ABG - Earnings call transcript Q4 2018 | Asbury Automotive Group, Inc.

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Operator

Good day and welcome to the Asbury Automotive Group Q4 and Year End 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Matt Pettoni. Please go ahead, sir.

Matt Pettoni

Thanks operator and good morning everyone. Group's XXXX Automotive call. Asbury to fourth earnings quarter Welcome be recorded replay Today's being will available call is and for later today. The results was is Asbury's fourth this detailing website and our posted press morning on asburyauto.com. issued release earlier at quarter our President with Executive and Officer. and Vice of Chief Officer, Participating Goodman Sean Senior Chief Operations our Financial President and David Hartman, our today are President us Hult, John Senior Vice will later open I At any the up the remarks, conclusion and available of for will questions. we be for our follow-up questions call

Before I the begin, statements. to must we the remind discussion call contain you during likely that today is forward-looking

Forward-looking by statements and statements than statements. the uncertainties materially actual statements forward-looking historical those which differ are nature. All in significant other subject results suggested to those are may are from

that year SEC including from any December to see today. responsibility actual the regarding to results of issued any release the please time-to-time, subsequently We the update and quarterly For on information earlier expressly statements. for our ended certain with disclaim XX-K forward-looking Form may cause XX-Q filings reports our XXXX, earnings filed Form risks our differ,

addition, In financial defined call. as SEC may non-GAAP be this on measures, rules, discussed under certain

rules, CEO, financial David SEC website. Hult. David? directly our applicable reconciliations by such my provide pleasure non-GAAP is It required As GAAP measures any call the measures to over of most the our to we comparable on to hand

David Hult

adjusted per of for of over achieved flat an Asbury. a Thanks Matt, to service and grew share revenue, X.X% a year X%, serviced delivered XXX,XXX by and per $X.X $X.XX. good adjusted over and vehicles, vehicles, by frontend X In XX% record of XXXX $X,XXX, morning yield vehicle environment, profit parts over operating earnings margin grew a retailed record we gross everyone. SAAR million was generated billion

disciplined to and with was capabilities. solid service. balanced in gross future investing omni-channel approach was success vehicle same the in coupled This higher while our a growth at parts spending growth used time in by SG&A profit our business, continued developing driven Our and by F&I

our risk adjusted return balanced we stores allocation, returning acquiring XXXX, our of shareholders. new seeking continued and capital our During strategy capital through in business to existing investments the highest

we million we we an XXXX, stores repurchased in our $XXX to three Indianapolis shares, and of acquire and agreement recently stores integrated acquired the signed market. During four

conditions. So, close total seven. we in of expect market to transaction, QX Indianapolis subject With our closing customary XXXX to the this increase in will stores to

revenue employee subsidized future. leading the quarter extended equity Education on second week, program equity fixed industry paid our To XXXX. and new enhanced package the work Monday of to to benefits capacity producing to Turning equity for capitalize unused These retention, grants, associates. benefits announced be plan the on shareholder and a of subject include approval frontline plans, we maternity The in four-day grants. part leaves Asbury's is expected is time, which vacation of medical

investments omni-channel retail for are the in that of that we developing model the Finally, we been the have differentiated guest-centric the past future. have a foundation made

them offer to to to to are growth believe to Sean discuss long-term QX enhance leading that will Sean? associates will industry our our vision, I are we our hand be critical excited performance. frontline and Our over call now benefits financial the able we potential.

Sean Goodman

everyone. morning Thank you, David, and good

revenue adjusted the basis gross we and We XX income per by adjusted points income was $XX.X and basis as implemented year, gross of last was quarter Net diluted by net by than points to The franchise are lower of by quarter, fourth million increased XX recognition. X.X% rights increased diluted our XX.X%, margin SG&A pleased with prior $X.XX. impairments. increased impact year X%, the to XX% operating share net revenue fourth adjusted than by in ASC last points lower profit percentage the fourth for per adjusted of a year, our increased Overall XX XXX This million was margin share year gross for $X.XX net operating XXX increase increased the income XX.X% to profit of to performance adopting fourth of X% quarter. ASC in $X.XX per compared share. or by earnings million accounting XX% $X.X to XXXX quarter noncash or $X.X was pre-tax for charge for standards basis

