Penske Q2 net income rises 18% on strong gains in all segments

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DETROIT -- Penske Automotive Group Inc. said today that second-quarter net income rose 18 percent from the year-earlier period, on higher new- and used-vehicle unit sales.

Chairman Roger Penske said that, while most retailers have seen their new-vehicle gross profit margins squeezed, his company has grown them because of the high mix of luxury brands it sells.

“Two things are my primary focus: CSI first, than our margins,” Penske told Automotive News, referring to customer-satisfaction ratings.

“We have some very good tracking tools,” he added. “It’s a live document we can see every day. We set targets every month for every store in those areas. We’re not chasing volume; we’re chasing margin and how we can provide more value to our customers.”

Penske posted net income of $73.9 million, as revenues increased 21 percent to $4.41 billion. Revenues rose at a double-digit pace in all categories: new- and used-vehicle sales, fleet and wholesale sales, service and parts, and finance and insurance operations.

Income from continuing operations rose 27 percent to $80.3 million, a record for any quarter at the retailer.

The higher revenues came on a 10 percent increase in retail sales to 101,422 units. Sales of new units rose 10 percent, outpacing the U.S. industry’s new-vehicle sales growth of 7 percent in the quarter. Penske’s used-vehicle retail sales also rose 10 percent.

On a same-store basis, though, retail sales -- new and used combined -- rose 5 percent to 96,658 units.

‘Outstanding’

“Our business delivered another outstanding quarter,” Roger Penske said in a press release. “I am particularly pleased with another quarter of double-digit, same-store retail revenue growth, further highlighting the benefit of our company’s brand mix and geographic diversification.”

Penske said he is confident in the strength of the auto retail market and predicts continued overall business growth.

Penske Automotive said 61 percent of its revenues came from the United States, down from 66 percent a year earlier. The U.K. accounted for 35 percent of revenues, up from 34 percent. Other international regions contributed 4 percent to revenues in the latest quarter, vs. zero a year earlier.

Rising revenues

Revenues from new-vehicle sales rose 18 percent to $2.24 million, while used-vehicle sales jumped 20 percent to $1.27 billion.

On a same-store basis, retail revenues rose 13 percent to $3.87 billion.

Total revenues from service and parts climbed 13 percent to $435.7 million. Revenues from fleet and wholesale sales rose 20 percent to $216.8 million, while net revenues from F&I operations rose 19 percent to $112.3 million.

Gross profit per vehicle retailed from F&I gained 7 percent to $1,107. That figure lagged results at other publicly traded dealership groups, largely because Penske’s luxury-heavy mix of brands equates to high leasing rates. Lease customers are less likely to buy such mainstream F&I products as guaranteed asset protection and extended service contracts.

Penske said he has dedicated more resources to training F&I managers since late last year to improve profits in that area.

No-haggle results

In May, Penske began no-haggle pricing at a new point, Toyota of Surprise, near Phoenix. The process is being used for new- and used-vehicle sales, trade-ins and F&I products.

Roger Penske said it’s too soon to speculate whether he will take no-haggle to other stores, but “the activity in that store is excellent,” he said.

“We’ve gone back to each one of the individual purchasers and called them to find out what was their understanding and how did the process go,” Penske said during a conference call to discuss the quarter’s results. He said 95 percent of the customers said they liked the process and “only a few” indicated they prefer to negotiate.

“So that bodes well,” Penske said. 

Higher prices

The average transaction price rose 7 percent for new vehicles to $40,318 and 9 percent to $27,733 for used vehicles.

Average gross profit per new vehicle retailed increased 11 percent, or $296, to $3,115. For used cars, it rose by 3 percent, or $50, to $1,966.

Penske said the rise in new-vehicle margins was the result of “more back-end money we get” from automakers “that we continue to have and don’t have to put in the transaction prices.”

During the six months ended June 30, Penske Automotive repurchased 335,350 shares of its common stock for about $15.5 million, or an average price of $46.20 per share. It has a remaining share repurchase authorization of $77.6 million.

Penske ended the quarter with $61.4 million in cash and cash equivalents on hand, up from $49.8 million on Dec. 31.

Penske ranks No. 2 on the Automotive News list of the top 125 dealership groups in the United States, with retail sales of 199,795 new vehicles in 2013.

You can reach Jamie LaReau at jlareau@crain.com. -- Follow Jamie on Twitter


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