Penske Automotive reports 23% gain in Q4 net income
Strong year-end vehicle sales, gains in service and parts gross margins and investments in U.S. commercial vehicle businesses pushed Penske Automotive Group Inc. to a 23 percent gain in net income during the fourth quarter.
The nation’s second-largest dealership group said today it posted profits of $73.2 million during the quarter vs. $59.7 million during the same quarter last year. Revenue increased 16 percent to $4.41 billion during the quarter.
Penske Automotive said it was helped by a stronger performance in all areas of the business: new vehicles, used vehicles, parts and service and finance and insurance.
Fourth-quarter operating income rose 12 percent to $119.4 million.
The overall results appeared to be in line with analyst expectations, but Penske Automotive shares closed down 7.1 percent to $48.46.
During a conference call with analysts today, when asked to explain the drop in the stock price despite meeting expectations, Chairman Roger Penske jokingly said: “I wish I knew what our stock price would be every day.”
Penske predicted 2015 will be a strong year dominated by sales of SUVs and pickups.
“I go along with the predictions we’ll see about 17 million units sold, but I think the mix will be 50 to 55 percent SUV and pickup trucks,” Penske said in an interview today with Automotive News.
The higher truck volume likely will not change the mix Penske stocks because the high-end luxury customer has always had a high demand for trucks regardless of gasoline prices, so “we can’t get enough of those models, typically.”
As to the volume brands, Penske said, “We’ll trade with the market. We’ll see more SUVs and trucks in our mix as we make our projections and order forward with the supply given by the manufacturers.”
Penske said interest rates are likely to remain low, fuel prices will also be cheap, but consumer confidence high.
Penske said his company has a three-prong acquisition approach to its growth this year that centers on the U.S., western Europe and commercial vehicle dealership purchases.
Gains all around
In an earlier statement, Penske said the company had strong gains in retail sales from its U.S. and U.K. dealerships. The U.S. accounts for about 64 percent of Penske’s revenue mix, the U.K. is just more than 31 percent and other international holdings constitute almost 5 percent.
Same-store retail revenue increased 8.3 percent and Penske had a 90-basis-point increase in service and parts gross margin to 59.7 percent.
“Strong results across the retail automotive dealership business and our U.S.-based commercial vehicle dealership business were partially offset by our Australian operations which were impacted by challenging economic conditions and post-acquisition restructuring costs within the Power Systems business,” Penske said in a media statement.
Penske Automotive also reported strong results for all of 2014. Full-year net income rose 18 percent to $290.1 million, and operating income rose 17 percent to $504.1 million, as revenue rose 19 percent to $17.18 billion.
During the fourth quarter, Penske Automotive’s retail sales volume rose 11 percent as the company retailed 54,168 new vehicles and 44,083 used vehicles. For the full year, total volume rose 11 percent with 216,462 new vehicles and 181,894 used vehicles retailed.
On a same-store basis, for the year, retail vehicle sales rose 7 percent in 2014 to 379,121. The retailer’s same-store new-vehicle retail sales rose 8 percent in the fourth quarter to 51,900.
Penske Automotive acquired more than $1 billion in annualized revenue in 2014, adding $225 million in annualized revenue from car dealership acquisitions, $600 million to $700 million in commercial vehicle dealership purchases and $200 million to $225 million in the commercial vehicle distribution business it bought in Australia.
Last week, Penske announced that it acquired two commercial vehicle dealerships in Tennessee, Freightliner of Knoxville and Freightliner of Chattanooga, which are expected to contribute estimated annualized revenues of approximately $200 million.
Additionally, the company acquired a Land Rover retail automotive dealership in Darien, Conn., with estimated annualized revenues of approximately $50 million.
During the conference call, Roger Penske said half of Penske Automotive’s 2015 acquisitions will be in commercial vehicle dealerships, the other half will be evenly split between buying U.S. auto retail dealerships and commercial vehicle dealerships and auto retail dealership purchases in Western Europe.
“We are not going into the retail auto business in Australia at this point,” Penske said. “As we look at Western Europe, we’re not looking at the commercial vehicle business there.”
In the interview, Penske said this year will be a year of balanced acquisitions in three areas. The first is buying premium luxury and volume foreign brand dealerships in the United States. But, he said, there is limited supply of such dealerships, which has driven prices up.
While Penske is mostly interested in buying premium luxury and volume foreign dealerships, he told analysts, “There are opportunities in domestic [brands], but we need to look for benefits of scale especially in the back office.”
Penske said he would be interested in acquiring a Cadillac franchise in the U.S. if it is in a market where Penske has scale. He also said Penske Automotive has had conversations with Ford Motor Co. CEO Mark Fields and Ford’s President of Europe, Jim Farley, on how Lincoln might fit in at Penske Automotive.
“We are engaged with the domestic OEMs,” Penske said.
Penske also plans to snap up premium luxury or volume foreign brand dealerships in the U.K. and Western Europe to expand the company’s presence in those two markets.
“Several manufacturers have asked us to invest in Western Europe where they see these markets turning around,” Penske said. “Those are opportunities for us there.”
The third part of Penske’s acquisition strategy will be to buy more commercial vehicle dealerships, he said.
“We’ve made a commitment to the Freightliner brand to grow in the heavy duty truck area. It’s a smaller market than automotive retail,” Penske said. “We also see valuations lower there than in the retail auto side. Our partner, Freightliner, is interested in consolidating in that space. We’ve aligned ourselves with them on a going-forward basis.”
The commercial vehicle dealership business is attractive because dealership valuations are 25- to- 35 percent less costly from a “goodwill perspective” than auto retail dealerships, Penske said during the analyst call.
Also, commercial vehicle manufacturers require less showroom upgrades and other requirements compared to demands from many automakers.
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