attractive XXXX repurchases of us cycle. repurchased total to $XX million. economic of deployment range in $XX into a quarter our opportunities our to despite exceeded the rate XX.X%. We for prior year basis positions year was of a plan X continued gross percentage down the at taking while and the floor to gross tax cash as of in other flow of $XXX quarter, potential end strong debt investments XX.X% of by the omni-channel full rate on times generation. leverage while that leverage prior our at operating the for end in managed million of A effective well SG&A quarter targeted our fixed times. profit year. XX up bringing We fourth to stood successfully total our shares increased our and the XX.X%. tax plan And A XX.X% Overall, believe for rate, We quarter, interest solid our from is all SG&A over to year expense the XX.X%, $X achieve Our percentage is ratios west interest million. ratio the mainly ratio consideration debt our from profit at expense that during a rates. points Floor has the low future share X.X net this X.X as was is XXXX. capitalize high of floating million the capital SG&A results rate. own times, QX X.X leverage This QX X.X times, At interest reminder the thanks by that XXXX the driven for

in $XX estate related $XX share million XXXX, plan $XXX $XX have used stands remaining capital perspective, available lines. million repurchase available spent on approximately credit liquidity ended non-real had expenditures, available From cash, the acquisitions. three at million and million accounts, Our on quarter revolving authorization our floor with line, we on we on vehicle our $XX $X million $XX million. In offset in a million

I pass the our call would Before regarding few over I to make to a John, for comments XXXX. like expectations

revenue. in of and million business generate David market XX between We for are our are mentioned Indianapolis approximately four and that QX close annualized planning in million $XXX the of expected his declining an XXXX, units. expectation with a SAAR, million stores during The remarks, XX.X to of

vehicle gross remain margins around at any with F&I. we to stable offset our We by to digit We the that pressure vehicle $X,XXX continue in on mid-single parts expect per can profit services range. front end and grow being yield believe

XXXX plan with SG&A balanced liable Based than debt expect percentage This SG&A, our approach Note frontline lower of additional we impact to investments This XX% at that million. are XX%. average time includes benefits as results accelerated in rate spending, sales gross higher on costs associated to capabilities points approximately future. a should the XXXX. with range X% packages additional of reflects omni-channel in volumes, be in the current in XXXX. guidance We profit our expected same in investing interest our of associates a curve, while be to expense XXX in floor disciplined to the and the in approximately of interest that in on enhanced increase the $X forward interest basis providing rate the our

XXXX We between XX% and XX%. in expect our be to tax rate

that approximately us we detail. of financing million. and for CapEx $XX now QX any operating over to planning in Finally, I hand to we walk consider the call XXXX are the be performance purchases real-estate amount buyout excludes to through lease transactions. John opportunities would more John? This to like potential

John Hartman

you, fourth same pertain My will Thank the to XXXX. compared to quarter performance Sean. of remarks store our

our vehicles, down sales SAAR brands. we new our unit prior took in from Looking share while X% at most was were of as X% up year, the market new

was down brand volume than year. basis margin our yield We growth versus and last points all margin of X.X% segments. experienced XX car and front flat portfolio end a new were across in $X,XXX. quarter lower delivered last The Our

within was and at Our $XXX total XX range. targeted vehicle inventory new million our supply day

vehicles. to Turning used

were by us new ratio used used X%. used by successful The vehicles we and increasing of to used increasing initiative strong quarter, drive XXX resulting deployment points X% in unit results. our omni-channel sales software our This basis to help and increase by enterprise vehicle able gross profit car these

targeted XX our of which Our within at to days. XX XX-day used range is vehicle million of inventory $XXX was supply

per Turning to gross by X% increased results. $X,XXX. strong to F&I F&I, sales, deliver to F&I vehicle volume gross our decreased slightly to our due profit profit increased continues team

and to parts Turning service.

in increase like sales take moment our work X%, and increase you and of update gross used revenue Our on service was a of parts omni-channel improved profit initiatives. X%. and parts to pay. achieved this give drove by X% progress with would an to I some increased the by vehicle The reconditioning within to a service customer

during brand the currently the onboard increased the team are and Stores to quarter sales We digital rollout centralized on year-over-year. program halfway digital certified of our within are in the almost schedule this stores over sales we months. participating through next remaining by XX% six

handled our approximately sales X,XXX units. in total tool of vehicle quarter, the Our retail PUSHSTART over X% is which online sales

which parts the and and record XXX,XXX to year. grow tool our service continue appointments, from We of reached is up XX% utilizing digital online the prior the traffic service we scheduling

we'd able capabilities to We In field appreciation in industry. the continue our conclusion, are building company that our and our us been performance towards to vision SG&A in invest all of drive we automotive and growth, excited our are in about the produce while the maintaining pleased support we've to who guest-centric class most express being omni-channel driven discipline. teammates our and best in these retail our center, to like

take We to turn Operator? will your over call operator questions. and now the the

