PAG - Earnings call transcript Q1 2019 | Penske Automotive Group, Inc.

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Operator

Good afternoon, ladies and gentlemen. Welcome to the Penske Automotive Group First Quarter 2019 Earnings Conference Call. Today's call is being recorded, and will be available for replay approximately one hour after completion through May 2, 2019 on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Anthony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Please go ahead.

Anthony Pordon

John. you, Thank and everyone, joining today. us Good thanks afternoon, for presentation Automotive quarter morning understanding XXXX A with is press results our first Penske detailing the along website, this release performance financial and you Group's was on our to strategy. designed assist posted in and issued

any always, As for available may you e-mail by questions I'm have. phone or follow-up

non-GAAP Controller. from Joining amortization, financial earnings be Officer; and Financial J.D. Carlson, me Chief will adjusted as for today's such and depreciation per we Hulgrave, measures, call before On Corporate income are discussing operations, and call, Roger taxes, EBITDA. interest, certain continuing Penske, Chairman; continuing earnings this Shelley or from operations share

and measures have we available comparable call have is our today. measures the investor on outlook presented our We potential website release forward-looking the directly make reconciled operations, Also, presentation, and numbers. prominently earnings comparable GAAP and to which in GAAP about non-GAAP statements most may press this morning's on

results cause actual from expectations. to press actual our materially materially. Roger. factors for risks differ may additional Form outlined cause to our now direct call differ could results discussion uncertainties Our you including the which of may SEC that over release, to I in results XX-K the today's to vary because filings, I'll and and turn

Roger Penske

and our dividend yielding in dealership quarter truck first XX.X% and Thank ratio. the to units, you, store automotive which same new commercial the same PAG a revenues. dividend us of X.X% drove quarter Tony. increases commercial used XXX,XXX used In Good X.X:X afternoon, of afternoon. XXXX, $X.XX, new shareholders everyone, increase more new consecutive and generated representing in joining store thank increase you to including XXst this truck X.X%. units, for We increased We retail to retailed a than a used

per share. $XXX.X stock of $X.XX of Income shares. we operations During continuing was shares the X,XXX,XXX approximately million representing from quarter, our X.X% repurchased or outstanding the

three Protocol related after the charges continuing $X.XX favorable were months, related operations costs offset and share by or During Leasing. income or product and X.X% of relative Worldwide restructuring XX, taxes, WLTP. or to per share from per per impacted taxes earnings $X.XX ended availability by March Vehicle negatively shortages settlement partially share million $X.X Light at Penske after a to were litigation Truck Testing These net

per Foreign share earnings by exchange impacted negatively $X.XX. our

of automotive results In Leasing distribution the highlight retail, Truck diversification in XX% company Zealand. Penske of dealerships, used Penske $XXX generated and and XX% and our to Our non-automotive through Leasings, strategy our investments dealerships, commercial QX, Australia through our million, investment. our into vehicles, commercial approximately retail our before taxes we and New as truck XX% continue through operations earnings truck, our Truck such

down down automotive. X.X%. were retail retail representing XXXX to units. units X.X%, store store was new Same approximately Turning Same

unit and New diesel WLTP, certain down models, were and change X.X%. continued U.S. UK were the Germany. oil impacted sales by on vehicles around in product powered from pressure availability

store reduced internationally. international our was XXX units. diesel, down declined and in UK We and from X.X%. X.X%. in X.X%, retail used to business was Audi brand margin by we’re was units. revenue Audi lower down units Same was Mini U.S. and XXX down down XXX, was down due foreign down automotive flat. Porsche X,XXX the Germany LTP XXX BMW volume Our was sales units commercial Internationally, with over up XXX Same store units, sales XX.X%. affecting was the

store exchange, decline foreign However, the same the impact was of X.X%. excluding when

used $XXX, per X.X%. repair up unit store warranty was service and on up exchange, parts profit Used and parts pay was was up a Same down New gross foreign and XX.X%, up $XXX, X.X%. exchange excluding same was customer X.X%. up F&I up was was X.X%. X.X%, up To exclude and collision was X.X%, was retail, service down revenue, $XX. up and F&I store new

basis However, used gross points $XX, store basis new $XXX, to increased XX.X%. on XX margin a Same was and was was up sequential service up parts up and $XX. F&I

price used down XX.X%. and margin On was Let we of basis, supercenter $X,XXX dealerships, In business. the were In is know, one units. a onto a the and was gross unit UK a our winter the UK down certainly the U.S. We variable of emerged in sales one-price-no-haggle U.S. sales. impacted X.X%. cold vehicle generated X.X% in to and the store on a approach. weather in U.S., average sales XX move operations XX used X.X%. in capped sales operate, by was same were for days me we In These Pennsylvania affected use UK, our the return the in in U.S. in East quarter, as plus snow unit down $XXX center reconditioning the nearly per vehicles nine gross revenue, profit market The two XXX. the first five In retailed and XX,XXX transaction approximately million $XX,XXX UK X.X%.

