Penske, Asbury report record earnings, navigate challenges
Penske Automotive Group chair and chief executive officer Roger Penske summed up his company’s second quarter 2022 earnings report by noting good news along with challenges.
“Despite the supply constraints that continue to impact new vehicle inventory and availability, demand remains strong, and our pipeline of vehicles remains forward sold,” Penske said during the company’s second quarter 2022 earnings call that took place on July 27. The company reported all-time record quarterly earnings.
Asbury Automotive president and chief executive officer David Hult shared similar sentiment during that company’s second quarter earnings call on July 28, reporting that as the company reported record EPS of $9.07 and record adjusted EPS of $10.04, its unit sales “are governed by the lack of new-vehicle inventory.”
“And our advertising campaign has been on hold until inventory levels improve,” Hult said.
Supply issues and the fact that foreign currency exchange resulted in lower revenue were among the challenges that Penske reported for the quarter. Asbury’s senior vice president of operations Dan Clara said during his company’s earnings call that new-vehicle inventory “continued to remain well below normalized levels and consumer demand continued to outstrip supply.”
Penske highlights, challenges
Foreign currency exchange negatively impacted revenue for Penske by $245.2 million, the company reported. Excluding the impact from foreign currency exchange, revenue would have increased by 2%. Income from continuing operations attributable to common stockholders increased 10% to $374.0 million, and related earnings per share increased 17% to $4.93. Foreign currency exchange resulted in a negative impact on earnings per share by $0.11.
Penske’s CarShop used-vehicle business was an example of the company’s bright spots and challenges. Unit sales increased 7% to 20,000 units in the quarter. Revenue increased 15% to $468 million, same-store unit sales were flat and same-store revenue increased 6%. Same-store variable gross profit per unit retail was $2,145 compared to $2,714 in the second quarter last year. The company operated 21 CarShop used vehicle locations as of June 30.
“Vehicle acquisition prices, our reconditioning costs, along with logistics, continue to impact our profitability at CarShop,” Penske said during the earnings call.
He said the company’s premier truck dealership business remains very strong.
But he addressed the negative impact of the supply shortage and foreign currency exchange issues, saying that the supply shortage has had an impact on total unit sales, which declined 17% during the quarter.
“Our automotive revenue declined 8% and our gross profit declined 3%,” Penske said. “However, if we exclude FX revenue, [it] only decreased 3% and our gross profit increased 2%.” He added that the company’s service and parts revenue increased 4%, and without foreign exchange it was up 8%. Variable profit per gross vehicle was up $841 or 16% to $5,999 from $5,158.
Penske owns 28.9% of Penske Transportation Solutions, “which provides us with equity income cash distributions and cash savings,” Penske said. Penske Transportation Solutions currently operates a fleet of more than 387,000 units. That is an increase of 21,000 compared to the end of last year, Roger Penske said.
“PTS produced a record quarter driven by strong performance from contract, commercial rental, our logistics business, and remarketing,” he said. Revenue increased 20% to $3.3 billion and profit increased 33% to $472 million.
Penske chief financial officer Shelley Hulgrave said the company’s new-vehicle supply is at 12 days in the United States and 32 days in the U.K., adding that the company expects the current supply challenges combined with strong demand to keep its new-vehicle supply at low, but manageable levels for at least the next nine to 12 months.
“Used-vehicle inventory is in good shape with a 42-day supply,” she said.
Roger Penske highlighted additional company news, saying the company signed an agreement to acquire five Mercedes-Benz dealerships and three aftersales locations in North London, United Kingdom, from Mercedes-Benz Retail Group U.K. He said the company expects the acquired dealerships and after-sales locations to generate approximately $550 million in revenue for the full year of 2022.
He moved on to discuss the company’s sustainability initiatives, saying it has built a dedicated team to work on future sustainability and decarbonization efforts. The company is committed to electrification and is working with its OEM partners to build infrastructure to support the sale and service of electric vehicles throughout their lifecycle, he said, adding that the company has installed more than 1,300 charging stations across its network.
“We're also focused on decarbonization through improved energy management, increasing the use of renewable energy and recycling programs at our locations to reduce greenhouse gas emissions,” Penske said.
An analyst during the Q&A portion of the earnings call noted that more electric vehicles would hit the market in next 12 months to 18 months, and he asked Penske how that would affect store headcount, payroll and productivity.
Penske answered that training would be necessary.
“We see the tools and also the facility changes we have to make to be able to handle a BEV vehicle because of electrification,” Penske said.
