Penske Automotive Group Reports Q1 2025 Earnings: Full Transcript Available - NEW BOX OFFICE TO DAY

Penske Automotive Group, Inc. (NYSE: PAG) PAG Q1 2025 Earnings Call Transcript - April 30, 2025

Penske Automotive Group, Inc. surpasses profit forecasts. The reported earnings per share (EPS) stand at $3.39, compared to an anticipated $3.27.

Operator: Good afternoon. Welcome to the Penske Automotive Group First Quarter 2025 Earnings Conference Call. The call is currently being recorded and will be accessible for replay roughly an hour following its conclusion until May 7, 2025, via the firm’s webpage under the Investors section. www.penskeautomotive.com I would like to introduce Tony Pordon, who serves as the company’s Executive Vice President of Investor Relations and Corporate Development. Please proceed, sir.

Tony Pordon: Thank you, Julianne. Good afternoon, everybody, and welcome to today’s session. We released details regarding Penske Automotive Group’s Q1 2025 financial outcomes earlier today, which can be found alongside an informative presentation on our website. Please feel free to reach out via email or telephone should you require further clarification afterward. Today we’re joined by several key figures: Roger Penske, who holds positions as Chairman and CEO; Shelley Hulgrave, Executive VP and CFO; Rich Shearing, overseeing North American Operations; Randall Seymour, heading up International Operations; and Tony Facioni, serving as Vice President and Corporate Controller. During our talk, we might touch upon anticipated developments concerning our operational activities, projected profitability, overall perspective, merger opportunities, upcoming occasions, expansion strategies, cash flow status, and insights into market trends.

We might also cover specific non-GAAP financial metrics as outlined by SEC guidelines, including adjusted net earnings before taxes, adjusted net income, adjusted earnings per share, adjusted sales, general, and administrative costs, earnings before interest, taxes, depreciation, and amortization (EBITDA), along with adjusted EBITDA and our debt-to-equity ratio. These non-GAAP figures are detailed alongside corresponding GAAP measurements in this morning’s press release and investor presentation, both of which can be found on our website. Future outcomes could differ from anticipated projections due to various risks and uncertainties highlighted in today’s press release within the section dedicated to forward-looking statements.

Please refer to our SEC filings, such as our Form 10-K and previous Form 10-Q submissions, for further discussion and insights into the factors that might lead to outcomes differing significantly from anticipated results. Now, I'll hand the call over to Roger.

Roger Penske: Thanks, Tony. Good afternoon, everybody, and welcome to our session today. I'm delighted with how things have gone in this past quarter; our multifaceted global logistics division has achieved an all-time high quarterly income, marking seven successive quarters where we've maintained steady margins. Additionally, there’s been a positive shift—up by 70 basis points—in adjusted selling, general, and administrative costs relative to gross earnings from the same period last year. Over these three months, total revenues surged by 2% to hit $7.6 billion—a new peak figure. Revenue at comparable stores within our car-retail segment similarly climbed by 2%, accompanied by a rise of 3% in associated profits. As far as sales go, revenue coming from auto-service centers along with spare-parts departments saw a growth spurt of 4%; meanwhile, their corresponding profitability expanded even more substantially, rising by 6%.

The service and parts gross margin rose by 60 basis points to reach 58.6%. The company achieved pre-tax earnings of $337 million, reported net income of $244 million, and had diluted earnings per share totaling $3.66—an increase of 14%. Adjusted figures showed a rise in pre-tax earnings by 5%, reaching $310 million, along with a similar percentage growth in net income up to $226 million, and a boost in earnings per share by 6% to $3.39. In examining both the automotive and commercial truck sectors, the present situation continues to be highly unpredictable. It appears that authorities are urging businesses within various nations to engage in discussions about their strategies. We stay closely connected with our original equipment manufacturer (OEM) collaborators. Several OEMs have stated they intend to maintain current pricing during ongoing tariff talks; moreover, many brands appear to be reassessing our localized presence across different regions, considering aspects like manufacturing capabilities, product lineups, supplier contributions, as well as vehicle components among other factors.