UK, were by the during car difficulties sourcing impacted with the prices due unit quarter. in auction While higher sales to a

were the Although unit XX% first increased in down quarter, sales from fourth quarter sales XXXX. of the unit

minus was Excluding foreign profit unit. exchange while gross per per F&I $XXX, $XXX unit increased

our retail really unit, The changes the wholesale relying the on and on the UK. vehicles while in items: Traditionally auctions per to compared when unit excluding used well. focusing is car and prices UK, from source our gross decline relates So from year; XX% performing in traditional two U.S. less in In prices was foreign U.S. we've up opportunity the we improvement $XXX. to source XX,XXX Sytner April per in vehicles on annually UK big and XX% we're exchange making saw in In franchise businesses. increases a gross the the March in to down auction how weaker market UK auctions. to the U.S., in to of profit UK sourced last overall, variable cars

we open four to track remain organically in grow new to expect the also used sites XXXX. half We of the on standalone second business as

and truck covered revenue conditions. commercial X the XXX% the Let fixed and XX.X% store of generated store X.X%. continues to at representing to retail by backlog, The XX.X% had million market XX,XXX margin the of dealership experience of parts points, gross of our and And X.X% turn our retail our and quarter, revenue XX% gross business. to same units increased units. a profit. on total heavy-duty now the increased was and quarter, Same on in XXX,XXX quarter. XXX units. The we commercial the sales Truck Class In return America increased strong Class in basis end sales increased me X North service truck cost first first retail $XXX medium Group Premier

Leasing, this ownership fleet XXX,XXX provides now our distributions quarterly equity Good quarter Turning and to is of our Truck depreciation. cash PAG tax over benefit vehicles. generally our earnings, accelerated ownership news, XX.X% with associated Penske with

During XX% the was revenue first quarter, to total billion. $X.X up

Our up logistics full up X%. $XX.X and Rental we was XX%. Contract our up was earnings. recognized service leasing portfolio maintenance grew million Accordingly XX% X%. equity was of

Turning Commonwealth systems. submarines. had be quarter. will awarded new submarines news in for to had good distribution power announced The and Australian recently through provided Attack-class certainly Zealand, New we Australia the contracts our it The Penske during for the business engines power these systems,

production The delivered to in expected first expected first are test XXXX. engines XXXX, are be be to engines delivered in although,

sale these opportunities will which we last to expect systems through in power Penske generate decades. revenue and parts profit of engines, could also the several and While see service

Looking at our balance had March, sheet, end cash. in we of at the $XX.X million

million increased Our $X.X total only to $XX billion. inventory

million $X.X stop vehicles on and representing XXX We vehicles. have XXX sale, XX used new

end March time days supply Our was compared last of the of the days new vehicles at XX to at XX year. same

supply days plan the time was of was debt of billion $X.X year. billion is Floor at end the last used fixed non-vehicle which compared at to rates. Our $X.X of days was XX XX% same XX and at March

kept for million on flat in quarter March, non-vehicle times share December was end with Debt-to-total and debt corporate During of dividends dividend our end and we of other our the and We had XXXX. liquidity the X.X XX.X% $XX consistent ratio of we opportunities. capitalization million acquisitions, year. $XXX share the last was repurchases At at leverage repurchases. spent

our March. end at have Board share of the authorization approximately of repurchase We from remaining $XXX million

bit digital Let's talk about a initiatives. little

of digital the Customer digital in enhance are tools enterprises, online that first online online quarter favorably the We up enhanced and a digital first reduce tool interactive XX,XXX we from to were of last And presentation XX%. used introduced installation sales U.S. unit a digitally an finance our we purchase. Across are capabilities. In our department scheduling and and to and continue The our improve over customers the vehicles And concept U.S. menu ready appointment service our nearly the we increased engage responding sources. well. to halfway, in almost have employees service experience. continue approximately payments for document XX%. docuPAD Also, our is and compared we're year, third-party us DocuPAD leads. When quarter, offices. our reliance transparent a are customers new performing from insurance processing. allows of through to and XX% to of the

also seeing now offices. F&I are We efficiency improved in our

delivery. our launch customers franchise the in dealership documents, for this used digital securely vehicles schedule the traditional our continue online U.K. digital improvement functionality. our experience upload financing appraise that rates, XXX% sign performance I'm in strength home saw to used We few business supercenters will will platform of For expected market new an lender or of to for and conditions pleased a express that we a a obtain launch In season. quarter. the allowing of requirements, are to expect purchase, U.S. next provide through closing, selling the in and later year, electronically select months, and dealerships vehicle pickup March first Also

about of business believe used new September certainly WLTP availability us. behind digital related our truck And business supercenter and expansion initiatives. the also Europe to car since remains experienced Western product We We're very we last the in be excited commercial will have strong. hopefully challenge our

Thanks PAG. the continued of it call over us As confident turn remain for optimistic on At time in this your such, business. the today and the about we'll joining and future operator. to we our confidence

Operator

Your first Instructions] America [Operator question Murphy line you. with from Bank Please of John comes the of Lynch. ahead. go Thank Merrill

John Murphy

Good How you? Tony. are afternoon, Roger and

Roger Penske

John. Hi

Anthony Pordon

John. Hey!

