PAG - Earnings call transcript Q2 2019 | Penske Automotive Group, Inc.

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Operator

Good afternoon, ladies and gentlemen. Welcome to the Penske Automotive Group Second Quarter 2019 Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through Tuesday, August 6th 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. Sir, please go ahead.

Anthony Pordon

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

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

Officer; call Chairman; J.D. Chief Financial Joining our Carlson, Controller. Corporate Penske, me and are for Hulgrave, Roger today's Shelley our

financial the GAAP measures may taxes, reconciled we be website, measures this non-GAAP release investor the in before or discussing call, morning's directly and measures as this interest, our and such to most certain presentation, depreciation EBITDA. measures. On earnings We comparable have amortization, is and which non-GAAP on comparable press prominently the presented GAAP available

we call Also, on outlook our make about statements may potential operations, and earnings forward-looking today. the

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

I'll Roger. over the turn time, call this At now to

Roger Penske

for joining quarter. PAG you, Good everyone. of $X.XX the second for related of for afternoon, Thank income earnings our call. and Tony. Today from million us Thanks reported $XXX operations continuing per share

billion in commercial and which commercial a retail announced more will operations, about revenue truck dealership add acquisition, annualized also I later. $X.X expected double We of dealership is the which nearly truck our size talk to

a improvement before Leasing well Truck Dealership fact in business, Automotive in during During Commercial the taxes. business American Penske U.S. quarter, the investment second Retail our earnings X% North quarter, and in performed our Truck our driving

timing deliveries of However, from weak Australia and second our results. conditions UK in customer quarter impacted in the Brexit the market

approximately impacted registrations market, new vehicle UK the vehicle which volume. significantly decline sales new our retail private X% registration, X%, declined including In in

UK the vehicle market our in values and vehicles used oversupply margins. market used negatively the Additionally, impacted

used car fact, a In statistics QX. show industry during values per month and X% drop

U.S. Including in revenue which to XX% of and flow and we provided for service Leasing in impacted and Company by profit were million items operations, our the $X.XX. $XX our impact the profit and strong UK quarter generate earnings strong second second a negatively continued our helped Penske reoccurring in performance exchange, overall XX% quarter. quarter in stream parts the had investment Despite of the gross and produce between Truck these the gross cash by on decline approximately the

the six flow $XXX increase business allowed our year, months this our of CapEx to repurchased We for and This million generated into invested X land. million $XXX.X Xx, million $XXX shares of During million X.X%. we first we net including we million from personally cash $XX dividend yield to us in operations.

keeping While with relatively debt non-vehicle our our flat vehicle year. December flat, debt relatively last

X.X%, of Turning the to Retail down X,XXX details or same-store units. retail was were new down units Automotive, X% our

or on units, units X,XXX X,XXX and were volume at Looking Germany Italy International XXXX by Audi Porsche Audi with the driven by because down was continued driven UK down lower and by on unit, down declines Audi down X.X% units XXX a U.S. Honda vehicles. and WLTP were was units BMW. bought pressure and XXXX or the we down itself, driven XX% units,

UK. year. X.X%, dealership mainly conditions increased due vehicles. flat with last business while used X,XXX traditional the sales unit The used in to units supercenters declined at Looking market Same were

Same-store unit X% revenue the to sales $XXX during were the Although U.S. increased quarter. total retail U.S. our that I'm unit profit down per unit in pleased same-store declined gross per automotive same-store variable X.X%. nearly

of excluding impact down was same-store revenue when X.X%. exchange, foreign the However,

X.X% and up down was was X.X%, New was X%. used F&I up

increased that almost during XX.X%. revenue versus service pay X.X% while up year a X% last quarter, to of was down and customer high warranty the parts X.X% comp was Turning

know, our service our comes parts that profit profit of businesses business. from dealership a many gross truck As gross service highest XX% and of margin you and parts of our represent retail and XX%

supercenters. price, move plus Let's to $XXX operate reconditioning XX,XXX nearly dealerships and in We In the we generated retail nine second U.S. in approach. revenue million. operations of center in on use haggle These the XX five the our at used vehicle and UK, quarter, the including one UK. vehicles one no

the UK, the was in UK. in X,XXX or mainly down profit market of $XXX to used the Variable which down X.X% the but vehicle unit gross The the and due Our market vehicle used volume decline profit U.S. oversupply conditions flat in at the unit per grosses. and is was values driving down in to $X,XXX. gross was of market, UK relates UK

in Turning The North XX,XXX. to continues to market the America experience end XX% the heavy-duty the up dealership of The XXX,XXX. and business. sales to retail were retail backlog second X June conditions. commercial medium- X Class quarter, Class truck was at strong In