Looking ahead, the diversification within PAG will serve as a significant competitive edge. This diversification includes a blend of high-end brands, our leadership position in International Automotive markets through our president, our network of retail commercial truck outlets, and investments in Penske Transportation Solutions—all supported by our adaptable cost infrastructure—which collectively equip us to adapt to evolving market conditions. About 59% of our income originates from North America, 31% from the UK, and 9% from various other global regions. In terms of profit distribution for 2024, 64% came from our automotive retail activities, whereas 36% stemmed from non-automotive ventures, reflecting how we achieve financial success via numerous channels like sales of new vehicles, pre-owned ones, maintenance services, part sales, and financing along with insurance offerings.

Actually, just 26% of our overall gross profit for 2024 came from selling new vehicles. Now, let’s delve into some more specifics about the initial quarterly outcomes. In Q1, we managed to deliver around 120,000 new and pre-owned car units along with over 4,700 commercial trucks. When comparing like-for-like stores, deliveries of new cars rose by 6% and 8%. However, used-car deliveries dropped by 16% and 11%, respectively. This downturn can be attributed to restructuring efforts within our UK-based standalone used-vehicle outlets known as Sytner Select, implemented during H2 2024. Four sites were either sold off or shut down; costs were adjusted downward, shifting emphasis towards high-margin retailing with reduced volume. If you exclude the impact of Sytner Select across these timeframes, decreases in used-unit delivery would have been merely 1% when measured consistently between stores.

The average cost for a new transaction rose by 4%, reaching $59,202, whereas the typical expense for a pre-owned car surged by 12% to hit $37,624. Gross profits from both new and used vehicles at each sale stayed robust. The gross income from new cars stood at $5,059 per unit but dipped slightly—by more than $87—from what it was in the final three months of the previous year. Meanwhile, the gross gain from selling used vehicles climbed by $352 per unit relative to Q4 of 2024, primarily because of our initiatives under Sytner Select along with better handling of our stockpile of secondhand automobiles. Profit margins across all vehicle sales areas—including new ones, old ones, as well as financing and insurance services—averaged out to $5,281 per unit, marking an overall drop of $38 when matched against the corresponding period twelve months prior. During this term, earnings from servicing operations alongside part sales ascended by 6%, totaling $789 million; within these figures lies a consistent store performance increase of 4%, bolstered further by a growth rate of 17% purely attributed to direct consumer payments.

The warranty sector remains influenced by recalls spanning multiple brands. In the U.S. automotive division, fixed absorption improved by 310 basis points, reaching 87.1%, whereas it stood at 117.5% within our North American retail commercial truck segment. To foster growth in this crucial area, we've boosted our technician workforce by 5% from March 2024 onward, alongside raising the effective labor rates—by 5% in the U.S. and 6% in the UK. Additionally, cost management has been satisfactory; on an adjusted scale, our SG&A as a percentage of gross profit dropped by 70 basis points to hit 70.0%, marking a decrease of 30 basis points both yearly versus Q1 last year and quarterly against Q4 2024. With these insights shared, I’ll now hand over to Rich Shearing to delve into our activities in North America.

Rich Shearing: Thanks, Roger, and good afternoon, everybody. At our U.S. retail automotive locations, we saw an uptick in customer visits, particularly towards the latter part of March. Throughout this quarter, new unit sales in the U.S. went up by 8%, whereas used unit sales rose by 2%. By the end of the period, around 29% of all new units sold within the U.S. matched their manufacturer suggested retail price (MSRP). Additionally, leasing activity for new cars in the U.S. climbed to 33%, which marks a slight increase from the previous year’s first quarter where it stood at 32%. When looking specifically at our luxury brand offerings, leases accounted for about 40%-plus versus nearly half before the pandemic hit back in early 2019. This reporting period also witnessed us selling roughly 2,800 electric vehicles (BEVs) across America—a figure amounting to just over one-twelfth—or more precisely, 8.5%—of total new car transactions made here stateside. Furthermore, inventory levels concerning these battery-electric models have been notably optimized; they now stand at a comfortable level of 56 days' worth, down significantly from both late December with its count reaching upwards of two-and-a-half months as well as last March when stock stretched out closer to three full months.