John Murphy

more it brand by what back us brand but if or can, recovery about And maybe of maybe little can snap a you're you without in first what of there's much maybe kind like you trouble, curious and into generally. getting give could idea if of question I'm detail, you there starting generally and you're you of to see at just if least, talk talk rebound that are? around a WLTP, occurring. getting if kind seeing sounds of by bit too Just a sort an

Roger Penske

in enforced Porsche, let European John, the XX% et all Great was me, date We September revenue And Audi, that's go to the back when got Xst, position. our Bentley, Volkswagen To that's cetera. Lamborghini, Group. OEMs. of comes first markets to that's from for Volkswagen WLTP that's the

emission, cheating from So because under scandal obviously of the particular Group the scrutiny the their standpoint of supreme has Volkswagen cars. probably been

late Porsche really In and portfolio. you QX. one seen we brands dealerships to an And quarter those across just the in starting certainly and highlight our carried it's probably fourth is of impact early I'll because brand, we've biggest the the So take give on third also the throughout impact. all XX quarter -- have which portfolio, this in to

in units. didn't smoothing. which look million QX good compounding sold look will the not margin the at rate XXX there's And for the probably the about units units around very XXX QX QX, a and used-to-new give X.X:X which get. to think $X business sold we specifically is the I'm businesses, there's XXX when $X think a is QX, million QX us when counting overall ratio. you forecast everything we when that And you U.K. important you probably U.K. And and were at During And I those

we trades typically margin also didn't beneficial a So us are to get perspective. that from quite

It back and issue this particular once this will again get out. these we certainly will vehicles. give So, get this smooth ability us the

Bentley seen them that now see basis U.K. forward the We're we've selling positive. I in of seen So we yet. as new haven't -- the Bentley here going kind Certainly,

overall they think a the through Volkswagen So, had I the to some issue. issue but We've have bit issues that handled better. with and little Mercedes-Benz, moving seem is BMW

us at the And how used gives give everyone significant and quarter. think I hurt example, an in highlights I really you really idea I that think So, the impact. Porsche the would of it the

John Murphy

to Is introducing XXX make just -- sure for for just that Is And the forecast second is in right. I want correct? quarter in almost the that to doubling? so Porsche you'll -- that versus the I first be quarter. you XXX heard

Roger Penske

XXX U.K. go from in to the market correct double. Yeah. In will or this XXX the international market, almost the international

John Murphy

some used what the still you then go there just the potentially slightly quality? also superstores. as you on as doing up is maybe there high mentioned or second the superstores opened are market Got about to of going to And more You've shifting in I'm in and you, the there be tightness that potential are might just trying sort just vehicles maybe curious they go to for kind I'm of a about the little question bit get is you're how as to maybe a understand, the to better think inventory. older we acquisition. the that superstores, market of well? channels general, priced think

Roger Penske

sell awake whether to used dealer or groups There's everyone obviously that, individual this dealers. opportunity individual real it's whether a say me let superstores, cars, is at Well, now.

of I to at selling you about us, sale of the the you vehicles. use our U.K. at John, pressure, these trying in look across upward the the auction. So, cars the that at U.S. their of that's price XX% CarSense would standpoint certainly the from vehicles on some come were When and place, when to XX,XXX of their about network through It's during to right right the that some in in look the able cars to right U.K the about you're only the the And Its underwhelmed XX% line going you're think look through buy from the it's see if the that car, one algorithms at things have from use, quarter. GBP price, the group at they being that technology at whole $XX,XXX. they first standpoint we

they So they actually the cars didn't buy could. that

U.S. were down we year-over-year. down in XXX about units' ironically, the they XX. Now were And

that we're we're cars on doing just the focusing what some of So to buying on curb. obviously mitigate

CarMax of You've really past. a done heard has that job I think from the everyone. in good Certainly, that

think This accelerate we're do we've SEA. is probably That's Sytner is the been dramatic the together all quite a But we that the we have to effective for little because Electronic going what bring I which that margin. an to put in we'll has that Auction. cars those more most seem at U.K. Sytner call thing us. auction

and went What through that in that. sold are we've These vehicles go through year. SEA taken those that over CarShop done, typically we've we fact, of last vehicles wholesale vehicles that would moved In XX,XXX we've to X,XXX those on XXXX.

XX,XXX We expect XX,XXX that XXXX. to to in go anywhere from

the that So line -- can as able pond those that's those even CarShop is an not to going all-in before they we're cars, to vehicles ₤XXX. a of because directly there'll of visibility me fishing on to and and see of our number Because to they're to we'll have maybe us those be what able will really an auction profit going to be for to it and think cars and CarShop $X,XXX. traded, up we beneficial. be make end one, being We'll take over source this those probably gives CarSense advantage move open wholesale that CarShop And those. with to about does, of those be

So don't we visibility. go We cars the to to get auctions. through get Sytner cars, that Sytner coming right

of the enter do buy what closed able we're closed OEM more try mind if we ability to have we So those then where directly And going possible. to be to to is that. auctions, through the continue see the to auctions and

John Murphy

the market there given growth? get maybe a potentially your capital access I I superstores, opportunities you've and the sort and aggressive work of curious, adjacencies. look as in rates adjacent the lower. it. going and sort used particularly out little the greater markets, credit be then in to go if I of given bit the at might great or and more even wondering And where with I'm opportunity accelerate really cost capital leverage lastly, you of done car mean, there to on M&A is kind some low mean mean, an are Because just environment of is Got just and capital just