XXX% of by when cost Truck quarter, increased return the million the In company same-store fixed basis at at X.X%. sales gross on XX.X%, a total sales retail of and unit in our strong the profit quarter. second XX of revenue, parts of commercial and same-store Service XXX Group generating represented increased the margin truck covered points Premier up gross XX% XX%

earlier, Truck As profitability. diversification completed increased I and acquisition Commercial non-auto Dealership our in July, which future provides a we growth mentioned and enhances

location South of operating consists a corridor crossroad across coupled Idaho, Northern in transportation, the Truck transportation locations, U.S. of six Central for the our east, Central Toronto. west Warner and major Utah and and mainly with existing

key North Our America. in transportation several stretches corridors across President

billion and Star America. over basis. $X.X billion annualized $X.X Freightliner revenues operate $X.X This largest on billion expected XX an generate revenue, from in to to this we in are group bringing the acquisition acquisition, and now dealership is With Western North the our dealerships

higher cost SG&A, of the of two a in car When assets to to QX to fixed XX% fixed typically as dealership revenue, which lower than and business lower less dealerships. dealerships, car traditional gross that the auto and times compared profit than traditional sales XXX% on are about absorption Due return business are XX%. truck the a higher

In our and averaged our has on XX% costs. XX% dealership a return pre-tax fact, acquisition our in truck annual generally business business between

Turning to Leasing our business.

Our to X% PAG benefits. increased cash distribution now at managing quarter, with and over $XXX earnings revenue XX.X% equity a tax ownership in for in million. XX% of earnings PTL second the vehicles Net was XXX,XXX up PTL $X.X to billion. fleet

million of earnings of Accordingly, the increase of or $X X.X% we quarter and $XX recognize year. second over million equity last

tax in million $XX benefits Over cash PTL provided the through our XX last of is investment in months, cash distributions savings.

operate in power power power system to distribution the in now truck and and we units business MAN, and vehicle side, business defense, opportunities. is in distribute commercial to drive show power segments trucks. The where marine, Eagle Zealand. parts Star, We operational industrial a of turn construction Dennis commercial the generation And the and New Australia we the will future system and me on commercial distribution Let system driving units The market. to operation. key service Western

expect to in gross In parts profit service total of approximately of business. portion XX% the represent we fact, this gross our profits and

and to such, construction we across drive sales military, collaborate to As marine, on-highway, OEMs with markets. continue the

Last due the quarter, Although our be sale half to service during up year, second expect the stronger defense make budget. was and profitability this $X to our contract second was a we and and of will to we large approximately equipment. the million difference down defense meet

initiatives. Digital

our we We and we quarter, and In and U.S. digital used to second continue almost enterprise, online the digital our ready leads. from new sources our Across to purchase. capabilities. of XX,XXX XX% on improve enhance the sales have vehicles the unit reduce reliance in third-party continued over to were

appointment payments perform well. The continue from enhanced tools service department scheduling online and our to were for online introduced customers service

to quarter, development XXX,XXX produced pay service has our centers inquiries sent in U.S. the for an business During our by customer online. appointments the service dealerships. online Every and invitation

online As the quarter by in payments a XX%. our result, increased

We the tool. are pilot digital with and collision track now. we Also and experience, centers, online service estimating purchase document to and on enhanced of complete that new tools upsell retailing as management online rollout our customers preferred docuPAD the for end such year an buying integrated the the software video by for XX% or continued updates on pictures our focus customer to improving digital for

us docuPAD digitally customers an menu processing. interactive document that and to engage presentation to is tool allows

approximately have a investment We $X million at the for moment. this

responding are So a experience, and are favorably we customers, driving higher to employees our digital implemented. far transparency profits were F&I

our to We post enhance proprietary the continued in auction site UK. online bid

total ultimately in the initial third vehicle launch occur over wholesale XX,XXX quarter. the in of first begin in dealership bidders and active a resulting dealership This platform over UK the its complete Further, the vehicles franchise new capability to half phases of our digital year. the in online. will purchase have We XXX% X,XXX launch online we

just we in Looking total declined at $X of cash and the our million At million end balance June, to billion. $XX under our sheet. inventory had $XX

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

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

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

UK bring and without the on ability had $XX money we forward only At U.S. and UK million end outstanding outstanding the quarter, any tax million revolver the consequences we from the U.S. $XXX our the to the of no in in have

acquisitions, total capitalization opportunities we liquidity credit year. $XXX under for end and ratio Our was for other X.X% debt-to-total million of December flat last corporate At had the share over leverage the XX.X% was repurchases June, in and dividends, and our agreement.

