Q2 2020 Penske Automotive Group Inc Earnings Call
Ladies and gentleman dishes, we operate under your conference scheduled to begin woman Joey until my time or Youre ones will once again before John.
Thank you for your patience.
[music].
Ladies and gentlemen, welcome to be Penske automotive group's second quarter 2020 earnings conference call today's call. It must be recorded and will be available for replay approximately two hours. After completion through August strictly on the company's website under the investors job at Www Dot Penske automotive.
It's Colm I will now introduce Anthony pardon, the Companys executive Vice President of Investor Relations and corporate development should please go ahead.
Thank you Jason Good afternoon, everyone and thank you for joining us today.
Hi, Jason set a press release detailing Penske automotive group's second quarter 2020 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the company's results as always I'm available by email or phone for any follow up questions. You may have.
Joining me for today's call Roger Penske, our chairman JT, Carl's, our Chief Financial Officer, and Shelley Hulgrave, our corporate controller.
Our discussion today may include forward looking statements about future events, including the impact linked and financial expectations relating to cope with 19.
Also we may make some forward looking statements about our operations earnings potential liquidity and outlook on the call today.
We may also discuss certain non-GAAP financial measures, such as free cash flow and earnings before interest taxes, depreciation and amortization or EBITDA.
We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures in this mornings press release, an investor presentation, which is available on our website to the most directly comparable GAAP measures.
Our actual results may vary because of risks and uncertainties outlined in today's press release, which may cause the actual results to differ materially from expectations.
I direct you to our SEC filings, including our form 10-K for additional discussion in factors that could cause results to differ materially I will now turn the call over to Roger Penske.
Thank you Tony and like everyone for joining us. The this afternoon today, we reported income from continuing operations for the second quarter of 45 million and related earnings per share of 56 cents.
This is at the top end to the range, we pre announced two weeks ago.
Second quarter results are very challenging April.
Followed by an improvement of two profitability in May at a very strong June during April and May our operations in the UK, Italy, and our car said Super Center locations in Pennsylvania were completely closed.
Operations in northeast U.S. and portion is a California were significantly reduced.
However, the situation turned around in June.
As total revenue declined just 1% when compared to last year.
While same store retail revenue for automotive operations increased nearly 2%.
Before discussing our second quarter performance in detail.
I like to express how cycle I am to the P.A.J. team for their efforts during this unprecedented time.
The past several months have been some of the most challenging times that orchestra company's history.
Our team responded by meeting these challenges head on while adapting to changing demands in the workplace.
I'm proud of how our team has responded in fact in many respects we've adapted the way we do business.
We focused on safety and security of our employees and guess many of our employees work remotely.
We increased our digital performance rates have increased our online sales through home curbside delivery and click and collect initiatives.
Starting in late March we began furloughing approximately 15000 employees.
For side of our workforce.
We strategically returned furloughed employees.
Active status as business conditions improved.
At July 1st 14% of our employees remained on furlough.
[noise], we reduce SGN a expenses by 215 million in the quarter highlighted by estuary to gross profit there was approximately 64% in June this year compared to 72%.
Last June.
In the quarter, we focused on liquidity and preserve preserving cash in fact, our cash flow was very strong.
As of June Thirtyth 2020, we had 1.2 billion in liquidity.
I didn't 50 million in cash in over 1 billion of availability through our revolving credit facilities.
The U.S. and.
And UK revolvers, we're fully available at the end of June.
During the first six months of this year we generated.
474 million, a cash flow and free class fashion show was 428 million.
For the first half of 2020.
Net capex was down 65 million compared to the first six months of last year.
We paid down 223 main of long term debt when compared to December of 2019.
Today, we have 2.1 billion and non vehicle debt.
Net debt to total capitalization improved 370 basis points.
41.6% at June Thirtyth, when compared to December 31st of last year.
Well be repaying the 300 million senior subordinated notes due August 15th.
Well the availability under our U.S. credit agreement.
Looking at our balance sheet at the ended June remains in great shape total inventory of 3.4 billion down over 800 million from March 31st.
Oh vehicle down approximately 500 million and used vehicle inventory down approximately 238 million.
Vehicle for plan with 2.8 billion and we have approximately 380 million and vehicle equity on the balance sheet.
