Penske Automotive Group, Inc. (NYSE: PAG), said for the three months ended March 31, 2020, the company reported income from continuing operations attributable to common shareholders of $51.6 million, or $0.64 per share, compared to $100.1 million, or $1.19 per share in the prior year. Foreign exchange rates as well as the Corona virus negatively impacted earnings per share by $0.01. Revenue was $5.0 billion compared to $5.6 billion in the same period last year.
In the U.S., through February same-store new and used automotive retail unit sales increased 7.5% and declined 1.1% internationally. In March, the outbreak of COVID-19 began to impact Penske in all markets. Many U.S. and Germany dealerships were impacted by shelter-in-place orders while operations in Italy, Spain and the U.K. were closed. As a result, same-store new and used automotive retail unit sales for the month of March declined -40.2%.
Q1 Operations
- Same-store retail revenue decreased -12%
- Same-store new vehicle gross/unit $3,211, flat
- Same-store used vehicle gross/unit $1,375, +$48
- Same-store finance & insurance per unit $1,363, +$87
- Same-store variable gross profit per unit $3,493, +$86
Liquidity
During the first quarter of 2020, the company generated $212 million in cash flow from operations and free cash flow of $145 million. As of March 31, 2020, the company’s balance sheet was strong with access to approximately $1.3 billion in liquidity, including $432 million of cash, $450 million of availability through revolving credit facilities, and access to $450 million in potentially financeable real estate.
Chairman Roger Penske said, “In response to the COVID-19 crisis, we implemented a hiring freeze, initiated expense reductions, deferred approximately $150 million in capital expenditures, and furloughed approximately 15,000 employees representing 57% of the worldwide workforce. In addition, we implemented significant pay cuts including a temporary 100% reduction in salary for the CEO and President, a 25% reduction in salary for our other executive officers, and the Board of Directors has waived cash compensation through the end of September 2020. We believe the actions taken will help us overcome the challenges of the COVID-19 pandemic and are encouraged by the improving conditions we are starting to see across many of our markets.
“We will continue to actively monitor the situation and adjust our business model to adapt to the changes presented by COVID-19.” Penske continued, “I am encouraged by the many positive actions taken by our team to address the changing marketplace. Our digital initiatives continue to grow our online sales. Further, we have adapted sales processes to facilitate a greater on-line focus, video messaging, curb-side or home delivery, pick-up and drop-off for service customers, and remote F&I through docuPAD. As a result, we have seen business improve from week to week, as we believe customers have become more comfortable with these new processes.”
Used Vehicle SuperCenter Operations
Penske Automotive Group operates sixteen used vehicle supercenters in the U.S. and U.K. During January and February, Used Vehicle SuperCenter same-store units retailed increased -2.1%, which included a +4.1% increase in the U.S. and a -1.7% increase in the U.K.
During March, operations at substantially all U.S. and U.K. SuperCenters were closed due to shelter-in-place rules which drove a same-store unit sales decline of -56% in the U.S. and -47% in the U.K. As a result, for the three months ended March 31, 2020, SuperCenter units retailed decreased by -9.6% to 16,312 and revenue decreased by -2.8% to $305.5 million.
Retail Commercial Truck Operations
Penske Automotive Group operates twenty-five medium and heavy-duty truck dealership locations in the U.S. and Canada offering primarily Freightliner and Western Star brands. As an essential operation, our commercial truck business generally remained operational in most locations, although we reduced hours of operations and limited in-person sales where applicable. We continued to experience steady demand for purchases of new and used trucks and service and parts operations during March and April. For the three months ended March 31, 2020, the North American Class 8 retail sales declined -26% compared to our new same-store unit sales decline of -2.2% during the same period. Same-store revenue declined -1.7%. However, in total, including the acquisition of Warner Trucks total units retailed increased +52.4%, and revenue increased +47.9% to $491.4 million.
Penske Transportation Solutions
Penske Transportation Solutions (“PTS”), is a provider of full-service truck leasing, truck rental, contract maintenance, and logistics services. The company has a 28.9% ownership interest in PTS and accounts for its ownership interest using the equity method of accounting.
As an integral part of the North American supply chain, PTS has been generally classified as essential by governmental authorities. This has allowed PTS to remain operating in much of its business, providing crucial supply chain and transportation services to its customers. While its full-service leasing and contract maintenance businesses remained consistent, commercial rental utilization has slowed. PTS experienced mixed results in the logistics services business as increased volume in the grocery sector was offset by plant closings in automotive and manufacturing.
In response, PTS implemented, among other items, approximately 7,000 layoffs, a -30% reduction in executive salaries, and reduced associate work schedules. For the three months ended March 31, 2020, the company recorded $13.6 million in earnings compared to $25.8 million for the same period last year. First quarter 2020 earnings were impacted by the current business conditions noted, coupled with lower gain on sale of revenue earning equipment. The three months ended March 31, 2019 also included a $3.3 million gain related to the favorable outcome of a litigation matter.
Share Repurchases
During the three months ended March 31, 2020, the company repurchased 890,195 shares, for $29.4 million, or an average of $33.06 per share. As of March 31, 2020, the company had remaining share repurchase authorization of approximately $170.6 million.
Penske Automotive Group Board of Directors has suspended its cash dividend. The company previously paid a quarterly dividend of $0.42 per share to shareholders on March 3, 2020. The company estimates that the suspension of the dividend will preserve approximately $34 million in cash during the second quarter. Commenting on the announcement, Chair Roger Penske said, “The decision to suspend the quarterly dividend is consistent with the other measures the company has implemented to mitigate the impact of Covid-19, including a hiring freeze, the deferral of approximately $150 million in capital expenditures, and the furloughing of 57% of its worldwide workforce, among others.”