Operator

And sir. at Nelson you, Stephens. first Thank to [Operator Rick Instructions]. going

Rick Nelson

four to quarter. Thanks. stores. more environment, the acquired I Good Nice ask acquisition you've about want morning.

you've Your execute, appetite but just opportunity wondering the shape your balance sheet aggressive the along want those get considering lines? great cycle in and got to to seems be you how to and

David Hult

be David. that ones of deals don't acquire. XX We're lot to is at at think aggressive looking opportunistic. would say, looked on other We've a that months Indianapolis got last the only to of in fair term and in this about it we're closed kind way. and three Rick, I'll it these I as

know – into integrate are You are we stewards that Asbury the culture of shareholders, can what at create, the to the what's that really sure we trying and be business. from our thoughtful best make deal for will and well we looking

our falling that it's approach But the the the up. hotter. we'll not see the getting or getting lack or think I disciplined approach in a for whether good to term, M&A tell continue for be lot We overly to excited deal love We of is come better too they'll market early with of opportunities see So, to far in and do a do opportunities Asbury not. game have.

Rick Nelson

to Thanks color. about an for helpful? PUSHSTART X% sale in-store I'd there the sale like could on that would you opportunity ask profitability of compare that with the also if and a PUSHSTART sales, be

John Hartman

We so PUSHSTART. basically see to continued with out built the it's experience, We've back. opportunity front

percent I percent for consumers that over are to that used as of sales more we get looking think a the tool is available. increase time to as

big and moving don't the I continue the will the we As online. doing forward the is as the difference there in-store so grow for percent business and think far that continue experience that the what to difference gross experience The grow. experience a seeing is as gross far between we deal profit, are online. what between no But will in are consumers to in-store see and as the consumers, the material thing material

David Hult

still states instant the To with and with require wet decisioning RouteOne that have we in Rick, licenses transact us. and we with on I'll facilitating all. easier the that that consumers DealerTrack. The connections Certainly the constantly deal, add to trade signatures, include executed for drivers' API and our from are many we last much we have of with finally area. and that DocuSign uploading our progressing full but not only information, thing DocuSign, had several to you call We documents online insurance

Rick Nelson

provide What if of percentage sales delivery? delivery you Can the for the the customer would home in ask fact that? on be

David Hult

a half XX% half. to close for would years thought them up the dealership Initially to XX% XX% – were runs we to went traditionally And into it with it, when doing it reason and the been wanting to create we We've now. and center. for really XX% of is the the be few It that the we consumers at relationship service to picking delivery. come to main facility

Rick Nelson

or PUSHSTART used new you Are success cars cars? more with having with

David Hult

too That the more fluctuated. was it that just it it it and pre-owned new than the actually is volume, and than Early opposite on, to be pre-owned, was midline today more seem expect the was bit know up a we by pre-owned does import fluctuate taking it It were you to pretty runs little but of than cars new, percentage that it. more close. quarter and new

Rick Nelson

now incorporates that expectation vehicle unit? for your lower a And front gross and higher per on yield profit stable end F&I

David Hult

fourth When total look and year front was I which XXXX is within quarter I now, at for four of so. look a us, our years back the what end pretty similar to it tremendous at $XX or yield is

part forecasting front down, area We has peak. stabilizing. in of on see it we reach a F&I toughest PVR but see gone this based So, has now. certainly gone the for those staying as to that end comes fourth what it going The We incentives have up, with this it in planned. We seeing already We're that coming incentives quarter. be partnership the out year. reactionary from in first quarter, really is and year out our the the weren't now it what very OEMs saw will this

we number. So that to we'll very feel model, difficult confident the certainly very above be $X,XXX but

Rick Nelson

luck. good and Thanks Great.

David Hult

Thank you.

John Hartman:

Rick. Thanks

Operator

next to Jefferies. Bret And moving at Jordan

Bret Jordan

sales in active hire people turndown. despite volume mean, the more away are question trying involved keep trying keep maybe guys. to space just morning, I or it it this people is sort does of new of a a business? sort I something guess in this Good quick plan, – is to I of are on hiring sort the the guess or environment car indicate A people aggressive to

David Hult

We've gave market amount. the associates, and lot paid dollar really thoughtful be just what I line on technician and more and our with try think working as give to the is competitive a say from we everyone retail at. what to piece flat a are wants have ago approach and something also to benefit is and over do it model wanted as them. tax with and the year we Yeah. well. companies certainly a of we're of when everyone We certainly is time where a We that for the this out would in going kind of thoughtful, we future kind incentives break a plan falls our been got

the And grow If best brick-and-mortar and this over us fixed thought years. said to our a from large don't these and the brick-and-mortar and We've us to numbers great up. you to amount issue. benefits want standpoint, the be current the we give have the base. have grow. best. a to differentiate From peers create We hopefully have We a set fill best, you need opportunity can with we employ would an our certainly service

business generating do this also associates while So is our of one that taking certainly are that to care our and running today. attempt

Bret Jordan

the Okay. across see Are it you just service number taking follows versus did strength And you of service, share I that do market local that. if you this question feel or pay in sort customer guess you at was demand your on pretty geographies? nicely. How your up about look growth?