I'd Automotive the recently XX to were close, by for, News U.S. like to listing. work I dealership for that XXX the to Before best dealerships congratulate named

for for This thank like I'd contributions. honored your all are their a is We of to employees accomplishment. team this effort.

of return want at flow. Just before the $XXX so CapEx of had and a we the this that of out worth and bought to quarter for flow debt I X.X%. up had we paid $XXX strength just our shows of flat, dividends million and back our $XXX was million stocks of with $XX cash million point I million close Again, cash call, of business. for we We a open this

quarter. than PTL million we on the took statement our increase had that higher biggest earnings of were peer XX% $XX to had million. income that we and XX% during We a in our $XXX

which and also Warner business, us months. do are acquisition think traditional XX the that to we made business, Truck giving we in in much than business sales the return in stronger grow XX nearly grow ability shows a next that the we on where to over to business, We Premier typically we our obviously the can

diversification. think point on partners we bode pure and is the think have we One of to in and strategy competition our as one we across this with other we think thing XXX year, in the States, UK are out U.S. more the interbrand had United car in before we don't superstores shape end There truck stores good we used with one And again, business, two well I the the so the trucks.

call In the to joining us closing, like for for thank open questions. and I'd I’ll you

Operator

first, [Operator of of it line Instructions] of Murphy John we And America. have looks Bank like the

line Your is open.

John Murphy

Good and for appreciate afternoon, the it. I time. Roger thanks

Roger Penske

Hi, John.

John Murphy

sort your headwind maybe you The dynamics the $X.XX over power cut you as can between Australia/Power we out that how and the that develop business, can for question that just and is efforts costs? market curious have as first the well will Europe highlighted understand to I used from us if so time business, new, guys when from look at we that break of

Roger Penske

This let then $X.XX that last last second built profitability went basic were the take And basically year. on was equipment year service through defense. or second the Australia. in sales This a we quarter X% in was Well, quarter was that had Australia. big some jobs the the in me big that

we'll to car and looked used, car. in of about that From impact As think that I we've end the used XX-XX we the text, my said hit budget expect standpoint carefully new versus of at earlier the at year. I flatten it's out and

John Murphy

pricing market our you the in used may the the side, working dynamics opportunity work market? than on out? in inventory cost the the of and something mean the then mean, I got to question new curious dynamic sort vehicle through from the do I’m a there pricing of business the or So that'll I side fast this is other actions that how how help in on some is just through think about fast hit

Roger Penske

John, good question.

out, sales. pricing for with move it and the we that In X% obviously dropping we're did our think that month we a to to and of have I order lot quarter that overage fast take to XX a normal would vehicles it caught as go for margin say the I and were where months, out that vehicles obviously we end our three of be can down get as with going we back. vehicles were and it's by inventory XX those per slowed probably reduce vehicles overpriced to on reduction to can maybe we then buy want overage today. days, and the to again so make

to whether market don't three of almost there to London or the buy other to the know we back remember have try to sales that cars people UK. the of can those and into being XX% you because else them coming Something places a last with drive that want four vehicles and over years, lot are really not in they diesel resell

impact. an has also that So

have addition right we Obviously, the business. car used Bristol, size that perspective of we're and from to the us help going strong feel our I So traditional ourselves. will which can

newer the those costs. really we I cars a up cars in And lower really more little have for bonus no pushing meet have cases, our that, order them with with OEM on young think used we miles side, some are brands pre-registering and complex targets. the in to end we sold registrations manufacturers it's because On and some at

Just at point, year quarter, quarter, of the to at give there online was the you were a BMW's the XX,XXX less XX,XXX approximately of those than an of old. used end end actual the

the out next that's used way of of And the we're So hopefully pushes to I way impact our on end going those at work over used down months. values. higher pressure seeing of and we're all that car the the the the think some three

John Murphy

paid prices than was with for there business from along bit flat, the stronger. Is the the dealers. of there was close helpful. seems customer the like and going And it seen was That's Okay. different other then we parts on bit gears it service, payout warranty XX%. to That's like up seems and something other mix a customer a

Roger Penske

I've think made ours big XX% of labor us last Also, about on those you. luxury. honest comps, and last a year. second quarter, at too, with when had the Yes, seen about pretty today And premium comp that that, you with hard be look to customer, quarter we we're

called, auto with And with that luxury, doesn't I It profit customer the labor. try gives go think these care, also to that warranty. into premium maintenance maintenance those packages it sell and and we a it's into care, you and margin goes

I our that we'll the full programs is But some that. again, So service good. they business look and have think overall, to on continue But circle that impact parts it's at. something

to just number We've that partnership looking of a We're months the first access and reduced the – we of are and we Army where get need military of basis XXX to that six through our can train. some the by technology. technicians type announced have with just out continue coming we of we'll are we into service

UTI. with that developed think we've that's partnership good So we a

John Murphy

there's pretty you you I is we break of it. acquisition. mean, this flow with you slight if how know capital? only do cash class, that. very that cash and can that’s to you still much have about free But exit, have and of free hiccup had And helpful. near-term Got in kind think with combined the that you you lastly, about this flow Warner That's the it strong then issue allocate best a that high just so

buckets? being the of three sort business core of And the stock three acquisition. the core investing truck sort at kind Warner of business or major auto and the look or in You the dealership didn't buckets big back

it that which truck we and aggressive is diverse truck to what cap portfolio, the understand you allocation, business at expect point should see going the buybacks we side. of kind leaning So you this direction maybe seen dealers little leaning think get if of more But your kind bit to seems more it in more more are just the we've ahead about near-term? or a to should in direction like trying you're