Let me now turn to the details who are prevent a financial performance. If you remember the year started strong in fact through February same store unit sales it increased by 3.4% and the first two weeks of March were still strong however that change quickly due to covert 19.
Good to shelter in place and government orders in April total same store to units were down 71%.
Fixed operations gross declined 64%.
We saw sequential improvement in may with units down 50%.
And fix gross down 46% when compared to may of last year.
As dealerships began to open up.
And first we had a strong june with units down 1% and.
Fixed grows flat when compared to June of last year [noise].
[noise] for the quarter all in retail automotive gross profit per unit.
Was up $452 to 5007.
Used vehicle was down $172 per unit to $2475 in June retail automotive gross per unit, including up and I was up $328 to $5245 and used vehicles were up $21 to 2800 60.
Before dollar.
Moving onto our used vehicle Super Center business. The 16 Supercenter physical locations closed in March and remain closed through April and May most reopened in June as a result unit sales declined 63% during the quarter.
For the quarter. The you Supercenter sold 6600 units and generated 133 million in revenue.
However, during June unit sales were almost 5600 compared to 5700 last year and revenue was 106 million versus 99 million last year.
[noise] through improved sourcing and inventory management grocers per unit increased 7%.
When compared to last year.
As we look at expansion.
We had opened two locations in late in 2019.
Turning to U.S. and one in the UK.
Both had successful openings that outperformed our initial expectations.
The gun Glenn Mills store in the U.S. is expected to retail approximately 1800 units per year I was profitable in his third month of operation.
The Bristol location in the UK is expected to retail approximately 3000 units per year. It was also profitable in the third month of operation.
We have four additional sites under development, which will increase our store count by 25%.
Our plans to open three in 2021 was a fourth one first part of 22 due to permitting delays from cobot 19.
As we look beyond 2021, do you supercenter business as a key driver of growth for P.G., we plan to grow this business even faster.
Moving onto our digital initiatives, we continue to grow online sales.
We have 42000 vehicles online through our digital channels. During Q2, we use video video and social media promote social Justice distancing has on our sanitation process to ensure the safe environment. We also continue deposit new technologies, such as video digital pictures for.
Sure this updates and customer approval.
In the U.S., our digital life and I process through duck, your pad enhance our ability to sanitized and social distance no physical exchange the documents and services are way down between transactions. We also introduced digital signatures buy online signing room for key sales documents for.
Surely virtual transaction when the customer does not want to visit our dealership.
This is a natural extension or preferred purchase and complements the other digital enhancements such as standardizing and updating up an eye documents and now and customers to lock in their terms on line.
Approximately 58% of our sales were tied together to our digital efforts and we've seen the highest number of sales to date preferred purchase sales increased more than 40% when compared to the first quarter last year.
We're also begin promoting by your car no initiative for procuring inventory, which is gaining traction traction at both car sense and the traditional franchise stores.
Over in the UK, our click and collect option accounted for 5000 units.
Or over 25% of the units delivered in the quarter.
At the Carshop used car Super centers customers dry reserve.
Well on line for 99 pounds and collect it later at the store or at the curve in July approximately 60% of the sales are made this way compared to 46% last July.
We continue to enhance our proprietary online close bid auction site in the UK.
Today, we have approximately 3900 active online bidders and we sold 21000 vehicles there last year.
We now provide the opportunity for carshop to have greater visibility into the auction.
Let me turn to retail truck commercial dealership business as you know, we operate 25 medium and heavy duty truck dealership locations and us in Canada.
During Q2, we sold 2063, new and 773 used trucks and generated almost 400 million and revenue with a return on sales of 3.7%.
For the second quarter retail sales in the North American class a truck market the glide, 51%, which is inline with our same store unit declines a 52.
The North American classic market appears to be stronger than prediction earlier. This year. According to act using the past three months the annual sales rate run is approximately 174000.
Profitability was impacted during the quarter.
By 20% decline used truck prices, which obviously impacted our gross profit.
Service and parts operations represented 82% of our total gross profit and fixed cost absorption was once again strong at 136%.
The strong return on capital and solid cash flow, we intend to continue to grow this business through acquisition.
Sure.
Turning to transportation solutions, our truck leasing business in Q2, Pts generated 2 billion in total revenue and had income of 104 million.