He continued, “We talked about the number of electrification points we have from the standpoint of already — and that's to meet many of the OEMs’ requirements for fast charging, and we'll continue to add to that as we go forward. But from a training perspective this is always accomplished … arm in arm with the OEM.”
Discussing the company’s omnichannel strategy, he said the it is using digitization and automation wherever possible to improve the customer experience, customer loyalty and customer retention.
The company also continues to boost its digital retailing strategy and embrace its OEM partner initiatives, currently supporting programs from BMW, MINI, Porsche, Toyota and Lexus, Honda, Lincoln and Nissan.
“Our OEM initiatives offer some advantages versus an in-house solution, as they enable a buy-online function from OEM sites that also integrate with our captive finance company for online credit approvals, rates and programs etc.,” Penske said.
Asbury highlights & challenges
Hult, the Asbury president and CEO, started out his comments during the company’s earnings call by saying the systems integration for the rollout of the company’s digital car buying platform, Clicklane, and Total Care Auto, a provider of service contracts and other vehicle protection products, was completed during the quarter.
The company will begin rolling out Clicklane to its acquired dealerships and Total Care Auto into the legacy Asbury stores during the third quarter, Hult said.
Clara, the Asbury senior vice president of operations, said the second quarter was Clicklane's best quarter ever, with June posting the most Clicklane sales since its inception.
Asbury in the second quarter sold almost 6,600 units through Clicklane, a 17% increase over the first quarter of 2022 and 55% year over year. Clicklane is currently installed at 88 of the company’s 155 dealerships and is on pace to bring in approximately $1 billion of revenue in 2022.
“Once completely rolled out to all 155 stores, we'll be on pace for $2.2 billion in revenue through Clicklane by the end of 2023,” Hult said.
Hult went on to say the company continues to experience strong demand across all of its revenue streams, but that the company does not foresee a meaningful recovery in new-inventory levels in 2022.
“With consumers financially healthy, consumer financing readily available, the car park age to record levels and sizable pent-up demand, combined with our technology to improve efficiency and productivity, we are well positioned to weather the current market conditions,” Hult said.
He continued, “We look forward to continuing to deliver strong results for our shareholders, be outstanding partners with our OEMs to steward their great brands and offer an environment where our team members can thrive, while providing the most guest-centric experience in automotive retail. We have the right brands in the right states with the right people to execute our strategy to grow and improve our business.”
Clara reported that new-vehicle inventory in the quarter remained well below normalized levels and that consumer demand continued to exceed supply. Total new- vehicle inventory at the end of June was $238 million, and day supply was at 13 days, down four days from the prior-year quarter. Because of supply constraints, new-vehicle volume declined 31% year over year. But new average gross profit per vehicle increased $1,913 from the prior-year quarter to $5,793. Clara said the company anticipates new inventory levels to remain low through 2022.
Used-vehicle retail revenue, however, showed a 12% increase, even with a 2% decrease in used retail volume. Used gross profit PVR was $2,213.
The company’s total used vehicle inventory ended the quarter at $425 million. That represents a 34-day supply, down three days from the prior year.
“One of the many benefits of the franchise model is the different venues to source vehicles such as lease turning, trades, loaner cars and direct purchase from consumers, including our recently launched Clicklane cellular car tool,” Clara said. “Ninety percent of our used inventory comes from the sources I just mentioned. Our used-to-new ratio for the quarter was 120%, up from 84% in the prior-year quarter, representing 98 used-vehicle sales per rooftop.”
Clara provided expanded remarks on Clicklane, saying that the tool continues to exceed expectations in areas such as conversion rates, transaction times, “and most importantly, the guest experience.”
The company sold almost 6,600 vehicles through Clicklane in the quarter, a 17% increase from the first quarter of 2022.
The company achieved a 16% increase in unique visitors year over year to its websites, and Clara said those visitors want to take advantage of what he described as the only ecosystem that allows them to purchase a new, used or CPO vehicle fully online.
“Though sales of new vehicles continue to be restrained due to a lack of inventory, we achieved a 55% increase in Clicklane sales year-over-year,” Clara said.
The average Clicklane customer credit score continues to be over 700, which is higher than the average credit score at Asbury’s stores, Clara said.
The average down payment for vehicles was $8,871. Clara said 80% of consumers seeking financing received instant approval. An additional 10% require some off-line assistance, and 90% of those who applied received approval for financing. Forty-four percent of Clicklane sales had trade-ins, with 62% of those trades reconditioned and retailed to consumers.
Hult said the company continues making strong progress toward its 2025 plan to generate $20 billion in annual revenue by 2025 (the company earlier this year revised that goal upward to $32 billion).