David Hult

the for XXX really brand you with space to other doing me the in independence is what across huge see tell I all about out the can't that million a are difficult We peers, can than market, I know but street. what on we're how It's see the the there. I in cars that they doing. there would say

guest-centric But runway base how create is was discussing I'm And be the additional model we great. going while and dollars communicate and is filling there So, to think our our And and or the plan grow business. customers much potential out imperative, are is really exactly I service very how and with tax. available us to knee-jerk our capacity for doing optimistic and our very with I growth based continued well our thoughtful really approach know on and think a this we not what and we're a is. disciplined that's making that and reaction time that sure

Operator

go Merrill next America to Lynch. of at And Murphy Bank we'll John

Unidentified Analyst

John. is quarter. the This on on guys. [indiscernible] for Hi Congratulations

especially about the your to SAAR, earnings industry first, you potentially how the as we results thinking maybe on head your guess keep So, this could do year sensitivity flat? very decline sales, sales the level of market, what U.S. and you earnings talk I it a about in given kind to think flat will are you into strong take

Sean Goodman

results. impact It's Sean. investor in XX% presentation our of scenario XX% on Look we disclosed to of and costs does moderate our downturn our that the SG&A around variable really this are a

And consider. so, to that's thing one

The consider other gross cycle. from And car our that, a XX% parts seen new our and but stable services almost the services. profit economic thing is a we've to revenue and of certain extent to parts car and over the that sales, and of business used SAAR is our sales, our comes impacts part

continue even we SAAR be expect environment. part And of in grow so able declining that to to business to the a

Unidentified Analyst

And the some willing then wondering, initiatives you've opportunity the you that, highlighted on cost. are your greatest where are reductions? press around release as omni-channel maybe to lower share guess help specifics this was developed, I I and terms seeing to in in you new cost of you efforts,

David Hult

to our consumer with specifics, they you I tell I on to investing they into get are and expense wouldn't but what flatter the and at the spending the expenses. personnel online themselves they at be educating want ability time a what operating more want software, educated allows are efficient us would

through ability we're on future, there software. in model the personnel expense really just starting think lot This attack starting the the of is us, right I know for mainly come now. to for you that to of confident we're landed But but the and a future. So, is, benefits it's and right we've

Unidentified Analyst

last $XX you I million in noted, you've those mean think invested year. capabilities over I Okay.

of a investment XXXX? should similar So, level in we expect

Sean Goodman

as of about we to expenses frontline started program investments of equity is gross the that the we XX% two, way spoke that guided And one, the is; back profit. about of and between XXXX also we and earlier; in think continuation SG&A guidance to is I XX% for in XXXX; the in think the there three, omni-channel that then packages associates. benefits enhanced included

of expenditure, included approach we SG&A, because investments the all in that through be in of sort number. those disciplined we'll of invest for as SG&A our So, long-term well. also two-pronged our are but And very SG&A to

in which where SG&A SG&A XXXX, in the to range, the basis XX.X% higher We points full keep XXX our we are our XX% roughly were year than XX% to about able for is of

Operator

at next Sinkevicius to And Sir? we'll Armintas go Morgan Stanley.

Armintas Sinkevicius

you Thank When you F&I, deck question. at know know as supported about which yield do know but is and higher driving that your front we that? is about $X,XXX the just up what is provide been can think I – the what's as peak you is you F&I? know, by here? ability, room for run look of you talk chart taking historically right, F&I, into around sort context in have your been the around to the we here a testament end as the how move the you And execution slide any the F&I drivers it What far

John Hartman

two So, things.