Roger Penske

Well, I that we've Obviously, before. capital. prudent pushing a to don't to back got think from it perspective. use the certain in of customer. requirements We're our we've talked functionally about And we from a lot think OEMs that on be got of CI we've difference makes any today the

our that's to we like have the big could pay have I dividends year. think we the a up unless have that make million. buybacks. we that would about off. would And acquisition We cash It's and share And we our what we do be available for next bond obviously coming acquisition. is Then that some have $XXX balance

market's offering was at $X PTL billion Yesterday, that we pretty $XXX upsized interest there and $XXX at the had of that good. Now to because million was million a we bond X.X%.

they have an if in and there's that Lexus and I is we Austin. market in aspect And two question two slightly Edison just in think us, highly stores PTL We're the you below Lexus Now, PAG. the the bought they're QX, available both -- that. investment to New stores no at Bridgewater, and rating. But Jersey grade sold look acquisition

major a was that So acquisition.

for through look look to think these activity truck to -- would we seek as that the right now on forward we expect side. retail opportunistically which side on to of six a next very we're deep long short go would can we over these in certainly lot at on term? as term. look And And side look I at to say truck the months, retail acquisitions. the the And portfolio we into also us I are see going then over the really we viable other the three the

for a opportunistic. of somewhat So, and see wait

can you reduce get good in really we're hand really in don't debt plan, And we let's a when shape. plan. position it look at And our at was look debt. you our other our cash when flat, if the overall that count floor our On floor you

If you just actually our X%. probably debt we have MSRP take the was down X% didn't increase that if and

standpoint. And a really, coming business maybe SAAR we're position. getting then with us. say think -- would we're get is peak people more people in wanting our I that's from overall it looking today it again, it's -- capital for because And their million the did the because to at good I calls So, million. got we've to shape we're a really and retail maybe the probably of roughly they they But out number. XX.X given has has been us think XX acquisition-wise,

John Murphy

you much. Thank Great. very

Operator

next question Nelson Our from with Rick is ahead. Please Stephens. go

Rick Nelson

Thanks. Good afternoon, Roger, Tony.

Roger Penske

Hi, Rick.

Anthony Pordon

Rick. Hi,

Rick Nelson

occurring, X.X% as has up currency. PAG per you traffic? that's well. others service posted some So, drivers? What do as structural that is hearing more parts the more it what it that growth from order? in Is boosting it big repair dollar and local that's Is segment? We're -- see something Or

Roger Penske

Well, as you we're mentioned up X.X%.

And because a I taking technology these increase for we've four was you as over five much a spot remember X.X% don't the of I've and exchange, careful has years lot foreign think this that's people. lot the to to U.S. been the gone of at got said think If of into was international it so credit we're up us. and last There -- zero be exclude looking vehicles. three I to to years up sweet X.X%.

minimal. almost is sources outside to availability Software

have service normally. back So for shop the in that you into would driven and the being really maintenance its customers its items are

of technology that ability think had standpoint bring where more bigger serviced. not in. focus service On from using positive. PAG. have we're technology. I our into to sold, we've And pond a but is not a that the Everyone just of we our to that fish top our that on much using that's now So much, We're

where windshields, reconditioning out in we're doing internal instead going We're Rick, past. cars of things we're that -- having doing doing doing Beyond vents, the we're done that, it doing reconditioning, more used hadn't internally. we the we're

drive business. we're our that of And the no per discounts perspective question there's that's the more our service with use RO. We've rider So on our dollars that lane. technology internal getting a reduced from driving

increased In which look think would RO at if increase fact, probably and our overall $X per effective growth. you rate service QX, I labor parts we've obviously

I it, these also more we now a really and more place. So It's in are think sell would but XX haven't not And in we amazing that -- to drive. that could things service we actually their function. service coming It's about ever to say didn't with -- we to XX XX on vehicles. we're be units focusing stores the on never are now taking who having many customers it salespeople drive on that the are

say are million we're we remember doing we I premium all vehicles of penetration it million the or sold continue. But today the will of talked gives these have over and EV tremendous levers XXX in all combustion that's still business vehicles and have The think opportunity. I the XX engine about XXX So think next luxury We vehicles marketplace. service years parts million if all it's ICE. seven vehicles, us what those things. the a internal And -- five we'll and

we other So departments. And service point. need one

worked on think a our of have really initiatives. job mechanics. hard people good And done on the very I have We acquisition

our more it. And changed base we're only I X/XXs. as we're think down I they our requirements up where opening XXXX. go doing And into So better for not much from doing think we're days doing the We've forward shift at night service. so ones we're what We've got requirements PDI just four are. are shifts just what we

Rick Nelson

mid that growth that type same-store digit single So think do of sustainable you a number? is

Roger Penske

Mission XXX. and parts to the cost PAG. Mission every service. digit fixed thing a within of I their see is called we In would XXX% helped they you and a When X.X% And other cover in store internationally. in the service certainly where have that's U.K want us. parts the that XXX program Well, through really single in done we've One increase have goal certainly

service parts I increase think been saw quarter. has a on during growth Mainland in the So, there ₤XX a the our we the and first almost of things probably business in lot -- during million And going U.K there.