As a result, our equity earnings were 29.9 million in the second quarter compared to 38 million in Q2 last year during the quarter PGS improved profit sequentially as it adapted to the changing conditions and business began to read open.
Full service leasing contract sales are up year over year in rental demand continues to improve utilization rates through the rental fleet decline to a low 60% in April but now it's a returned over 80% as I sit here today and logistics.
All automotive customers have returned to operation.
Grocery volumes continue to grow at a strong pace. However, Starbucks retail volumes remain below normal we expect a strong third quarter from our Pts operations.
Let me turn now to Australia, and our power system, a distribution business during the quarter, Australia generated 100 million in revenue and a return on sales of 5%.
80% of the gross profit comes from after sales parts and service and this market the mining energy and defense markets are driving new business opportunity.
We're in the final negotiations for an $80 million supply contract to provide engines for our power station to one of the largest mining operators in the world who want to contract worth 40 million to supply 79, Repower engines drill mining operator through 2024.
Government stimulus programs have increased defense spending budgets now provide our business with additional after sales opportunity in the market.
While the second quarter environment was challenging.
Pleased with our success in handling of the adversity created by Cold 19.
Our team across the globe continues to work tirelessly to adapt to the changing conditions, while driving growth and profitability.
I want to thank all of you on the call today for your continued confidence in PHG at this time I'll turn it back to the operator.
Thanks.
At this time, all about to remind everyone. The model to asking the question. Please press star one the number one all your telephone keypad.
We'll pause for just a moment you can Paul the Kuni roster.
Your first question comes from the one though John Murphy from Bank of America Merrill Lynch. Your line is open.
Good afternoon Roger.
I want to ask a first question on the used car business, maybe short term and then ultimately the long term opportunity, meaning some ebbs and flows in the profitability.
Through the quarter it sounds like it ended a lot better than the full quarter. So just curious.
You look at this third and fourth quarter do you think that businesses somewhat normalizing and you'd expect gross is to be better going forward and then sort of you sort of longer term as this appears to be a great opportunity. You got two stores were opened recently that are profitable within.
Three months why not maybe press the gas harder on opening up more stores.
Near term into some gating factor or some rationale that you're using for it for going maybe a little bit slower there than than other folks.
Well, John let's start just first to position where we are.
We made an acquisition of Carsense in 17.
We had to acquisition a car shop in 18, and then car people in 19 in the UK branded car shop.
We've added more stores and when I look at the business today and look forward I see a 100000 units.
It will be able to retail between the us in the UK, where the storage we expect to open up here in the next 12 months probably at about a 16.
Thousand dollar MSRP with a 4% return on sales not I put that kind of as a baby a medium term goal on the other head as we looked at our business. In Q2 were 11400 units there were still sitting for almost two and a half months between the UK in the U.S., we really.
Couldn't retail or wholesale and I think at that point.
The last I guess June into July we've been able to retail out now that's had some impact as you saw that are used car gross profit was down in the quarter, but from a standpoint of July and going forward, we see an uptick over last year for sure from a used car perspective, just on our traditional.
I'll business and what we have today from a used car super centers with margins continuing to get better based on availability of units at the right price as far as the market is concerned from a long term view, we definitely see this is one of our strategic pillars. It will continue to grow in the business and are proud.
For them is finding the right sites from the standpoint, a building bricks and mortar I think theres two schools of thought is that all on line or is it so its bricks and mortar we think you're probably need accommodation of boats, but yes. The sites that we have we're integrating parts and service we want our used car business to be sticky we want those customers.
Come back for parts and service, we think Thats one thing, while we buy a little bigger plot of land and maybe it's more complex stabilities and some of the parts of the world, where we're trying to do this business I think there's an online strategy ultimately that we're looking at the we're trying to perform in our businesses today not only in our new but in our U.S.
So we could be online and have a transact that completes 100% I think the decision has to made what does the marketing commitment to that is at a new brand can we utilize facilities. We have within the Pesky group. These are all things that we're going to look at as we go forward over the next quarter to quarter. It will certainly want to report that back into the group on a full.
Phone today as we have our final plans put together.
Okay. That's very helpful. And then just second question a good performance in the quarter all things considered.
But as you look at more of the business going online over time.
And sort of the lessons you've learned last.
Few months easier at greater opportunity overtime, and as you move more that business.