Despite the excellent collaboration between us and our Original Equipment Manufacturer (OEM) partners to align Battery Electric Vehicle (BEV) stock with customer demand, most BEVs still necessitate substantial discounts. During the first quarter, the mean markdown off Manufacturers Suggested Retail Price (MSRP) for BEVs exceeded $7,400, up from an average of about $6,300 in the corresponding period the previous year. Within our auto division, sales at established stores rose by 6%, while the gross profit margin climbed by 8% during this past quarter. Regarding our wholesale commercial vehicle sector, which encompasses 45 outlets and stands as one of the leading distributors for Daimler Trucks North America, these operations form a key component of our multifaceted strategy—accounting for roughly 11% each of total income and earnings before interest and taxes. Looking ahead, we predict that the requirement for Class 8 commercial trucks will largely stem from replacing older vehicles instead of expanding fleets through 2025.

Premier Truck sold 4,714 units in Q1, which was up 4% when compared to Q1 last year, and new units increased 7%, but declined 2% on a same-store basis. This compares favorably to the 12% decline in the North American Class 8 market in Q1 as the strength of our customer mix and the strength of the Freightliner, Western Star brands outperformed. As of the end of March, the current industry backlog was 132,000 units or approximately six months of sales, down from 163,000 units in March last year. Used units declined 7%, including 9% on a same-store basis. However, used gross profit more than doubled to $7,541 from $3,187. Revenue was $824 million and EBT was $45 million for the quarter for a return on sales of 5.5%. Same-store SG&A to gross profit was 63.1% and fixed absorption was 117.5%.

In the future, Freightliner plans to keep price increases due to tariffs relatively low. A tariff surcharge of $3,000 will apply to heavy-duty vehicles and $1,500 to medium-duty ones initially. Customers placing orders before the end of May with delivery scheduled by late October can expect their additional costs from these tariffs won’t surpass $3,500. For subsequent orders after this period, the exact amount remains uncertain pending further developments. Additionally, whether there'll be a pre-buy for 2027 emissions adjustments hinges upon how the ongoing Environmental Protection Agency’s evaluation of specific state waiver requests concludes. Regarding Penske Transportation Solutions: In Q1, operational income stayed steady at around $2.7 billion. Revenue from full-service contracts saw growth of about 5%; however, logistics earnings dropped slightly by 1%, whereas rentals fell 10% because of the continuing decline in demand within the freight industry affecting both unit availability under lease and general usage rates across all rented assets.

In the recent quarter, PTS managed to sell more than 11,000 units and concluded the period with a total inventory of 428,000 units—a decrease from the 435,000 units reported as of December last year. The company’s earnings for this quarter saw an increase of $3 million relative to the same time frame last year, reaching $33.2 million, which represents a rise of about 2% from the previous year’s figure of $32.5 million. Now, let me hand over the discussion regarding our global activities to Randall Seymour.

Randall Seymore: Thank you, Rich. Good afternoon, everybody. Just to recap, our company operates retail automotive dealerships across the UK, Germany, Italy, Japan, and Australia, along with the commercial vehicle and power systems businesses in Australia and New Zealand. These international ventures account for about 40% of PAG’s total revenues. In terms of the UK retail automotive sector, new vehicle registrations saw an uptick of 6%, rising from the first quarter of last year. Our performance exceeded this trend; during the current first quarter, sales of same-store new vehicles went up by 9%. The profit margin per new vehicle stayed strong despite some decline—dropping just $138 per unit relative to the previous quarter's figures. However, same-store used vehicle volumes dipped by 22%; this decrease can be attributed partly to transitioning the UK car dealership into Sytner Select and closing down and selling off four sites.

Without including Sytner Select, the decrease in same-store used unit sales in the UK would have been just 2%. The improvement in vehicle inventory management led to an increase of $589 per unit for used vehicles in terms of same-store gross profits compared to the fourth quarter of 2024. Additionally, service and parts saw a rise in same-store revenues by 2%, along with a growth in gross profit by 3%. In regard to Australia, remember that we purchased three Porsche dealerships in Melbourne last year. In this past quarter, those dealerships sold 540 new and used units and brought in $60 million in revenue. Our advancements within the commercial vehicle and power systems sector continue to be impressive. Notably, services and parts contributed around 61% towards our overall gross profit.