I all, of room in there more is think First F&I.

half get company producers focus And lifts the on a get to them to average. them we try we it average, the up and of when can As up whole. to our bottom

reserve. been about we're shift product now As focus a and there product I driving mean on We it, has time. two-thirds far over sales, as one-third what's sales

levels, those contracts number. penetration and focusing to increase products the service really it's on So, on

Armintas Sinkevicius

And know the sort anyway F&I? on of to contextualize remaining room you

David Hult

is David. This

that you'll ahead those I are job reason the And an peers is you would certainly couple than can't numbers. you get impact, no it. to have we business, we're even to – but and running the say do better fix us at do. is I old, half F&I the there solid there more. opportunity are wouldn't had it a bottom know see so of is You with we to a material This of certainly grow growth, get strive why and that We've and but a is happens continuing we

Armintas Sinkevicius

the you you your do that initiative use how PUSHSTART use you your third then can logistics, forward? you – or do And with party talk ability, delivery about logistics in-house in think about going

David Hult

for vast been but we It's There all been distance have the than significant that, some where majority is have that one-offs used other have deliveries in-house. third parties, in-house.

Operator

Bottiglieri to we'll Chris Wolfe Next go at Research.

Chris Bottiglieri

on services earlier, year kind I surprised of this strong just and of QX number strong I for you of addressed kind parts guide, the and guess guide next I declining follow-up want of to but SAAR. was says years given a flat know just

there like that selling you days, benefit from change benefit, I would much accounting, think how hurricane accounting with number So, was the a number? that was are like to about behind, guess any is the how going of predict only compared QX

David Hult

that in wasn't Texas Florida No, or We a comps. happened, hurricane that I'll follow. this damaging and and loss jump material We a vehicle we deal. have had of that. the anyone so the like the impact area in hurricanes certainly in really Houston, or last Sean year can big there one any know naturally weren't year you had was and southern hurricanes anything store were didn't. stores The with not

So, I no. would say

our dealer a think – us. its I just know retail potential retention industry I'll to numbers. it's grow this is the for on speak You side, there whole especially tremendous And service as

and just cycle it you. a very way. to the We not We're comes bring this and trying match it, thoughtful in, of and attention come their is, I because timely to in, going if have back market pay to how hope comment you them quickly across them handle and steady to lot can't to bring will in a approach them transaction and and never people bring are time right time, they their growing you

how that. our great very customers to can a store And slowly sure then on the make that at trying increased we with traffic level service we thoughtful handle we're to we're build So, much about experience. and

Sean Goodman

profit from full small impact for there QX, was Sorry, year accounting was the you on of very I'll impact gross and just add revenue a think negative real impact. in on about the in there. an and There mentioned $XXX,XXX so impact recognition accounting no services, accounting for no I parts that, because

Chris Bottiglieri

helpful. really think is shift repairs capabilities? digital of like That's do do there – secular Or you a it? franchise Anything other from significant dealers I to share gone and kind shops franchised independent am scale you allowing now you might is think without your about scale take some on are moving previously like have going driving channel that customers that's where towards dealers? that, thinking

David Hult

person's certainly that. on please one It's of on cars, to the able and work it's different and These They so not they special training independent technologies it XX have sophistication, to the them. take than at Most these the opinion, manufacturer the to to much XX different. tools ago, years work them are don't work on are have cars don't vehicle.

look going as everything to with grow mean, I even forward the it's and to push only you more even electrification So, more towards else, business dealers.

before of them. is and So those would to happen parts going going impact, service, electric long because worried now have what's there it's say that be work electric right lot about I a are on respectfully an warranty time to and one, vehicles for vehicles a number

to are to there, While years the for jump certainly warranty the vehicles, going you service that, our because be because long the that's to and even see a the really there lot dollars retention but down typical numbers come be these mechanical time. that's more is able beyond But as software that a opinion. really of won't independents isn't going

Operator

at Stephanie we'll next Benjamin SunTrust. to move And

Stephanie Benjamin

know what if wanted to through about Thanks. incentive kind any I you've just the reactionary ask of just Hi, felt I in of material kind incentives good are the pretty environment, are seen you change quarter. morning. said the fourth really you XXXX? current that expectations and most and

David Hult

manufacturers quarter, Typically off the because the yearend very incentives. strong the fourth a

through forward, good do. are going to going So, quarter, can't was predict there they but whole what we incentives fourth moving for the and

have have Some the very them specifically incentives. but in luxury good been of QX reactionary, stores

Stephanie Benjamin

Got it. I appreciated. Thanks.

David Hult

you in much. day. This We appreciate with look Thank you. speaking Thank April. today's forward Have you very and concludes great your discussion. a to certainly participation

Operator

everyone us Once again And today. to today's ladies again, I'd that does gentlemen thank joining and conclude like conference. for

Asbury Automotive (ABG) 6 Feb 192018 Q4 Earnings call transcript