Online can you.
Structurally reduce yes unique burden.
Sales in these are real opportunity there may be structurally over time.
Well, let's just start out listen we were 64%, which I would never thought we'd be in the sixties that SGN. A you know when looking at July 77% last year, I think Scott with a momentum we have in back to norm in the UK and with our Super centers up and remember we've taken 2000.
People out of our workforce, we're sitting today with 21000 out at 27.
3600 that are on furlough, and I think youre going to see anywhere from 102 125 million a benefit from the human capital perspective, as we go forward, but more important is where more efficient we see less salespeople necessary to to drive the business. The same thing on the fixed side, we're seeing better.
Better utilization of our people a productivity has gone from maybe 95% in our shops now to 120, and I think what TNT down Ironically, its a number that I was surprised RTT was got in the quarter worldwide 6.4 million. So obviously utilizing the tools that are available to us to connect with our.
Workforce and our team members were able to do that a lot more efficiently without traveling around I think advertising is moving from traditional to obviously online, which obviously is less less costly vehicle maintenance will be down.
We think that with more efficiency in our shops cars will not be in the shop as long less loaner cars, which will drive vehicle maintenance down. So those are things that this come off the top of my head right now that I'd say could make a big different we're certainly managing our shops, where we had general sales managers, we cut out some of those positions in the smaller store.
George and I think were more efficient when you think about some of the things we're able to do on line.
With our consumer you'll make your reservation online for service Payonline, just go to a spot and pick up your car and this doesn't take many that maybe variable people that we would have typically on a dealership we've taken that level out and we expect to be able to operate the business you know with that type of workforce going forward.
Okay. That's helpful. And then just just lastly, you had a very strong relationships with automakers.
On your partners overtime, but your.
Algae capital towards other avenues other than equal dealership acquisitions.
When you look at some of your peers. They are getting very aggressive in making these acquisitions. So just curious as you look at the business going forward.
Has anything changed relationship with the automakers, where they're either you know better partners and more.
Sort of accepting the partnership with the distribution.
Channel being you guys the dealers or is it sort of more of the seem and.
Sort of speeding up and building of these large networks something you're just not as interested in versus what you actually if you have on the truck in the used car side, just you're doing it going into different direction than some other players and just seems like yours.
Some changes here in the OEM attitudes to that to larger groups and trying to see what your take is on that.
Well number one we have a much more diversified portfolio not just retail automotive. So we're looking at how we allocate our capital across all of these measures, but I would say this from an OEM percentage.
That gives you know all the Oems are working well with us a deferred a lot of our payments to our customers and to us on capital loans on an inventory et cetera, but that's going to go away. What I do see is probably an internationally probably more interest and looking where we might have multiple locations that are contiguous is.
The opportunity to consolidate which certainly would be a help to us taking up as DNA and making us more profitable had a key location. We're also looking from a capex and I think this is where I've seen the us.
At least Oems come in where we're looking at our Capex are being very rational today, rather than pushing cosmetic theyre looking mainly for operational capex, which will be a helps but I'd be all schools careful to think that they're going to break and we wouldn't want them to break the franchise agreement. That's one of the strengths of our franchises today and that's why.
We can get the goodwill of for buying or selling what we do this so I think they're going to stay with that you're going to have to have good see aside we are going to have to have market.
Market coverage. All these things are going to be important as we go forward, but I'd say at the moment. It's a good relationship I'm sure we'll be tested in many different ways by a lot of innovative people in the auto business here in new U.S. and internationally. So at the moment death with cobot being maybe the umbrella more things.
Be discussed now whether that's going to be a long term process I can't say.
Very helpful. Thank you very much Roger Thanks, John.
Your next question comes from the loan Stephanie Benjamin from Suntrust. Your line is open.
Hi, good afternoon I.
Hi, Stefano.
I was hoping that Roger maybe you could talk a little bit about your UK performance in June those on the new side is your traditional dealers and then the rebound that you've seen once you are able to open up.
The you start any additional color there would be helpful.
Well I think when you when you look at.
June registrations.
In the UK market was down 35%.
We were down 4% when you look at June at all and looking it's just to pick out BMW was down 47%.
We're down 17, just to give you an idea and even out he was down 43, we were up 18, so premium luxury bode well during.