Roger Penske

to along back. value stock committed at buy of stock of think would and dividend I the policy, team, look we're we'll continue and we an that would then as which we've the in to Austin Obviously from such auto with strategic that markets like opportunistically to each acquisitions And quarter. continued course management grow the do look a Lexus businesses the Directors, to Well, perspective, the at continue we our add. in marketplace our

continue we're you to competition, much to at think Trucks start you when the it's return start the the required profit, metrics market. capital But better came sales, will brand to that's to look on And the to XX% when interbrand picture. I look with with Warner great business, a grow required, at together revenue CapEx quite the XX% SG&A and gross quickly, that got Freightliner to this they've to that the exclusive of less and

that. So continuing I see us would at to look

We've of in got about we're X.X a it I'm Peer acquisitions, on X.X. we'll Group think is of is today. I think particular that strong to look us all part taking the these on Warner go And going at to capital by people sure when quarter-by-quarter committed and of you basis. projected I also activity balance to is activity a our the sheet we're There's leverage growth acquisition on which calling And X.X to allocations. three think lots

centers. we the of the PTL, that think to that good certainly to a We standalone a it. we're about in bit hit took I And we the businesses, as earlier, but diversify. We car I very think going continue about talked feel mentioned little as earlier, having Truck the used UK

and same quarter the of We're in in store have a Philadelphia new year. between and store do next Bristol a Wilmington, open first UK the two opening large we'll we'll the and

going might we they to where of in that on the contiguous, marketing it markets, our the right we're be advantage advertising. we're ability grow can take So to grow where and

John Murphy

more seems differently kind disciplined stay the then are the to it share So a – safe it's rate. That's it’s to way deal of on buybacks opportunity than like other time. the and say returns over are come as dividends. highest And channels opportunistically flow opportunistic and

Roger Penske

to I volume today, roughly Premium us that were think values is we when already. it's look opportunistic, you have but luxury, the at XX%, XX%. overall look foreign at we're going built core

has Truck we're we in in remember the Because And a going course – world the that mix. that us. then opportunity stay So which run we're great stay in truck XXX,XXX. to to of going for business, largest grow, to Dealership probably is with the continued fleet

on internally And had to expertise, us we since able I the least auto that's our technology So be in the from investments Truck our think able on in XXXX learning Premier to and certainly that the and predictive over what carried to be, maintenance, our to we'll is this to strong. that mechanics, things that. a we've be lot me return bought of we're very do good with our very A of XX% hope at will the business. to the return lot we can side. return for continue be when that's standpoint we're plus history. that I What going we'll of

John Murphy

Great. Thank much Roger. you very

Roger Penske

John. Yes,

Operator

line Nelson Next of we have in Stephens. with queue, the Rick

open. Your line is

N. Richard Nelson

afternoon, Roger Good Thanks. and Tony.

Roger Penske

Rick. Hi,

N. Richard Nelson

us how you any the there opportunities about could them? X.X% as and Warner that How – well finance two compared have the to margin plan and structure? to tell to acquisition premier to learn improve follow-up today, where on the truck their acquisition and I you of multiple

Roger Penske

end to their overall on we'll obviously capital expenses. nothing We use at capital. our and the obviously out line this pull had they did out. inside use quarter. generation was that Well, line obviously would we fourth an and had businesses, of our standpoint, From business, working our the We a working things finance

gate. than I be we're approach of the lower think hope consolidated it I to mature. would which say But standpoint X% as the might said won't But months earlier, be that when completely I that it until we take to And to would when it mature, number. of mature. XX from hopefully get start have out We the completed, we XX

interest got costs. We've some

deal You but costs some, a that, that some a that. gross probably to perspective think with drive opportunity profit, to to build from there's SG&A an other standpoint that we'd from have the we have from real

what When we rent a and traditional U.S. be the no Plus Plus are and we've real about on got perspective, market of it estate auto is sales our real you our think across brand estate one good ability whole network. our locations, on will bought got from technology. we a XX is of news businesses. the percent to is half

the think Xx. like this overall we're the was from multiple So And a in was reasonable shape. I multiple standpoint probably good around

N. Richard Nelson

you what below without for auto would requirements? But pay dealership an CapEx the

Roger Penske

on obviously no of CI, CapEx any requirements, We million we the don't and remember, of assets Well, which retail had CapEx – on the fixed side. the $X.X competition. the auto interbrand have you requirements have

So big factor. that's a

what talked other auto. And employed again, an is I than inventory is about assets of half

it you no So put side, on comparison. there's paper side by

Now every you thing. the day. It's deal like don't this same a get

You're a not every able in to buy day. Austin Lexus

going to But revenue So team will to to board we and said earlier continue a strong go us see John, management as be XX next us $X for do. out XX who to we're to driving acquisition we a as as a for look strong what those billion, at this the of as continue is to I months.

