Group 1 Automotive(GPI) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Group 1 Automotive achieved record adjusted net income of $334 million for the full year 2020, a $130 million increase, representing a 64% improvement over 2019 [10] - Adjusted earnings per share reached $18.06, an increase of 65% [10] - For Q4 2020, adjusted net income was $104 million, translating to adjusted earnings per share of $5.66, an 88% increase year-over-year [14] - Adjusted SG&A was reduced by $179 million, with SG&A as a percentage of gross profit decreasing by 810 basis points to a record 65.8% [11] Business Line Data and Key Metrics Changes - In the U.S., same-store new vehicle unit sales decreased by 6%, while used vehicle retail unit sales decreased by 10% compared to the prior year [20] - New vehicle inventory levels finished the year at 48 days supply, down nearly 8,000 units from December 2019 [21] - Same-store F&I gross profit increased by 2%, with same-store F&I PRU growth of $190 to $2,027 [22] - Customer pay gross profit was up for the quarter, indicating recovery in the after-sales business [23] Market Data and Key Metrics Changes - In the U.K., dealership showrooms were closed for 41 of the 92 days in the quarter due to lockdowns, yet profitability was maintained in each month [17] - The U.K. experienced strong results in October, continuing substantial year-over-year growth from Q3 [16] - Brazil faced a 10% decline in new vehicle industry sales, but margins improved significantly, with SG&A as a percentage of gross profit at 75% [31] Company Strategy and Development Direction - The company aims to pursue external growth through acquisitions, with a preference for the U.S. market while remaining open to opportunities in foreign markets [38][44] - The focus is on maintaining a leaner operating structure and leveraging technology to improve efficiency [12] - The company has restructured its U.K. operations to centralize support functions, which has led to record profits in that region [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth prospects, citing several years of new vehicle industry growth ahead and a recovery in service business as lockdowns end [46] - The company plans to retain a significant portion of cost reductions achieved during the pandemic [12] - Management acknowledged the challenges posed by COVID-19 but highlighted the resilience of the business and the ability to adapt to changing conditions [17][60] Other Important Information - The company generated $145 million of adjusted cash flow in Q4 2020, bringing total adjusted operating cash flow for the year to $504 million [35] - Total cash liquidity reached $263 million, with additional borrowing capacity of $284 million [33] - The company disposed of underperforming assets and has been awarded two Toyota open points in Brazil, expected to activate in the first half of the year [42] Q&A Session Summary Question: What is shifting in the acquisition strategy? - Management indicated that financial stability and improved clarity on market conditions allow for more aggressive external growth, targeting $1 billion in annualized revenue through acquisitions [51] Question: What is the expected SG&A to gross ratio going forward? - Management expects to maintain a SG&A to gross ratio significantly below 70%, aiming for continued efficiency improvements [83] Question: How has the U.K. lockdown affected operations? - Management noted that while lockdowns have depressed service traffic, there is pent-up demand expected to surge once restrictions are lifted [62] Question: What is the outlook for acquisitions in the current environment? - Management acknowledged a competitive landscape for acquisitions but emphasized the importance of maintaining financial discipline and ensuring accretive deals [104] Question: How does the company view the direct-to-consumer model of EV start-ups? - Management believes that while direct sales work for some start-ups, the dealership network provides significant advantages in customer service and inventory management as demand stabilizes [96]