During the time.
Coal, but then also June snap back I think one thing should be noted.
Got 7900 of our employees back out of 9700 still with almost 1600 on furlough. So we're able to execute in June.
Very positive months with less people, we expect to have that be probably the futures. We look forward across the company on the size of our enterprise, but I think we had the used car business open.
Carshop, which made a big difference when you think about the number of vehicles. They delivered in the month to June compared to what we did during April and May have was similar to what we had here in the us and I think when you look at international.
From a consistency just the market, where we were our new units were down 96% in April and in June they were down only 10% and when you look at use again, we were down 95% and were up 17% on U.S. So that was driven obviously by a strong used.
Car rebound I would drive a lot of that with the Carshop.
And the same thing are you, saying a lot of the same gene trends continue in July.
I would say.
Yes, remember it was and have a corridor both us and internationally. So there are probably some bonuses and things that were paid and even wave some of the criteria in the UK, which gave us maybe a little bit grows more gross margin, but at the moment, we see our parts and service business through yesterday on par where it was a year ago. So.
Thats, a good sign even with body shops down.
Because the work in process was drain during the cold bid prices, So I think from.
Parts and service business I think it's it's that's where it was last year and trending up I think the fourth of July weekend had some has some impact when you look at July from the standpoint year over year, primarily.
Because we have that and we have a tougher inventory no question, both internationally and in the U.S. Our inventories are tighter from the standpoint at a premium side, but yes parts and service use a stronger from the standpoint of Carshop and I think our new retail is really back in business and we're doing it with less people. So.
From an SGN eight perspective, I think we'll see benefits in Q3.
Got it. Thank you so much thank you.
Your next question comes from the line of Rick Nelson from Stephens. Your line is open.
Hi.
Good afternoon, Roger Tony.
Correct.
Hearing I'd call.
So sector about some tight.
New vehicle inventory.
Applies.
If you could comment there.
When you see inventories normalized.
And how long do you think you're going to be able to hang on to these GP is as inventories to normalize.
Well, let's take a look at.
We were down 800 million, an inventory new and used.
From the standpoint of where we were in March.
To to the end to ended June.
It's obvious bmws told us Mercedes has and Toyota really in Lexus gave US heads up back is we added going into April that we'd have some tough sledding.
During during the month to July August and September I think Thats the case.
All the good cars are probably been delivered and we maintain high grocers and it's interesting to see the whole industry. Both in the us in the UK.
Being patient and getting all the money for the current I will let stay and note that level I doubt. It I think we'll see some deterioration, but if you look at our margin on premium luxury we did 8% I think were up 30 basis points are used was down because we had this stale inventory from the close down to the of the car shopping.
Our.
Carsense operations, both in the us in the UK, but availability of of used cars.
We've had the opportunity to buy vehicles from the rental car manufactures during this time.
We are making large buys from the Oems internationally that we help fill our pipeline there. So I think availability at this point has been good and when you look at depth the mix people say, well, where do you get your cars and I think at the end of the day, we've got about between trades and lease returns we pay.
Probably got 50, 455% and when you look at auctions and by your car. We're probably at about 20% then you get into OEM and loaders and things like that it did that we turn but at the moment. Our day supply is running on use somewhere between 30 and 35 days depending on on the location.
Thanks, that's helpful and.
Commercial truck.
Hi, there that those centers.
Yes, I'm interested in.
Your Crystal ball there we did see some use.
Country pressure.
Yeah.
And on the new.
Hi, Steve had quite close to an inflection point here.
Any comments on the outlook could be helpful.
Well look number one the heavy duty tractor market was down 51%. We were down 52, so pretty much I think I said in line with the market now overall, we're seeing some activity in talking to other people. This week, our key people at TEP Premier truck, they're seeing fleets it had cash.
Unsold orders in Q1 in early Q2 coming back and wanting to put door those orders back.
In the market for us so that's positive.
We used truck side is a little different story, we go back and remember last year, we sold 350000 heavy duty tractors in the market probably one of the highest Sars in history and there are many trades associated with those new trucks now that bulge came into the into 2020 in Q1, we have coal, but at the end of that.
Hey, there's no used truck market, so that had a precipitous drop of used truck tractor prices, probably by four or five or 6000 and I can say this that we've had the benefit of really going from about five 6000 dollar loss on the front end down to about 2400 in June and.