N. Richard Nelson

premier agreement now Almost grow to any size the from at are truck with doubled your there framework steel, challenges here? down

Roger Penske

of Well, have – right years our OEMs agreements you obviously made we into the ago framework have we're we a in limit member number with top at that certain a got was now, not when and the discussion, business. which we're of

obviously ability going and to think continue we're the customer we to talk OEM. to grow to So to or the there's

N. Richard Nelson

perspective strong PTL. PTL, curious, just about the guidance peer your and on for their of took you report. know performance I kind I it's really And public finally, today if It outlook a here, could ask down,

Roger Penske

revenue XX% medium e-commerce being truck light at the due of duty but Well had say, a market for remain and a up, increase from as delivery. slowdown our and to I strong looking XX% in standpoint certainly final mile the you, industry, we over our pre-tax, as quarter, the peer, and pre-tax

mile. impacting escalators. we these – when duty, see three five are XX that obviously our it's anything the months economic next four medium final to and contract to And at look in over So our business typically don't contracts maintenance, you year because of leasing with

in business. of there not losing the we're from risk that standpoint any So

Certainly, we remember the of rental But benefit the last, to rental. logistics have looked and and now last and a at accessing the the needed. marketplace of since defleeting fleets our strong also. can this had we beginning contracts three-year additional we such and And see over year really we defleet two has year because could the we trucks year the they

we downward rental pressure on utilization. some our So could see

the good. is we However, be XX% to XX%. to got which model. XX%, over That's around need our numbers We not

probably rental XX over be over down XX,XXX. and X,XXX defleeting started we our We're ago back trucks. fleet days up So we'll

this So utilization. fleet will rental probably and getting around bring still to good we're in our us down XX,XXX

people we business feel in repair, we lease about full happening voice-activated that also PMs because technology is and ownership have have are that of that our don't business think the and advantages vehicle the diagnostics. that's that we the what's I access And many service good the guided in

cost take fleet that we of find gives the technicians. reduction have plus and from we standpoint that ability the heading us to So the

or can we with service, can packages the that They things a together people tie we about their coming of trucks sell. difficult out drive business. have that, that our that we disposing time We like the of talked

but backlog when coming you almost today XXX,XXX. I think about is So down, still market the the the see overall, –

I XXX,XXX. think it's

some I the in months. So heavy we'll the mid-range see static downturn side, next XX is tractor through side when pretty see the much

N. Richard Nelson

Thanks luck. right. good All and

Roger Penske

Thanks Rick.

Operator

SunTrust. Stephanie have Benjamin we up, Next with

open. is line Your

Roger Penske

Hi, Stephanie.

Stephanie Benjamin

just Hi, is super positive. ability think used volume Hi, I centers kind wanted I despite GPU negative afternoon. Hi, on good flat in really Roger. see a the or follow-up the environment your U.S., to Tony. to of

talk a Thanks So what able that kind this so demand even you about much. and environment? to the bit from in protect profitability of you're perspective a can you're just little the pull levers seeing

Roger Penske

Okay. Number providing buy. had history to and around selective what DNA, vehicle one, a able of very used CarSense the has MSRP they're a best XX,XXX they're of that

the about that also pressure But So as front-end the But trying that. gross on There's we said question to I there's maintain our still been and X,XXX. no earlier, with find some during margin. we're at right vehicles. F&I, time,

I it's discipline. a think So

I bonus. no margin have salespeople. think salary It's a a There's we being our of plus low pressed. turnover unit

again, We a the we've able good to business have stabilize that, cars we market and to price been and parts plus service there.

So overall execution, which will since we're July. to really about new a to today and X% through do when they've consistently we're company. down And going year-to-date it's the now think is able units, business. you growth been the an location, news give look And bought up open I which good the up we us overall we're at in X% in

what with for now we'll our lead to both So and think business what we be standpoint up third when able you And sell. can that, an that think the from rotation year-to-date and right can about buy with we this, quarter I think the quarter. we're the through on I the

And again, today. reflected is business this what's the that X%. sale least at on return over So on

Stephanie Benjamin

as color Great. always. the Thanks for much so

Roger Penske

Thanks.

