Penske Automotive Posts Record Q2 Results

Penske Automotive Group (NYSE:PAG), today announced second quarter and six months 2021 results. For the three months ended June 30, 2021, the company reported a 652.9% increase in income from continuing operations attributable to common shareholders to $338.8 million and a 650.0% increase in related earnings per share to $4.20. This compares to income from continuing operations attributable to common shareholders of $45.0 million, or $0.56 per share, in the prior year.

Q2 income from continuing operations and related earnings per share include charges of $21.4 million, consisting of $12.6 million of debt redemption costs ($0.16 per share) and $8.8 million of charges relating to the increase in U.K. corporate taxes in 2023 ($0.11 per share). Excluding these items, adjusted income from continuing operations increased 700.4% to $360.2 million, and related earnings per share increased 698.2% to $4.47. Foreign exchange positively impacted earnings per share by $0.11.

      Ken Zino of Auto Informed.com on Penske Automotive Posts Record Second Quarter Results

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“Our business produced an all-time record second quarter driven by strength across all areas of our business. Strong volume and vehicle margins, improving service and parts operations, a growing Class 8 commercial truck market, record performance at Penske Transportation Solutions, and continuing cost controls all contributed to the record performance. I am particularly pleased with the continued expense discipline driving an 1,860-basis point improvement in selling, general, and administrative expense as a percent of gross profit,” said Chair and CEO Roger Penske. “Despite the ongoing disruption to new vehicle supply, our performance in the quarter demonstrates the strength of the auto and commercial truck retail model and the benefit from our diversification,”

Second Quarter 2021 Operational Highlights versus Second Quarter 2020

  • Same-Store New and Used Retail Automotive Unit Sales – increased 81.7%
    • New +91.5%; Used +74.7%
  • Total Revenue – increased 91.4% to $7.0 billion from $3.7 billion
  • Same-Store Retail Automotive Revenue – increased 97.5%
    • New Vehicle +104.9%; Used Vehicle +99.4%; Finance & Insurance +119.1%; Service & Parts +59.9%
  • Same-Store Retail Automotive Gross Profit – increased 123.9%
  • Retail Automotive Variable Gross Profit Per Unit – increased 45.8% to $5,155
  • Same-Store Retail Automotive Service & Parts Gross Profit – increased 68.7%, including a 320-bps increase in gross margin
  • Retail Commercial Truck Dealership Earnings Before Taxes – increased 172.1%

Second Quarter 2021 Operational Highlights versus Second Quarter 2019

  • Same-Store New and Used Retail Automotive Unit Sales – increased 6.1%
    • New +9.7%; Used +3.3%
  • Total Revenue – increased 21.3% to $7.0 billion from $5.8 billion
  • Same-Store Retail Automotive Revenue – increased 23.4%
    • New Vehicle +25.7%; Used Vehicle +26.3%; Finance & Insurance +29.2%; Service & Parts +2.3%
  • Same-Store Retail Automotive Gross Profit – increased 35.0%
  • Retail Automotive Variable Gross Profit Per Unit – increased 48.4% to $5,155
  • Same-Store Retail Automotive Service & Parts Gross Profit – increased 5.5%, including a 190-bps increase in gross margin
  • Retail Commercial Truck Dealership Earnings Before Taxes – increased 109.8%
  • Income from Continuing Operations – increased 187.9% to $338.8 million when compared to $117.7 million. Related earnings per share increased 195.8% to $4.20 when compared to $1.42

CarShop Used Vehicle SuperCenters

Penske Automotive Group operates nineteen CarShop Used Vehicle SuperCenters in the U.S. and U.K. The CarShop SuperCenters experienced significant improvement in the second quarter principally due to the reopening of the U.K.-based showrooms from COVID-19 restrictions beginning in April. For the three months ended June 30, 2021, retail unit sales increased by 184.0% to 18,742 while revenue increased by 207.9% to $408.2 million. For the six months ended June 30, 2021, retail unit sales increased by 31.5% to 30,137 while revenue increased by 48.6% to $650.8 million.

Retail Commercial Truck Dealerships

For the three months ended June 30, 2021, earnings before taxes increased 172.1% to $39.7 million compared to $14.6 million in the same period last year, return on sales was 6.3%, and fixed cost absorption was 133.0%. For the six months ended June 30, 2021, earnings before taxes increased 137.4% to $67.2 million compared to $28.3 million in the same period last year and return on sales was 6.3%. The increase in earnings before taxes was principally driven by a 34.3% same-store increase in new trucks sales and an increase in new and used truck gross margin, coupled with an 18.0% increase in same-store service and parts gross profit.

On April 13, 2021, the company announced that it had completed its acquisition of Kansas City Freightliner (“KCFL”), which is expected to add approximately $450 million in annualized revenue. PTG now operates 35 locations throughout the U.S. and Canada which provide services such as new and used truck sales, parts and service, and collision repair.

Penske Transportation Solutions Investment

Penske Transportation Solutions (“PTS”) is a leading provider of full-service truck leasing, truck rental, contract maintenance, and logistics services. Penske Automotive Group has a 28.9% ownership interest in PTS and accounts for its ownership interest using the equity method of accounting. For the three and six months ended June 30, 2021, the company recorded $102.5 million and $156.2 million in earnings compared to $29.9 million and $43.5 million for the same period last year. The increase was principally driven by a strong North American Class 8 truck market and increased demand for the company’s full-service leasing, rental, and logistics services, coupled with improved efficiency and a reduction in operating expenses which drove a 15.4% return on sales for PTS during the second quarter 2021.

Corporate Development and Liquidity

As mentioned above, Penske acquired “KCFL” in April 2021, which we expect to add $450 million in annualized revenue. In addition, in June 2021, we acquired Mercedes-Benz of South Charlotte, which is expected to add $150 million in annualized revenues. Penske is also constructing an Audi dealership in Southern California and a Honda dealership in Texas, both of which are expected to open either in late 2021 or early in 2022 and collectively generate approximately $100 million in annualized revenue.

During the second quarter, Penske opened one CarShop Used Vehicle SuperCenter in the U.S. and one CarShop Used Vehicle SuperCenter in the U.K. Penske also expects to open an additional four locations by the end of 2021. We are targeting 40 locations, 150,000 in unit sales, and $100 million of earnings before taxes in the CarShop Used Vehicle SuperCenter operations by the end of 2023.

During the second quarter of 2021, Penske issued $500 million in aggregate principal amount of 3.75% senior subordinated notes due 2029, the proceeds of which were used to redeem our $500 million in aggregate principal amount of 5.50% senior subordinated notes due 2026 on June 24, 2021. The redemption resulted in $12.6 million in debt redemption costs noted above.

As of June 30, 2021, the company had available liquidity under its various credit agreements of approximately $1.1 billion.

Dividend and Share Repurchases

On July 21, 2021, Penske announced an increase in the quarterly dividend to $0.45 per share payable on September 1, 2021, to shareholders of record as of August 10, 2021. During the six months ended June 30, 2021, we repurchased 495,307 shares of our outstanding common stock for $40.9 million, or an average of $82.63 per share. At the end of the second quarter, Penske had $142.5 million available under its securities repurchase program approved by our Board of Directors. In July 2021, our Board of Directors increased the share repurchase authority to $250 million.

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