We see that getting better in July so I think we've bottomed out obviously, we got back end margin on those those used trucks anyhow, but that's been significantly impacting us yet we still had almost a 4% return out our sales during the quarter, but.
I think that the light duty.
Business will continue to grow because of all the retail delivery activity going on we've seen it in our truck leasing business, where people like fed express and.
[music] PS one thousands of trucks in order to meet that demand that they have so that's all going to bode well when you think about 85% of all the freight that moves on the U.S. hes by truck I think we're at a very good position and freightliner, whether its dominant market position of almost 40% and our 135% fixed coverage.
I think the business is one we want to continue invest in so I think the lights are all green.
Okay.
Thanks, Good luck.
Alright, Thanks, Rick.
Your next question comes from Milan.
I mentioned sentiments from Morgan Stanley Your line is open.
Great. Thank you for taking the question.
If I looked at the.
Slide 10 of your presentation.
Really stands out.
Underperformance that you had as they used car super centers.
With them being closed in April May same thing goes for the UK.
How should we be thinking about those as a potential tailwinds into July and beyond.
Well I think it's got to you're going to have a good tailwind because basically we were shut down there was some pent up demand. We did some internet sales that we couldn't deliver obviously as we got into early part of June that we got to benefit from but at the moment as we see this business. It will be it would be up over last years, we look at.
At Q3 for sure plus we'll see the opportunity you see the margins have increased and when you look at.
Q2 of last year versus Q2 of this year, we were down 63%. So we think this is a real opportunity for us to grow this is or into Q3 and again when you look at the variable margin.
We're sitting about 14% last year and were 14%. This year. So we haven't deteriorated from a margin perspective, and I think to used vehicle supercenters, you're going to be positive for us in Q3.
All right and do you anticipate these tailwinds to be greater than.
Anything happening in the rest of your business.
Because I'm just thinking about relative to the peer group how you may be.
Setup.
Moving forward.
Well, let's I think what we have to do all of US I've got to step back here with a recent outbreaks.
The pandemic in certain markets were saying you know some softness probably in northern California, Some chime in Texas and some of these cities that have these outbreaks and some maybe we see in Florida. So I have no idea. If we're going to have to go back to close down if that happens in August and September could be a completely different situation.
But would July 4th.
As one of our one of our weekend I think that we're gonna have to look at.
Our sales are going to be from a July perspective that hopefully August as summer month, obviously with people on vacation and then we have a strong.
Delivery month in the UK, which is a registration month, which should be strong. So I think on the new side.
It will be in good shape I hope, we can meet what we did last year it might be slightly less in the quarter, but however on the new side I would think that.
Some customers might be turning to use.
Cars, which should drive that I think there's some great deals out there, but with the OEM still offerings zero percent set financing and things like that I think you're going to drive the new but inventories going to be the challenge.
Okay.
Just maybe as we think about the rest of this year you mentioned, what it we havent closed down in August and September.
We're also thinking about.
The election outcome.
What are some other drivers that are really on.
Are you.
The year end.
Well I think.
Number one I think interest rates, we've seen the fed conversation I think interest rates are going to be in line I think credit availability is certainly a even from the subprime standpoint is good leasing is strong across all of that premium luxury so I see those fundamentals not being the same as we go.
Through the end of year. The question is being shut down now we've had positive tests, where we've had to shut down certain dealerships not for a long period of time, we shut it down we do the proper cleaning and we're also back in business and we quarantine anybody that might be associated with that individual so I think thats. It thats.
Only a risk availability.
On the other hand.
The consumer confidence to me is going to be key and product is gonna be going to be really important the new product coming out now you've got cars that are being a vehicles are being delayed for certain reasons and from a supplier shortest think more about to supply chain for the Oems.
You know many of these supply chain.
Suppliers, who have gotten into trouble financially during this a shutdown so I've seen that via a reason, we're not getting certain models, but so credit.
I think is fine.
There's no question that product is going to drive it inventory availability will be could be a concern and then obviously the marketplace based on the pad damn it could have some impact.
That's not just in the U.S. I can't really give a prediction hyundai elections.
Yeah, Okay, great I appreciate it Roger.
Thanks.
Your next question comes from the line, Mike Ward from Benchmark Your line is local.