Operator

have we Stanley. of up, Next Morgan Sinkevicius Armintas

is line open. Your

Armintas Sinkevicius

for September, is, in what My to? the think you you Thank are we your you'll question as Great. taking about question. have that to start partners RDE of hearing to the vehicles with supply from access regards

Roger Penske

real RDE had they is standard. of emissions WLTP where this driving the and Well, dynamometers. did is WLTP tests on all the those new We –

expect we're To we not through getting be through or NOx would So it get of get the looking in that. Audi, Volkswagen certainly to from now consumption first will group, fuel me, vehicles and COX months. at into Audi part still that an six we'll Porsche the

still overhang. an So that's

a you lived haven't light going caution to the first up a certainly give put RDE. happen we can't had of now to year, end I because would So on have I have six they clear with months. I expected what's the path clear a the path. what between on especially to and don't through

Armintas Sinkevicius

that in mentioned used and digital Retail how that this mean sources? with sold new of through then of other the and you third-party sold different just trying the quarter? get Does XX% lead have bit a of sense to and PenskeCars.com come from from PenskeCars.com vehicles direction And units you generators Automotive of a many a question XX% digital

Roger Penske

Probably websites, would X% and from our probably our owned, to obviously XX% we're purchase. around be – of preferred OEM and using PenskeCars.com somewhere through sites,

Armintas Sinkevicius

to Okay. That's of units. Retail X% XX% your Automotive

Roger Penske

Right.

Armintas Sinkevicius

appreciated. Much Okay.

Operator

Glynn, have Next Research. Edge we up, Consumer Derek

Your line is open.

Derek Glynn

Thanks and afternoon. good

Roger Penske

Derek. Hi,

Derek Glynn

SG&A announced. some the in also back drive year. you headwinds about but the think and backdrop half next this think SG&A on leverage of of the like do What's Warner just cost various the half the couple potential the you We're quarters? we of savings acquisition expenses can As trajectory look in in in in second of you and the initiatives UK,

Roger Penske

just we QX we to on basis, XXX points a of if point, some had you QX out. XXXX I were obviously on sequential we basis don't down that compare costs make a to call

provide on the in During the that the have should think prescriptive take last significant plan that cost months. out we somewhere a would quarter. the – in we XXs a question being Warner six team got Edwards But during Darren we no you there's reduction certainly the to in UK expect over in that in costs second with our information us. that And help

at about we also And our just flat drive you we're grosses, know, SG&As at to and got look also car you obviously gross when it's X.X%. new not really

we centers a prices, high quarter. lowering the the inventory car car used that had. because month of the used down and was that used the primarily pricing X% was Our That of UK the the due oversights by driven was to plus during super a

rest that drove sell that the inability So But those to vehicles. we to have some the out year. expect of us of during to

expect to for sure. overall So leverage we get

Derek Glynn

commentary. Got the for Thanks all it.

Roger Penske

you. Thank

Operator

line Rajat of we Gupta up, of have Morgan. the JP Next

Rajat Gupta

taking thanks questions. Hi, for my

start to the vehicle wanted new Just with business. UK

peers recently, something of certain doing Bob], that volume Electing your not by Forgo on to new your says in thought [Dr. equals? industry is process? that you One bonuses, Is plan or that

Roger Penske

these a these because was young unlocks on What and used it – is I happens you and you in significant this has, targets car I The I if no mileage same amount UK, that mentioned, what have targets, comment. really it got if - pre-reg problem has heard is Well, of think it was hit and quarterly what that it. bonus. the then a cars, you've think pre-registration, you

earlier, a example less than the out the at had that less the on end year as XX,XXX an And that old. said or quarter XX,XXX I is Internet than BMW we're of of

It a we're $X able obviously know manage basis on by in the So to one is. the about We've was size, UK OEM case revenue. quarter. case Northern retailer the because the of been number and BMW what Ireland depending it's much tougher past in particularly, this billion that I

spread some to are but too going targets it we talked have obviously this, too some I vehicles those more about if say values residual of margins be programs very their of going reducing hurts high, we're we've So the or the or over, disciplined. hurts to to would their changing basis. obviously locations on OEMs them a targets impacts these because to because it forward

case So we'll case continue to by it's be on to a that. going basis. manage think I But

on being based at inventory the manage what's to in look sold. have to OEMs only of in cases the when going is actual are you OEMs the sales. Because the some retail XX% UK, again, And

you've volumes rental through That future. buy that. stop You've cars. plans, the the end them to the selling sometimes brokers those If and sell car, key quarter, of in end got got and at and cheaper to these you've got got they option retail a is me for corporate they mobility up and we brokers the in the deals, get

Rajat Gupta

be give from expecting the would about cost then you that initially? Got with a planning those? then to us actions you you're is you the sense take, And it. of savings Could of what are kind it And initiatives. there any associated of some costs talked saving that