Rick Nelson

for that. Thanks

big commercial next eight downturn many that like driver has a So think that and do Class If been service you sales and we service there. do business? in parts see parts in year, truck trucks impacts a are calling

Roger Penske

Well, going be more for I And we're I maintain sell don't have service grow or we they'll trucks that's to think probably would think trucks, to -- it will more miles. going in help if get because new that. run us even

think sometimes I new down goes saw that is used we when up.

new across -- when that that to that complexity got there the We even were all Truck of to see to the me that So locations fourth costs. side on XXX% the some like this continues up little our car business bit to XXX I a them. ability quarter have because that Premier -- grow of their stores it And take the those of XXX%. trucks and all in centers covered service think

think key have I of one large the building So in showrooms. not We that's don't so we're these benefits. the these CapEx requirement businesses

can for now doing take we're is and more efficient hand, the truck fix diagnostic for quick truck that We bring don't when or do we're we it out. dynos with a lane. in in we we now things other what the getting service the On it as even

our gross you total shops. XX% from doing that parts of and more. of service penetrate and So is in our Truck things business body our service all these profit and our XX% Premier of key. comes the XX% parts growth which today, When and at look same help -- revenue hour labor effective rate again will again think I that us is are And we're

that So I the think of that's business. really foundation

Rick Nelson

Great. all Thanks color good the for and luck

Roger Penske

Rick. Thanks, problem. no Yeah,

Operator

Research. Next we go to Glynn Consumer with ahead. go Please Edge Derek

Roger Penske

Hey, Derek

Derek Glynn

Europe I related emission just there'll hit Hi. Do later addition discussed thoughts but to you WLTP? the impact believe Good I think taking quarter you on WLTP think Thanks less afternoon. this, positioned there's expected to new of you to year this how for that? be last questions. in an Driving OEMs if missed handle Emissions. relative my in to are Real tests Could you to provide updated Apologies

A –Roger Penske

that procedures a they've over impact. of be plenty say, conversations our have to particular there'll dyno they've sure months number be last about government dyno let's for time or with I months. And on We'll hope work six they're had better -- the I OEMs, you that an or an could they'll of what of done and But I Look test on much do the provided Well, the my based think more can I before. understand have expectation that that the ahead seven the less you. on they've can give don't we talked OEMs. that's we've -- give is on to versus that. position had the they they've test government to continue expectations anything the rules with if -- Tony RDE that we the positive. that a And update in

Derek Glynn

versus in leasing estate? if other to there in else just cause change in philosophy the Okay. Great. rates way or Thanks. owning been anything specifically that or real public will helpful. this to you wondering years? cap one relating terms pivot the coming That's dealers. Has strategy. seems seen across anything This of secondly, I'm And you've or just year to allocation around differ capital around estate widely your real any

A –Roger Penske

as grew area. we quite in you we honestly, very, were our Well, know, the business very sale-leaseback active

to capital wish some we've ability certainly going sale-leasebacks take sources, the got and I've to estate We're fact, of. that pivoted the at and XX% In that have with And now the get really I ownership. XX% other from have them to financing through to and us I mortgage we OEMs for I real end. could out get can't. the

we the I a probably X%. worldwide by we that say, can of basis. over, XX% say of on bought on two $X last own quarters or $X In least say, million fact let's And all our about last, land but at expectations real probably of quarter. estate Today two million during first quarters, let's the increased the -- over

So definitely way. we're pivoting that

the to property today the on is X% anywhere problem Now mortgage X% we yes we we're sources look size. actually XX% looking we no. to when get But and from when XX-year a have depending with the the rates

Derek Glynn

guys. Thanks Great. That’s very helpful. Thank you.

A –Roger Penske

you. Thank

Operator

go Armintas ahead. Sinkevicius to we Morgan Please Next go Stanley. with

Armintas Sinkevicius

I on Thank the Great. to truck business. just taking the wanted more color you get question.

-- ACT is in the sold have XXX,XXX know, going XXX,XXX in units units You from sold XXXX. to estimates XXXX

there You do we how mentioned square on the but outlook with estimates commercial your truck the backlog business? the

A –Roger Penske

Well, potential asked with about next talking downturn I think, ACT we question earlier that someone -- year. the

in I were and Permian We're we've not not, out in see. able the up markets are Odessa. in headquartered Worth. think to our remember Dallas-Fort today Oklahoma. wait we'll got We're – Amarillo, We that Basin we we're where Midland, Dallas,

market whole in the have We which Toronto booming market. is a

in in Tennessee also and Georgia. over We are

our to think we going basic on what's continue growth when we're investment. because are you with where they're markets at So going look markets

based on this based haven't business the -- our running we we're and business think I long. getting that on in business better So at been

that on somewhere X% continue X% I me, together put in to over parts last or it vehicles. been in X% business XX% more has units that new of three have business. Remember between XX% or the and years, two versus that -- more to we'll operation So you will probably or think meld the a margin grow service and when

it's So take between when that and at -- that probably at looking parts Tony to looking me service margin you together to just XX%. about XX% mentioned probably it's

Armintas Sinkevicius

Got it.

appreciate that. I Okay. That’s helpful.

A –Roger Penske

Thanks.

Operator

Please Benjamin Next SunTrust. we go go with ahead. to Stephanie

Roger Penske

Hi, Steph.