Thanks, a lot good afternoon, Roger good afternoon Tony.
Just retro personal could you walk me through a little bit I'm just.
Non core plant debt came down on the first half.
To the tune of these your end by over 300 $350 million and then as we go forward.
Mike can you talk a little about about some of the big pieces, you're going to pay down 300 million of debt.
You can borrow against floor plan for that or I'm, sorry against credit line for that what are some of the big piece, So not maybe talk a little bit about.
Cash flow as we go out and we head into 21.
Well number one when we look at December we had about two point.
3 billion.
And for plan, our non vehicle debt and.
That's down now 223 million so that was to pay down based on cash flow we talked about.
Our net debt to capital was down 370 basis points at 41, I think 41.6% when compared to June so from the standpoint of floor plan, we still have equity and floor plan I think I said somewhere around 400 400 million and is that is that inventory grows we'll of course, we'd floor plan if thats really.
Variable financing this provided by the Oems from the standpoint of going forward with our lines open completely you will have the ability to pay down our existing EUR 300 million that's due.
In August and then we're going to look forward to see if there's any other opportunistic refinancing that we could do that is.
Out there would be impacting us beneficially you know in 21 or 22 also when you think about the cash flow, we've been able to generate because the lower capex 65 million in the first six months and I would assume it's similar in the second six so $130 million and this will probably be the first time.
But I can remember and a number of years, where amortization and depreciation will be will be equal to our capex spending which.
It is a very good thing for us so I see a availability for acquisitions.
I think from a Capex perspective, I said it before we're going to focus not on cosmetic capex, we're going to focus on operational I said it before more like.
The opportunity.
For electrification and things like that.
With that in mind as we look out.
What are some of the things that we can track.
As the board you issue I know shareholders return to reporting to you what are some of the things that we can attract that maybe the dividend gets reinstated or share repurchase comes back what are some of things or we can look at as outsiders.
Well number one we felt that you know with delaying the dividend and taking out the four on cases, we shouldn't be buying stock back number one number two if I see the plan that we have.
For Q3.
The turnaround in June certainly you'd look at this is positive.
Inflections that we can look at with the board when we get to October meeting and at that point, we would make that decision but.
Hi, just still want to be sure, we're focusing on safe and secure because I can't tell you today.
With the environment out there with the disturbances and things like this that are taking place. So the good news is we can turn it back on and certainly as the large shareholder I'd like to see a dividend, but it's got to be in collaboration with the board.
Okay. So if we see status quo.
You bet that the board might lean towards reinstated again that theres nothing else preventing it in that regard if we're at the status quo is we are today.
Well again I'll, let the board make that decision right.
Hi, I hear you.
Thank you Roger Thank you Tony.
Hey, Mike.
Your next question comes from the line reshot.
From JP Morgan Your line is open.
Hey, rich out high.
Hi, good afternoon. Thank thanks for taking my question I.
I just wanted to follow up a little bit on just the July Commons.
Could you give us a sense just just quantify it a little bit like what you're seeing so far in July gross new three different business lines I mean as things continue to improve.
From the run rate seen in June Billboards in the UK and you asked and.
Especially.
In regions, like Texas and Florida.
Are you seeing the year over year progression.
Due to read worsens doom or pretty much held up.
Paul Thanks.
Well, let me let me say this quite honestly, it's interesting the east coast businesses.
Seem to be a pretty much in line.
Month to date with with last year.
Central is in isn't as in decent shape, but when you start looking at our Western region and you look at Texas.
And you look in northern California, there's some maybe impact in Florida that and we see some maybe slowed down from the standpoint.
No of new vehicle sales now when I look at what I'm using as a benchmark because we started off as everybody knows January February which was a good start to the year and you go back and you look at you look at those numbers.
Parts and service business as we look our forecasting it the lie in the US. This is you know I see other than the dip do we have in the body shops will be pretty much consistent you know from a new used car.
Sale, we'd be pretty much consistent looking at the forecast on the other hand, we see probably some deterioration in new again, when you think about gross profit from service and parts, we had $127 million worldwide deterioration.
In Q2, but in June we were only down 2 million. So I would say parts and service are back to back to order going forward, So parts and service on par I feel the same way in the UK. The other international businesses. We can look at later certainly we're seeing some positive affection and Australia and the.