Roger Penske

million UK. have an think we to for you in headcount – about Certainly don't We ride. of look it. we Do demo replace at, you will think stock a for obviously it's stop loaner that quick we would demos. when service will cars in opportunities over that here, business? several in when have opportunity. – This be don't but have also the we'll of Obviously, us hiring? with there's look car I trade at savings, demonstrators. We Certainly programs, a more people cost have do Well, use that lot there's out we our be a going we loaners for our the

a outside buses going to activities we that other do able do Today, to a at another, one that other salespeople have a standpoint at certainly basis, things look standpoint. from a from with look to third-party forward on can services. we and we'll move location We when from We'll the car probably of cost. be our training that

we a of plan. dollars It's savings look it. got Darren's when several think good at I million But

two supercenters next earlier, the months, As building to XX I costs also had over in for we the our UK of new said here. and the six

to people move trained to sure We when redundant location. that be people, doing into we're carry have the they're next to

in they're costs numbers. associated. those call costs because out So is material We some our there not don't obviously

Rajat Gupta

Got it. Got it.

one the from just from capacity. last balance me, sheet Just

ended rough cash that with generally you probably flow could I X.X either much good year? or probably think, XQ leverage How to – around do a you deal much up you for goes to the in a every like at? want to you range be you slightly acquisition. You stretch How a free Warner could right go mean future, the

Roger Penske

we cash the Well, out business be at year. that X.X based and of talk profitable But But the on flow at the of we strong acquisition. right quarter. now will of we're we'll between were the the business the as and be expecting now X.X end end

again at us to were any could guess there guess sit would We I time, Board. when that way our in it don't we we're position. acquisition calculating I PTL, we did today At with number. and X.X. The a you a down a X.X. But have put have was significant stretch to we'd

Rajat Gupta

Got Thanks lot. it, okay. a

Operator

Global. of the we queue, in Michael Seaport Next of Ward have line

Your open. line is

Michael Ward

afternoon, afternoon, Thanks Roger. very much. Good Tony. Good

Roger Penske

Michael. Hi,

Michael Ward

come $XXX a churn I of got basically looking auto, cash from it with PTL X, operating on basis, a over In this flow. third cash first doubled about third Is and retail on flow. a years five retail truck. I'm If that million about you have last from Page right an of has when the if operating a you're that And third so on in half, of right? from it but the annualized

Roger Penske

I'm calculation. exactly. done I'd have at the you've numbers But assuming to the look

Michael Ward

that's But about right, directionally okay.

Roger Penske

Right.

Michael Ward

grown then portion that closer subject of to sustainable operating parts So, that, in Xx, and less has actual the of at is if flow PTL? cash the I cyclical to that because service look risk

Roger Penske

benefit think of $XX PTL you and about when said also earlier cash to XX That's the a accelerated to for million and equipment PAG that as get on tax continue the depreciation Well, continue benefits flow, but PTL, last of that lands cash the cash we I the think cash months. buy at will portion savings partnership. that of they I that our

the some truck XX% business, course to a service will have parts XX% And even gross with continue in in truck and if used new the on profit. That it's then and softening of we sales. topline

with So parts and of overall then you look coming XX% certainly and service out sustainable. at that's Australia

have Boris to until three here think I flow cash So hard issue face with next we continue months election? Brexit got even strong SAR will to good probably another the see to to go slight new we've the a have the model. have even I and Johnson to that for six car and about be a movement will maybe think Brexit we'll Brexit [indiscernible] that And some UK they in [indiscernible]

Michael Ward

transportation that what level business? look sustainable ultimate of just you The at ultimate cash have goal of a higher So flow? more is to goal services the your global

Roger Penske

the at and we in XXXX. we cash this from started your to of think have standpoint any back, remember I business business look Well, when flow

Michael Ward

that Not it way? everybody at looks

Roger Penske

I that very is cash think important. Well, flow

we've investing in aggressive the from Now been in very facilities obviously, beginning.

luxury, think pretty these find big. numbers out I peers of you as some our are now get premium into some of

on scrutinize the deals some in cases. further. we're We think little a little a being these I OEMs probably – of will some pushed back

looking to today dividends. is a is we a and when flow, you start something at we the and the most obviously going flow, we with not cash X-to-X cash which do. have the of running is something today, giving like. about stock I and we're good of that's cash allow that that manage need to that gross payout be profit, talked Corporate cash look to conversation directors we XX important flow. cover to CI in think to we're as XX%, from The to service I sure to certainly total we need continue that that our XX flow parts And buybacks, But our get part us and obviously earlier so XX the think

Michael Ward

Roger. very Perfect. Thank you. Thank you much your for time,

Roger Penske

Mike. Thanks,

Operator

we of David the line of queue, in have next Whiston And Morningstar.

open. is line Your

Roger Penske

Hey, David.