Our emphasis on expanding operational units significantly propels the business forward. During the initial three months, we secured a 150-basis-point increase in market share within the on-highway sector. The off-highway division saw robust gains thanks largely to heightened demand from Energy Solutions. Currently, we hold a substantial $300 million contract reserved for deliveries in 2025, alongside an overall order book exceeding AUD600 million, primarily fueled by expansion in big data centers and battery energy storage solutions. Our position as industry leaders in high-power generating equipment remains unchallenged at more than half the total market share. Now, let me hand things over to Shelley Hulgrave who will discuss our liquidity, financial standing, and strategies regarding resource distribution.

Shelley Hulgrave: Thank you, Randall. Good afternoon, everybody. Our financial position continues to be robust, and our steady stream of cash inflows gives us various options for optimizing how we use our capital. You're aware that we adopt a strategic stance, which allows us to expand our company via mergers and acquisitions and also distribute earnings back to our shareholders using dividends and share buybacks. We firmly hold that the resilience of our balance sheet, combined with consistent positive cash flow, prudent management of capital resources, and our diversified portfolio, positions us well amid current uncertainties when collaborating with clients and collaborators alike. In the first quarter, we produced $283 million in operational cash flow, and our EBITDA stood at $400 million, adjusting down slightly to $372 million.

Over the past twelve months, EBITDA exceeded $1.5 billion. The company’s free cash flow, defined as operational cash inflows minus capital spending, stood at $206 million. In the first quarter, we distributed $82 million in dividends and allocated $77 million towards enhancing or expanding our infrastructure via digital investments. Compared to the same period last year, capital expenditure decreased by $26 million. Within this quarter, we bought back 255,000 shares worth $40 million, bringing the total number of shares repurchased since January 1st up to 750,000 with a cost of $111 million. Going forward, we plan to pursue additional share buybacks opportunistically. By April 25th, approximately $46 million remains available for further purchases under current authorizations. Each shareholder receives a quarterly dividend of $1.22. This represents a substantial increase—upwards of 54%—since December 2023.

Based on yesterday’s closing price, our present yield stands around 3.1%, accompanied by a payout ratio of 36%. Furthermore, concentrating on strategic capital deployment, we sold off one retail automotive outlet in the first quarter, accounting for roughly $200 million in anticipated yearly revenues. The robust cash flow enabled PAG to maintain minimal levels of non-vehicle debt and leverage. As of the close of March, this type of debt stood at $1.77 billion—a decrease of $80 million since the conclusion of December prior. Seventy-eight percent of the outstanding non-vehicle long-term debts carry fixed rates. In terms of financial ratios, debt relative to overall capitalization reached 24.7%, with leverage standing at 1.2x. Including floor plans, our variable debt totals $4.4 billion; among these, 55% originates from the U.S. An increase of 25 basis points in interest rates could result in an additional $11 million in expenses related to interest payments.

By the end of March, we held $118 million in cash, and our accessible liquidity stood at $2.1 billion. Most of our outstanding $550 million, 3.5% senior subordinated notes mature in September. Our current expectation is to cover these notes through operational cash flows, borrowing against our U.S. credit agreement, or refinancing them partially or entirely based on prevailing interest rates. The total inventory amounted to $4.5 billion, which represents a decrease of $140 million since the close of December 2024. Floor plan debt totaled $4 billion. Both new and used inventories remain robust; specifically, the new vehicle stock stands at a 39-day supply, comprising 38 days' worth for premium models and 29 days’ for high-volume imports. As for used vehicles, their inventory equates to a 36-day supply. Now, let me hand over the discussion to Roger for his concluding comments.

Roger Penske: Thank you. The Q1 performance from PAG has been notably robust. I am especially satisfied with the sustained strength of our gross profit in vehicle retail, the achievements of our automotive service and parts divisions, along with our ongoing progress in leveraging selling, general & administrative expenses and maintaining strict control over costs. This reinforces my confidence in our versatile business strategy which allows us to adapt effectively to changing market dynamics. Overall, I'm quite content with how well our company performed during the initial quarter. At this juncture, operator, please proceed to field some questions.

Operator: Thank you. [Operator Guidelines] Our first question is from John Murphy at Bank of America. You may proceed. Your line is now open.

Roger Penske: Hi, John.

To proceed with the Q&A session, kindly continue reading below. click here .