Truck market.
As what you'd expect I think we've got lower used truck prices.
We hope that that again stabilizes, but so truck prices are used trucks would be our concern right now going forward I think new business has picked up parts and service is strong and certainly when you look at.
Our supercenters from the used car perspective are good so used up I think that with July 4th weekend here in the U.S., you're going to see some deterioration on new and some of that has to do as I said earlier about availability.
Got it that that's great color and then just just on the BSG any integrals question.
No.
Just follow up at the previous question.
I'm going to 225 million engineering personnel reduction, maybe some advertising coming down.
It looks like now you can get to sub 75% getting good gross level.
With those actions is that is that reasonable.
Okay and by one can you get to that kind of net.
Third quarter.
So just some just some color that would be helpful to clean like.
Thanks.
Well I never believed as I said earlier, we'd be in the 60, so I'm not going to jump into the sexy, but I think there's my goal now this is in saying, we'll get there my goal would be somewhere between 71 and 75% as we move out into third and fourth quarter.
Or I'd be so again.
We got to maintain a I think the preciseness on who we bring back we've got to maintain these cost reductions we already have in place and of course grosses. The other component of that we've got to maintain our growth so, but I think thats reasonable I think thats reasonable.
I hope I can surprise you.
[laughter].
Great. This is.
As I really helpful and good luck.
Thank you very much exposure.
Your next question comes from the line of David Whiston from Morningstar. Your line is open.
Hey, David.
Hey, guys.
Good afternoon.
I guess first on a consumer confidence and sentiment and physically but the premium luxury customer generally.
Thats more of a wealth effect on that they always have the money by a carbon sometimes I just don't feel good about it or you can you just talked about what is the state.
That customer in both the U.S.U.K. and it isn't any different between the two regions.
Well I think when you look at the us market.
During the quarter it was down about 30% we were down 27% from the standpoint of of new.
I think that and that somebody has to do with as I talked about earlier has to do is the.
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Availability of product, but.
This points to margins are good new products.
That both Mercedes BMW have Porsche obviously would take on to you can't get those.
Jag land Rover made with little more inventory that we want but when you think.
At the end of the day.
35% in the UK.
Market was down we're only now for so that bodes well and that were primarily 90 plus percent premium luxury over there.
Okay and.
Staying on the light vehicle side with.
The.
Introduction of the tougher model while on the market have you seen any headwinds on your crossover demand, particularly in the German three or lots of stores.
I really haven't.
I've been surprised quite honestly that that that the residual value of the test the product has gotten better.
Which means there's some traction in the marketplace from interest on the U.S side, but I haven't seen it.
Take over you know with E. Tron, we've been selling a triage obviously, we talked about you know every one of our our tight counter spoken for we have a back order on those expect to move that volume up significantly next year, but I think that.
There's no question that electric vehicles, you'll have a future for us because emission requirements and the cafe requirements not only here in the U.S., but obviously, there's big penalties. When you look at Europe. If you don't meet some of these standards show Qiagen is strong X three X five so these are hot vehicle for us.
Okay, and given we are in a recession.
But you do want to make acquisitions when possible is that.
In 2020 is it still possible to make a lot like especially on the light vehicle side would you want to do a deal with the Kim longer is liquidity just much more important right now.
Well I guess a word I always use opportunistic are were opened were looking at at current deals right now in a pipeline that we could look at I think that.
Our diversification.
We have gives us opportunities for different avenues to to invest in and I think number one we're certain look at retail automotive we've got some truck retail big truck operations that would be potential acquisitions. This year. There's no question about it and then our continued investment into Super centers. So kind of you looked at capital.
I will allocate you've got to be careful mentioned dividends, yet, but obviously that could be something that we see in the fourth quarter.
But in terms of paying the dividend back you'd want to bring forward came back first right.
Well I'm not sure which would come back first they come back together I think we got to look at supporting our employees along with our shareholders I would hope that we do that in conjunction with one another be honest with you.
Okay. Thank you.
Great David Thanks.
No concurrence Q4 today I'll turn the call back to management for any closing remarks, thanks, everyone for joining us and we'll see a next quarter. Thanks for the support.
That concludes today's conference call him webcast. Thank you very much for participating in how the wonderful day you may notice.
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