Stephanie Benjamin

going lease I bit Truck know, you. segments. if growth strong more the pretty apparent. each little you on across what of behind I a some to really generally touch business, is obviously on contractual strong the growth? just the the think strengths Penske the what's you're you scenes What's Thank Hi. rental of could on cause wondered of Leasing

any color Thanks. just be So appreciated. there would more

Roger Penske

X%. was earlier. had which lease XX% XX% $X.X is one and and point up Contract PTL crossed mentioned I maintenance we up vehicles, Well number over then And billion. I Full-service was X%. commercial consumer we And up up XXX,XXX to think logistics.

within what from on might those that got do for that think because can and of and management prices the I people And up we some huge Now fleets other out over very work We've business better. a also just to complexity environments to work a being to we've have keep it. been keep truck ability a a we for take train and the truck some smaller their which dealership increasing perspective, units, plus team. technicians come with done able of increasing good and the access XXX the in probably be there's haven't in maybe able locations

was out to plenty over that So center a these in rider in ownership people be a are sophisticated of in ownership. in And we're have the have. very was on XXXX. will give And Also could We're connect route ability quarter basis. these who following. people. an SOS had we not in they give It we -- grow did service conquest to with in in us the logistics situation other standpoint be our the make the It also today go from last They've captives have What one have and that got Greensboro. in with mainland -- down do we a year It is we to see we some continuing Epes. take or that trying can in vehicles Redding good competitive to customers. that of carrier We shops. small but They that acquisition technical take trucks carrier ability gave might We the seems we're and side. that some a regional us our some cases. their of that forward. business, support to opportunity

night. computing downloading maintenance. portion a trucks our the all of cloud have predictive road with good looking -- We the We're on can download trucks at of at

from we economic when X with of even customers accident, these to the offer loads GPS business that able cost comes of that. ability being business to a me opportunities. and customers. And their technology business dashboards their ability have top you have contract And of customer rental being a number truck if track we at see obviously, there's XX% the goes from other our our tell logistics through and through have contracts ability to that basis So the where that handle perspective, on if they away trucks them our a is and fuel we X drivers The year speeds. we look that access economy, have to weekly And and metrics give the complete the can operating what basically, On escalators. their we monthly customer an new to the able customers truck. moment is conquest base to at of have is

contract half very, the would and in going with XX% that a we with base under solid be of have So side very XX% and which rental customers. our

So our the over rental at last utilization in XX%. six months is almost

a we've I got think team. So management great

strong got think very balance a I sheet. we've

We yesterday. rate. bond term think interest million had down term of took billion I for -- X.X% $XXX of year five $X a and $XXX million. offering we five went and We earlier, a I we out mentioned did

investment So driver there markets the of to of and for us. we the flow benefit a to kind a with comes that's cash PAG. the compete in going there ability these have it's that out and be to And

also for the accelerated We tax the benefits get depreciation.

PAG. great that So it's asset at here I think, a have we

Stephanie Benjamin

much Thank you for so the color.

Roger Penske

you. Thank

Operator

to go ahead. go with John Northcoast Please we Next Healy Research.

John Healy

heard businesses yourself just picture this your another guys getting I Penske? you And year from commentary of big And to of view Thank of even potentially get you online more looking do or we've wanted next what for been over Or incrementally expect where to or into see the deck asset-light it of to I was that do established? more you online? business the bit of about had you little about than was picture potentially you view you. I the just conducting the with a how Is market yourself see strategy. the thought kind this partnerships topic. ask the some to parts your you big the asset-less-light have that the Roger, Or the transaction with go e-commerce curious company slide brand? evolves and e-commerce. provided in transaction on at bigger

Roger Penske

of bit the like And assets. ourselves, a we've customers. so about to You information basically built of then on and provide a lot little our the did hard say can taken software good business logistics it We're the a business. logistics with we lot in

trying we're what different they cars state different Cleveland as than the So the are West see to can on complexity incentives, New the do and are And we at in businesses in maybe here on have. new at the the because they with complexity look and PAG government York we of Coast. today regulations is

as on have they're the used do is and paper. he through So transaction operation a U.S. can no drive. can sit talked CarSense We look we we the thumb to where a are can that side goes transaction. going maybe desk come systems the give the us. And docuPAD multi-million this their goes we want information at at started that adding with We our We primarily accounting down all car experience into complete we the then him want the earlier to to home complete talked it's we to be investment dollar the in. doing in we customer customer steps. can we're highly complete digital about is and our do our the there's we've complete a We car -- opportunity the technical here which think then for He at and that able to a and saying and go to where approach can have focus forward deliver I as transaction first earlier, but XXX%. online. And people or

think when this. for are level. more standpoint manpower they're So at manpower an that's good us admin can from perspective. customers of doing the reduce We SG&A from reducing engaged the the And I

think seen benefit already our our get I per to up. big will F&I do, So business. that's to that's across it going we've that Because unit drive what a focus

So the the from used online car. fully end also you'll car and come see the of digital in to to final buying get of standpoint

bit many everything they'll copies of trying standpoint And to you the have to lot. some for already still car to OEMs sold the want customer new it'll car online can one where to think a them signed from on actually get it's go them the with the We're different. a customers. of be cases to take In we the get I us. the leaves we sometime the states able from the each money go and else little before perspective. And fund can

the ability OEMs. So there's done there which think closing that consistently us for with we've our is with been upgrade I probably think being I that. But beneficial Preferred doing now And has a our two probably just for the in ratio years XX% Purchase been to lot partnership websites.