David Whiston

said pre-registering the back of want they Thanks. targets. to Hi these guys. to UK. I to in go Group in their the One specifically didn't cost issue wanted pursue

least this know of the there's two mix brand at guys, between And You guys. did. I different quarter probably a you

bonus you as bit the and want – take you guys quarter. important each guys team the being route every that about but it to how have leadership You're do just are is time? can you to, and you that in premium the little you more, And that quarterly getting process talk a for just thought

Roger Penske

an are larger cases XXXX since than targets take vehicles what, business. Well, been many in look and XXXX That's pressure the our today when bonus advantage. if with advantage, or profitability know last we a Obviously bought been I earned the taking don't in we've to the the the of We've for the and we that some higher German market big of is. than growth luxuries. market the changing move component

we kilometer and maybe at we a and the we to is, Obviously, BMW the pushes stores. looked hit and say that will market but I smaller we when decreasing number reciprocal to more get it growth ourself, is that you, and call we of and what had XX I cars, One, have have a have I sell we did we targets, think zero out higher got have a do we've cars, bonus number, used young Group what guys at

we this can young business. be we – in rather we probably car So they'd and not do at used would again, purchased pretty But efficiently. have had that market

have any think fine. I by that. other We of we're OEM, it's So really OEM OEMs don't

met I've to it's So people an think with negotiation. targets lately specifically and about talk a BMW I ongoing

UK. the these the that about the were Munich fine there we're and now they And is of we that understands can't this in targets. able management I talking push in to We think understand at had no some levels Italy Spain, senior negotiate

the U.S. when the at looking On other you're hand,

very think well I it's balanced.

David Whiston

Okay, thanks.

F&I Moving talk was volume Trucks. vehicle about And very, good, just down can suffered. but was very much? to F&I you new so on The obviously why,

Roger Penske

more sold. That's the obviously units of we because

to got see a we considerably the at You more quarter. in units you've sold look

at, own basically is think their I You they the in a And got company area, business. look little with do fleet financing. their of that was own finance we've this today customer them many more probably

Now, and the varies And quarter-to-quarter. we Premier same think one good thing into F&I I at strong is that that this take Warner. we expect to that a capability have department

David Whiston

might Okay. up? it just a the now preference to site towards versus or you the have truck And fair environment, that M&A deals come on, vehicles say the is on depend light but

Roger Penske

Warner I Lexus in the – stores at December last which auto this in the of end business we stores acquisition to in came came we the We're made probably we strategic closed Jersey. the and look, up not remember two two think Austin, you was New going again, sold the get and and up to XX getting said But of deal for – sure. we're days. out not

scale under prune already. We're we're dealerships basis are be going performing to to peers. market that going for not opportunity its just we're we And have And an sit out here ongoing similar to think continue look or cars. to to where going I trucks going on Google to can saying our the on them we

to importance the part Asian and of business area And that's be opportunity we our real to world. that out I think the our add more could would where there of that There there diversification. we Pacific able in Is out are? opportunities in be

look down. a I know that and that partners. bring continuing is to know consolidate they as the we to truck want I Again, XXX Freightliner business, at

So We and could sell. people are of to add willing that. some their to

the comes we where of that So discussion. really into from be our will balancing standpoint discussion it to a capital. put Board really want our But

the those look, think I all depending acquisitions other it's and buyback think stock each, in I what Ward, opportunity. I it's the take dividends, and priority said the be earlier, I of think Mike on of requirement the might it's identity, corporate

David Whiston

China? mentioned interest in you since into And have you opportunities Thanks. in Asia, going do

Roger Penske

establish We I'm have would there This a not to time, we are no, [indiscernible] that lot We have business, there of do We're looked dealer These without areas thinking big do number more group ago. Indonesia, coverage. going try. we mining a give interest of we out too. today where little we where things there. costs add can – good and business doing with can of us of Australia very are that there. with at years

think I there's opportunities there.

David Whiston

Thanks Okay. guys.

Roger Penske

Thank you.

Operator

And any with be queue, remarks. closing Company turn no I'll for the further to questions to here it back in happy

Roger Penske

Thanks. Okay, Thanks you quarter. folks next Justin. call the on the for time and we'll see

Operator

Ladies gentlemen, We for all participation does much and teleconference afternoon. of service. thank conclude that for presentation this using executive you the very your and our

disconnect. may You now

Anthony Pordon	Executive Vice President, Investor Relations & Corporate Development
Roger Penske	Chairman and Chief Executive Officer
J.D. Carlson	Chief Financial Officer
Shelley Hulgrave	Corporate Controller
John Murphy	Bank of America Merrill Lynch
N. Richard Nelson	Stephens, Inc.
Stephanie Benjamin	SunTrust Robinson Humphrey
Armintas Sinkevicius	Morgan Stanley
Derek Glynn	Consumer Edge Research, LLC
Rajat Gupta	JP Morgan Chase & Co
Michael Ward	Seaport Global Securities
David Whiston	Morningstar Inc.

Penske Automotive (PAG) 30 Jul 192019 Q2 Earnings call transcript