (Unaudited) | Metric (In millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $282.7 | $456.0 | | Net cash provided by (used in) investing activities | $3.5 | $(352.4) | | Net cash used in financing activities | $(241.7) | $(82.1) | | Net change in cash and cash equivalents | $46.0 | $20.5 | Notes to Consolidated Condensed Financial Statements These notes detail the company's business structure, accounting policies, and financial components, including segment performance, lease obligations, and debt structure - The company is a diversified transportation services firm with operations in the U.S., U.K., Canada, Germany, Italy, Japan, and Australia, holding a 28.9% ownership interest in Penske Transportation Solutions (PTS)[25][30] - As of March 31, 2025, the company operated 352 retail automotive franchised dealerships and 16 used vehicle dealerships[26] Segment Income (EBT) for Three Months Ended March 31 (In millions) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Retail Automotive | $252.2 | $198.4 | | Retail Commercial Truck | $45.1 | $50.5 | | Other | $6.8 | $13.6 | | Non-Automotive Investments | $33.0 | $32.3 | | Total | $337.1 | $294.8 | - Total long-term debt as of March 31, 2025, was $1,771.5 million, with the current portion being $778.5 million, including senior subordinated notes, credit agreements, and mortgage facilities[75] - During Q1 2025, the company repurchased 254,406 shares for $39.9 million, with $117.0 million remaining available under the repurchase program as of March 31, 2025[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 performance, including a 2.1% revenue increase to $7.6 billion, segment results, and the impact of new U.S. tariffs and EV regulations Outlook and Recent Developments The company's outlook is shaped by new U.S. tariffs on imported autos and parts, expected to impact vehicle demand, and evolving EV regulations - The U.S. imposed a 25% tariff on imported automobiles and parts effective April/May 2025, expected to increase vehicle costs and potentially lower new vehicle demand[113][114] - The company anticipates that tariffs may reduce new vehicle demand but could potentially increase demand for used vehicles and its service and parts operations[114][118] - Significant regulatory uncertainty exists regarding electric vehicle mandates and emissions standards in both the U.S. and the U.K., with potential policy shifts impacting the automotive industry[115][116] Results of Operations Q1 2025 total revenue grew 2.1% to $7.6 billion, driven by new vehicle sales and a $52.3 million gain from a dealership sale, despite rising SG&A expenses - Q1 2025 results include a pre-tax gain of $52.3 million from a dealership sale, resulting in a net after-tax gain of $18.0 million, or $0.27 per share[137] Retail Automotive New Vehicle Performance (Q1 2025 vs Q1 2024) | Metric | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | New retail unit sales | 50,602 | 48,667 | 4.0% | | New sales revenue (M) | $3,022.1 | $2,802.6 | 7.8% | | Avg. gross profit per new vehicle | $5,059 | $5,229 | (3.3)% | Retail Automotive Used Vehicle Performance (Q1 2025 vs Q1 2024) | Metric | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Used retail unit sales | 58,486 | 69,265 | (15.6)% | | Used retail sales revenue (M) | $2,200.5 | $2,336.2 | (5.8)% | | Avg. gross profit per used vehicle | $2,149 | $1,876 | 14.6% | Retail Commercial Truck New Vehicle Performance (Q1 2025 vs Q1 2024) | Metric | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | New retail unit sales | 3,739 | 3,491 | 7.1% | | New retail sales revenue (M) | $527.2 | $494.2 | 6.7% | | Avg. gross profit per new truck | $8,960 | $9,909 | (9.6)% | Liquidity and Capital Resources The company maintains strong liquidity with $118.4 million cash and $2.0 billion available credit, planning to repay or refinance $550 million senior notes - As of March 31, 2025, the company had $118.4 million in cash and approximately $2.0 billion available for borrowing under its credit agreements[178] - The company expects to repay or refinance its $550 million of 3.50% senior subordinated notes due September 1, 2025, using cash from operations or borrowings[175] - In Q1 2025, the company paid cash dividends of $1.22 per share, totaling $81.8 million, and repurchased $39.9 million of its common stock[181][202] - The company received $26.2 million in cash distributions from its investment in Penske Transportation Solutions (PTS) in April 2025[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations, impacting debt expenses, and foreign currency exchange rates, affecting international revenues - A 100-basis-point change in interest rates would result in an approximate $37.9 million annual change to floor plan interest expense[223] - A 100-basis-point change in interest rates would result in an approximate $5.1 million annual change to other interest expense on revolving credit facilities[222] - A 10% change in average foreign currency exchange rates versus the U.S. Dollar would have impacted Q1 2025 revenues by approximately $320.9 million[227] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[230] - There were no changes in internal control over financial reporting during the most recent quarter that materially affected, or are reasonably likely to materially affect, internal controls[230] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, none of which are currently expected to have a material adverse effect on its financial condition - The company is not a party to any legal proceedings that are individually or in the aggregate reasonably expected to have a material effect on its financial condition or results of operations[232] Item 1A. Risk Factors This section updates key risk factors, including a UK FCA investigation into auto finance commissions and the impact of new 25% U.S. tariffs on imported autos - The U.K. Financial Conduct Authority (FCA) is investigating historical discretionary commission arrangements, potentially leading to an industry-wide redress scheme and compensation payments[235][237] - A recent U.K. court judgment requiring lenders to repay commissions is pending appeal before the U.K. Supreme Court, creating uncertainty[236] - Newly imposed 25% U.S. tariffs on imported automobiles and parts represent a significant risk, likely increasing vehicle costs, reducing consumer demand, and negatively impacting gross profit[239][240] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company repurchased 255,228 shares of common stock, with $117.0 million remaining available under its repurchase program Share Repurchases for Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2025 | 25,271 | $149.95 | | Feb 2025 | 91,887 | $166.01 | | Mar 2025 | 138,070 | $152.18 | | Total | 255,228 | | - As of March 31, 2025, $117.0 million remained available for repurchases under the company's securities repurchase program[245] Item 5. Other Information On April 29, 2025, the company amended its U.S. credit agreement, lowering the interest rate margin on certain revolving loans while maintaining capacity - On April 29, 2025, the company amended its U.S. credit agreement to lower the interest rate on certain uncollateralized borrowings[247] - The interest rate margin for certain borrowings was changed from a flat adjusted SOFR + 2.00% to a range of adjusted SOFR + 1.50% to 2.00%, based on a leverage ratio[248] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Twelfth Amendment to the U.S. Credit Agreement and CEO/CFO certifications - Exhibit 4.1 is the Twelfth Amendment to the Fifth Amended and Restated Credit Agreement[255] - Exhibits 31.1, 31.2, and 32 are certifications by the CEO and CFO as required by securities regulations[255]