them websites that will Purchase So Preferred also. that think the to -- on the opportunities from we'll be able certainly I the enhance -- new we do as

digitally integration penny F&I payment bring will Full will obviously. to good. the the and that customer real-time think and taxes I with the be communication So calculations fees

that's the really this. XXXXX about had about interesting think forgetting Sytner same annual talked of course not on auctioning much for we're U.K. Electronic that in two place It's taking over So is then years an to basis. we've almost we And haven't SEA, thing Auction. over vehicles now And that. -- pretty the We're too

the that's us have at the to the might are an an a do? I is test us Is that's and But required. of retail we'll vehicles people with from we like also get from our But in We at a internal Carvana or we else So that can something do the certain at online. in this the that profit. e-commerce that selling future. to don't source can pieces see we're market capability everyone have maybe U.S. can short-term looking And write we we to own in a the outside they that can the units off tremendous and moment look vendors. that that we unless take to the be ourselves aligning something the -- effectively least future at have bring or that perspective, look here U.K. ability able U.S. in both some at U.K. But at if

John Healy

Great. Thank you, guys.

Roger Penske

Okay.

Operator

ahead. Global from go Our Please Ward next question Seaport with Michael Securities. is

Roger Penske

Hey Mike.

Michael Ward

things. Two

the stand-alone that there like correct? it the business On Is supply issue. used of U.K. and more in USA the sounds was car a

Roger Penske

bit just competition and -- Remember, sure will. in just him Brexit I out. impact over think we mean because I have want in about And I that to Brexit didn't -- customer -- £XXXXX. range not not to I Maybe level. had Brexit at question. £XXXXX price maybe that No vehicles. in if going goes or the might get those what's to but I a the happen on up, this that we U.K. did personally access didn't vehicles goes bring area. We to the have of so the there talked little if is he's

cars more us curb. but And people we when both at focus especially out So there that we're the think when me, it. when -- auctions to over XXX rather with auctions. the more one in bidding is have buying a vehicle U.S. we're on But the of about than impact there's these because buy you sourcing cost U.K. units some might only obviously because down coming and we

see all of us that think not So all whether I be are or but now I think it’d focusing our you'll of just domestically. internationally on PAG, peers

Michael Ward

see seasonality on used to on months in stand-alone February, Did the down any you showed a never in in big vehicle the the -- highly there's But U.S, XX.X% on the your I'm good data And actual sales. used drop which side? vehicle unusual is be data. best really the the used And vehicle U.S. business to not seems that data in data. NADA

Roger Penske

you used there's I with really come the data was over the Remember I we just you January, think car. you used have had you that not the assuming... question the weather U.S. U.K. we if but I'm frigid look and units snow people have don't a had the -- places in across me buy on weather an weather January had at at that Well would business only didn't yes. East we? really probably which to the going are Coast supercenters, I But looked When don't country look have it like out sequentially, to in look -- had we it the if say And Atlanta I When had and February March. I XX% when up no our certainly think impact. and climbed

Michael Ward

right. all that's No

on is So a what April you in a March NADA so really U.S. stand-alone? on who say I'm get soft back -- knows track saw January, that from a you but soft fair going April, that assuming to have little way Is maybe saw we you improvement the where that business February, the data and bit.

Roger Penske

and other the October and that really thing down at run as typically our run late the down inventory caught to about got we CarSense, we And November us this think say Yes. in has let's XXXX. we've inventory

-- at those of of even the quarter. vehicles of year at So balance to of at the value We is which January happen. of fourth lower. bottom. point December. quarter, we We wants sometime couple first We And all XXXX the into didn't the of the show their probably end weeks bought end the to rid typically, the the cars in look lowest the we Obviously bottom at vehicles market get the went sometime can wholesalers thought were their CarSense. in typically markets this everybody that January. we probably shape when -- over sheet of went at And in get good to

that to So had overpriced, work through so cars we the we system. had some those were

where also had So was get maybe there we know. And don't we other some impact some that I people the time that there some cars couldn't for wanted.

Michael Ward

it still stand-alone on is And five U.S., nine Okay. your the U.K? then count store

Roger Penske

That's correct.

Michael Ward

adding you're going on those are four added? half? be second And Where the to

Roger Penske

the that be will second which later will opened be then business have and have brand-new refurbed Jersey And New -- one refurb which Well shopping will of with now. center of We're in south five store. so take probably it we a be we'd the Then the let to outside that. end. a me give U.K., you months is we And We're four like under startup quarter. Philadelphia under sometime right in would Homebase at business Wilmington bought. construction to store or be contract in probably that a in which we in is Bristol that in Target

So I'm quarter where quarter you'll looking at see early these. fourth late third

Michael Ward

U.K the two the so U.S.? Okay, in both two in --

Roger Penske

yes. Correct,

Michael Ward

Thank very much. Awesome. you

Roger Penske

Thanks. Good.

