Penske Automotive (US:PAG)2022-07-28 00:06Financial Data and Key Metrics Changes - Revenue for Q2 2022 was $6.9 billion, a decline of 1% year-over-year, impacted by foreign exchange losses of $245 million; excluding FX, revenue increased by 2% [8] - Earnings before taxes increased by 8% to $500 million, net income from continuing operations rose by 10% to $374 million, and earnings per share increased by 17% to $4.93; excluding FX, EBT was up 10% to $511 million [9] Business Line Data and Key Metrics Changes - Retail automotive operations saw a 17% decline in total unit sales due to supply constraints; automotive revenue declined by 8%, but gross profit only decreased by 3% [10] - CarShop unit sales increased by 7% to 20,000 units, with revenue rising by 15% to $468 million; however, same-store variable gross profit per unit retail decreased to $2,145 from $2,714 year-over-year [11] - The retail commercial truck dealership business experienced a 23% increase in revenue to $769 million, with unit sales rising to 4,174 units [13] Market Data and Key Metrics Changes - Penske Transportation Solutions (PTS) reported a 20% increase in revenue to $3.3 billion, with profit rising by 33% to $472 million; equity earnings increased by $34 million to $137 million year-to-date [15] - New vehicle supply in the US is at 12 days, while used vehicle inventory has a 42-day supply [22][23] Company Strategy and Development Direction - The company is focused on sustainability initiatives, including electrification and the installation of over 1,300 charging stations across its network [27][28] - The company has completed acquisitions and new open points representing $745 million in annual revenue, with plans to acquire five Mercedes-Benz dealerships in the UK expected to generate approximately $550 million in revenue for 2022 [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for vehicles despite supply constraints and expects current supply challenges to persist for the next nine to twelve months [23] - The company aims to maintain a disciplined capital allocation strategy, focusing on opportunistic acquisitions, investments, and shareholder returns [19][20] Other Important Information - The company returned $437 million to shareholders in 2022, representing 59% of net income, and increased its quarterly dividend by 15% [18] - Long-term debt remains below $1.5 billion, with a leverage ratio of 0.7x, providing flexibility for future acquisitions [21] Q&A Session Summary Question: Concerns about SG&A costs as volumes recover - Management indicated that SG&A costs have decreased from 78% of gross pre-COVID to 66% currently, with expectations to stabilize in the low 70s as business normalizes [38][39] Question: Opportunities for leveraging capital for buybacks or acquisitions - Management emphasized a cautious approach to leverage, preferring to maintain flexibility while considering both buybacks and acquisitions [46][54] Question: Trends in PTL and gain on sale impact - The gain on sale in Q2 was $140 million, up $95 million year-over-year, with PAG's share being $27 million [63] Question: Impact of electric vehicles on dealership operations - Management acknowledged the need for training and facility changes to accommodate electric vehicles, which will require more educational support for customers [65] Question: Visibility into inventory and demand for the back half of the year - Management reported strong forward sold orders in both the US and UK, with a positive outlook for demand in the commercial truck sector [72][74] Question: Affordability issues impacting CarShop customers - Management confirmed that affordability issues are more pronounced for CarShop customers compared to franchise-level customers, affecting margins [84] Question: SG&A cost reduction without headcount reduction - Management indicated that there are still opportunities to reduce costs through technology and improved efficiency, despite rising costs in other areas [89][90]