Group 1 Automotive(US:GPI)2020-11-01 08:05Financial Data and Key Metrics Changes - Group 1 Automotive reported an all-time record adjusted net income of $129 million for Q3 2020, translating to adjusted earnings per share of $6.97, a 131% increase compared to the prior year's adjusted earnings per share [10] - The adjusted profit results exclude a $3.3 million pre-tax loss related to the redemption of previously issued notes [11] - The company achieved significant profit improvement due to large new and used vehicle margin improvements and substantial cost leverage [12] Business Line Data and Key Metrics Changes - In the UK, same-store new vehicle sales increased by 11% and used vehicle sales rose by 14%, with a 26% increase in same-store gross profit on a local currency basis [15][16] - In the U.S., same-store new vehicle unit sales decreased by 16% and used vehicle unit sales decreased by 13% due to tight inventory levels [19] - New vehicle margins per unit improved by 14%, while used vehicle margins surged by 90% [17] Market Data and Key Metrics Changes - U.S. new vehicle inventories finished the quarter at approximately 17,000 units, equating to a 52-day supply [19] - The UK market has shown recovery, with parts and service revenue increasing by 4% in local currency during Q3 [16] - Brazil experienced a 22% decline in new vehicle industry sales, but the company managed to grow margins and reduce costs effectively [28] Company Strategy and Development Direction - The company is focusing on M&A to add scale, with a preference for the U.S. market but open to foreign acquisitions [34] - A digital retailing initiative, AcceleRide, has been launched to enhance customer experience and drive sales [26] - The company has implemented a major restructuring of its UK operations to improve sales and service efficiency by at least 20% [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in vehicle sales, citing strong demand and low interest rates as positive factors [52] - The company anticipates that the current high margins will continue until inventory levels normalize [42] - Management acknowledged the challenges of growing EPS in 2021 but identified potential areas for improvement, including service business recovery and UK operations [58][59] Other Important Information - The company redeemed all $550 million of its outstanding 5% notes due in 2022, funded by newly issued 4.00% notes due in 2028, saving over $15 million in annual interest expense [29][30] - As of September 30, the company had $66 million in cash and $127 million in floorplan offset accounts, totaling $193 million in cash liquidity [31] Q&A Session Summary Question: Can you discuss the impact of tight inventory on profitability? - Management acknowledged that tight inventory leads to lost sales, particularly with their largest brand, Toyota, experiencing significant inventory constraints [39] Question: How sustainable is the current performance given inventory challenges? - Management indicated that while inventory replenishment is slow, high margins are being maintained due to disciplined pricing strategies [41] Question: What is the outlook for service business recovery? - Management noted that customer pay gross profit has returned to previous levels, indicating a potential recovery as miles driven increase [74] Question: How does the company view the potential for acquisitions? - Management expressed confidence in the company's financial strength and stability, which supports a renewed focus on M&A opportunities [54] Question: What is the expectation for used vehicle supply and its impact on volumes? - Management expects used vehicle supply to improve as new vehicle sales increase, which will enhance trade-ins and overall inventory levels [78]