Penske Automotive Group Inc. reported third-quarter net income rose 17 percent on higher vehicle sales and strong revenue from finance and insurance, and service and parts operations.
It ended the quarter with about $800 million in liquidity and Chairman Roger Penske hinted at further dealership acquisitions coming in Europe this quarter or in the first quarter.
The nation’s second-largest dealership group said today it posted net income of $87.5 million during the third quarter, vs. $75.1 million during the same quarter last year. Revenue increased 13 percent to $4.96 billion during the quarter.
Penske Automotive said it was helped by stronger results in all areas of the business: new vehicles, used vehicles, parts and service and F&I, but its consolidated revenue was hurt by unfavorable currency exchange rates and its gross profits per new and used vehicles declined.
"At current levels, the year-over-year decline in exchange rates begins to subside during the fourth quarter which, coupled with the strong sales environment in both the U.S. and U.K. vehicle markets, and a robust medium and heavy-duty truck market in the U.S., we expect will continue to drive our business forward,” Chairman Roger Penske said in a statement.
Third-quarter operating income rose 14 percent to $146 million.
During the quarter, the U.S. accounted for 61 percent of Penske Automotive's revenue, U.K. operations made up 34 percent and other operations contributed 5 percent.
Penske Automotive had $50 million in cash at the end of September and between its U.S. and international credit lines, it has “more than $800 million in liquidity,” Roger Penske said in a conference call with analysts Thursday.
The company has many options to use its cash to further growth, he said.
“We’ve got to meet [manufacturer] requirements for our capital expenditure and corporate identity. We’ve continued to increase our dividends each quarter and we expect to do that as we go forward,” Penske said. “When I look at the markets, from a new-vehicle manufacturer franchise, I think some of the pricing is getting a little stiffer than we’ve seen in the past. There are opportunities and we’ll continue to grow.”
Penske said in the commercial truck market, where Penske Automotive already has holdings, Freightliner is looking for “continued consolidation, and we see that as an opportunity.”
Likewise, Penske Automotive is pursuing more dealerships in Spain and Italy.
“We’re developing a great team in Spain and Italy, so there’s opportunity to grow,” Penske said. “The OEMs are knocking on our door every day. We have a couple [of deals] that are closer-in now and we’ll look at them in fourth quarter and maybe have some news in the first quarter.”
The appeal of expanding in Europe is a lack of franchise laws that would cap the number of brands Penske could own. Roger Penske said Penske Automotive can buy dealerships in Europe “at low multiples” because selling dealers often want to keep the real estate and will lease it at reasonable rates.
Penske Automotive’s retail sales volume for new vehicles rose to 61,041 units sold, up from 57,066, a 7 percent gain, beating the industry gain of 6.2 percent. The company retailed 51,031 used vehicles compared with 47,363 a year earlier.
Gross profit per new vehicle declined to $2,916 vs. $3,005 in the year-ago quarter. On used vehicles, gross profit fell to $1,652 from $1,807. F&I gross profits per vehicle were relatively flat at $1,098 compared with $1,096 a year earlier.
On a same-store basis, Penske sold 59,769 new vehicles in the third quarter compared with 57,066 a year earlier, and 49,495 used vehicles vs. 47,363. Gross profit per new vehicle sold dropped to $2,908 from $3,005 and used fell to $1,685 from $1,807.
On a same-store basis, retail revenue increased 5.1 percent to $4.5 billion.
Penske Automotive said used-car profit per unit was impacted regionally by inventory levels.
“We were down by about 500 units in the Northeast, but gross profit was up overall almost $200 per unit. In the central region we were up 700 units and down on profit by $90 and in the West we were flat on volume and profit” Roger Penske said.
Next quarter, he said, inventory management will be crucial.
“Overall, what we have to do is start early and look at our strategy for inventories on used cars,” Penske said. “There’ll be a lot of cars coming off lease -- we want to have our inventory balanced properly.”
Penske, of Bloomfield Hills, Mich., ranks No. 2 on the Automotive News list of the top 150 dealership groups in the United States, with retail sales of 216,462 new vehicles in 2014.