Operator

Rajat we'll to Next ahead. JPMorgan. go Gupta Please with go

Rajat Gupta

the rest the initiatives. that elevated SG&A a -- just year? looked had profit see Hey, a and remainder through on we perhaps Thanks for for should of progressing taking Good to the But the some afternoon. year. gross think question. I but of the I follow-up. how XQ profile question U.K. of timing my have And the a thanks. little bit the

Roger Penske

I at do us. the math it of – big some than in come like answer the it out, to it the we out but out. we it those and spring, in add to a down think take give of then our certainly that had better. from been But projection. had and Well, like really would to have took SG&A anything think Obviously, next I done thing that ability But expect a down. for Maybe, this think a quarter. we certainly let against this we that I if see don't go write-offs level back, we the had had you it? before way our with the WLTP as kind needs we the on impacts level to on is When Tony to they But I'd other position – on a come hands it's it SG&A But you I focus impact SG&A. know, it. haven't can I do came leverage SG&A isn't and gross restructuring have compression where an you

Rajat Gupta

year mean, rates you're How Thanks. think rest the it particularly there. sustained here? this more we out out seeing flattening And seeing new? could what with of with for of you're there? it. see is also expected type versus on we continuing? a GPU, should used Or growth changes about Got sense. seeing that That environment mix like there on And makes you're I of then the the the looks strength the F&I

Roger Penske

XX% Well, of is leased. because premium/luxury business is certainly F&I on F&I remember, our our is our And U.S. the products. in XX% of XX% product.

our will continue because to and we across of docuPAD XX-month the So contract. if ability were total when the a lot those we XX-month those our we product as to great a a are F&I typically contract at flats difference. managers, perspective. the isn't which functionality make that variable think increased, or And on a on finance business big think as to given gross extra certainly And exchange, are And up you adding a we a be probably I $XX. salespeople that, selling I lease three-year look and sell, three-year will from get particularly of ex-foreign a were

that. grow to continue we'll So

We because the with premium/luxury. margin. our penetration XX% because drive is there's have that always think higher And business our trailed opportunity overall lease of to less of think peers our I premium/luxury, F&I I a

Rajat Gupta

you. That Thank makes sense.

Roger Penske

Very thanks. Okay. much

Operator

to David ahead. Whiston Morningstar. And we'll go with Please go

David Whiston

Thanks, guys.

Roger Penske

David. Hey,

David Whiston

you Going just on back couldn't that the to for you the didn't higher stand-alone get pay them? to find used the vehicle a stores want you price you them and fall vehicle. or just couldn't Is profitability said more

Roger Penske

price in using to location – been a the we vehicles, want certain look the range felt didn't where band in. at color in opportunity to bought And last the can maybe we we price Well, offer margin. band buy that through CarShop. the we they U.K. have quarter, we've before type, And used make first at to they or the in the a the auctions algorithms they vehicles have that for or front-end have

we went obviously, some pricing. at cars want But which hand, margin of those. Sytner to with augment used that front-end the Now we'll our reached the better on we for other down because get

So, and up with I used the taking think and people there's Car consolidating And waking our us side. in CarShop a People, that action car are market. was big more over impact. the on CarSense Obviously,

to think auctions. typically the you when at so I other And Manheim- and vehicles the So, with customer. Sytner finance the from then And buy of there's have the from leasing the U.K., the vehicles these vehicles. they Adesa-type got we've access companies. from of come people sources more curb at to look And that auctions the XX% buying at companies the course now then off-lease along just

it an for all able best standpoint to that we'll So, to from car transaction have I technology the with be to do and standpoint economic new find that to a We're platform to an also everybody's across get vehicles going and their if easy make out of going the and we reach or to how think trip being perspective to be even reengineering of them. there's capital what's used a don't those and competing. sale from the want customers sell way

David Whiston

within brand demand one side, And the just difference for in brand? example? customer sentiment big with on source versus Okay. -- in than are more the in U.S. consumers you base your for shopping customer or a premium/luxury group a franchise volume any seeing confident coming Is other

Roger Penske

great vehicles. think the The to manufacturers is unemployment availability want All in I there. sell shape. is Well, the credit

down though incentives even of X% from were about -- don't quarter a bit difference. we I that's MSRP don't the the making little see QX, So, in anything a

I think versus XX I I OEMs a dynamic XX might sedans. there's a that SUV guess over the one and -- upfront -- thing ones between have the been to months, last Remember more say here. disparity has last there which trucks have what

field leveled I that think has now.

are things people prized which this product And want. SUV-type truck. obviously has now is an everybody So, what those

the the the and or So, $XXX,XXX And profitable Ford and become vehicles. Texas obviously OEM. OEMs on think you there at in for make both when these there about money is more something competition very a think truck version, Special things dealer a those more I there

So, the Incentives as pretty changing mix has. much it I see are up.

cars, And where know -- the see mission question So, no from not that's where a selling I moment, and mix at where OEMs. buy up to that's coming in and wanting But you you're incentives don't our if car. our our be is. premium that's as anyone will there's is the

David Whiston

Thanks. Okay.

Operator

questions And further in Mr. have no Penske we queue.

Roger Penske

Thank right. see We'll All next you you quarter. you. David. Thank

Operator

conference that for gentlemen, conclude and does Thank you for participation. today. your your Ladies

disconnect. now may You

Penske Automotive (PAG) 25 Apr 192019 Q1 Earnings call transcript