Q1 2021 Penske Automotive Group Inc Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Penske automotive group of first quarter of 2021 earnings Conference call.
<unk> call is being recorded and will be available for replay approximately one hour after completion through macys at 2021 on the company's website under the investors tab at Www Dot Penske automotive dotcom.
I will now introduce Anthony importing the company's executive Vice President of Investor Relations and corporate development. Sir. Please go ahead.
Thank you Maria good afternoon, everyone and also thank you for joining US today, a press release detailing Penske automotive group's first quarter 2021 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 and as always I'm available by phone.
Or email for any follow up questions. You may have joining me for today's call are Roger Penske, Chairman J D Carlson, Chief Financial Officer, and Shelley whole group corporate controller.
Our discussion today may include forward looking statements about our operations earnings potential outlook future events growth plans liquidity and assessment of business conditions. We may also discuss certain non-GAAP financial measures such as 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 morning's press release and Investor presentation, which are available on our website to the most directly comparable GAAP measures are 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 and factors that could cause results to differ materially.
I would now turn the call over to Roger.
Thank you Tony and good afternoon, everyone and thank you for joining US this afternoon I.
I am pleased to report at all time record first quarter for Penske Automotive group income from continuing operations before taxes increased 246% for $247.6 million and income from continuing operations increased 254 per.
<unk> two of $182 5 million.
And related earnings per share increased.
253% to $2.26.
The earnings growth was largely driven by higher gross profit per unit retailed.
Our expense leverage and lower interest cost due to a reduction in inventory.
At a lower overall debt levels when compared to the same time last year.
Further our commercial truck dealerships and improve their profitability by 101%, while the earnings from our investment in Penske transportation solution increased 295%.
Demonstrating the strength of the company's diversified business model.
For the quarter same store retail automotive unit sales increased five 5% to of 110000.
New was up 25, 5%.
In the U S.
And up seven 8% in the UK.
Users up 14, 5% of in the U S and we were down 18, 2% in the UK.
Despite the UK dealership showroom of Spain closed for the entire first quarter.
Due to COVID-19 restrictions of our team used digital tools and business development centers to deliver 40000, new and used vehicles in the U K market for.
For the quarter in fact, our same store unit sales in the U K increased nearly 8% during the first quarter substantially outperforming the U K market, which declined 12%. Our total revenue increased 15% of $5 8 billion, including of 19.
The percent increase in retail automotive same store revenue.
Retail automotive same store gross profit increased 19% new.
This is up 49%.
Used up 29, F&I up, 18% and service and parts up 2%.
Same store retail automotive variable gross profit increased $880 per unit for.
Our 25% to $4368 at.
Particularly pleased for the continued expense discipline driving of 990 basis point improvement in SG&A as a percent of gross profit for the quarter.
Let me move on to car shop, our used vehicle supercenters as many of you know we operate used vehicle supercenters in the U S and the U K and during the quarter, we renamed the U S Super centers from car sense to car shop.
And now operate one brand on a global basis.
This business represents a significant future growth opportunity. We currently operate 17 locations and expect to open two new car shop locations in the second quarter of this year at at least two more locations by the end of the year.
During the first quarter car shop sold 11400 units, including a 25% increase in the U S at of 43% decline in the U K as volume was impacted by COVID-19 related showroom closures.
Despite the unit decline in the UK, our variable gross profit per unit increased as we improve vehicle sourcing by increasing the volume of trade ins purchased from the franchise dealership using our proprietary internal online transfer of portal.
Based on current sales rate since the reopening of the UK Supercenter showrooms on April 12, we're forecasting of monthly run rate of 5000 units.
Let me turn to retail commercial truck dealership, we completed the acquisition of.
Of Kansas City of Freightliner on April 12, and now operate 29 medium and heavy duty truck dealerships in the U S and Canada.
We expect this acquisition to add $450 million.
Annualized revenue.
During Q1, we sold 3000, new and used trucks generating $450 million in revenue at.
Six 3% return on sales new one.
Used truck margin increased in Q1 versus the same time last year due to stronger market conditions share.
This end parts of operations represented 66%.
Of our total gross profit and our fixed cost absorption.
125%.
March 2021 was the third best fixed operations at month in the history of our truck group as a result of these items our profitability from commercial truck dealerships increased 101% to $27 5 million.
During the first quarter North American class eight net orders increased 226%, while retail sales increased 18%.
At March 31, the <unk>.
Class eight heavy duty truck order backlog was at 237000 units, which represents.
137% increase when compared to March 31 last year at.
As a result, acte research is forecasting a 28% increase in retail sales to approximately 283000 units for the North American class eight truck market compared to 233000 last year.
We expect the strong market will provide tailwind to our commercial truck and truck leasing business in 'twenty, one and 'twenty two.
Turning to Penske transportation solutions, we own 28, 9% of Pts, which provides us with equity income cash distributions and cash savings.
In Q1, Pts currently operates a fleet of 333600 vehicles get generated $2 1 billion in total revenue and income of $189 million or 9% return on sales.
As a result of our equity earnings increased 295% to $53 7 million.
Full service leasing and contract sales were up 8% at.
And of rental increased 14% and demand remains very strong, particularly.
And our consumer rental business.
Logistics business increased 26%, including the recent black horse carriers acquisition.
It is expected to contribute $600 million in additional annualized revenue and Pts for 2021.
The gain on sale of used trucks is much stronger than it was last year at this time due to the resurgence of the North American class eight heavy duty truck market.
Lastly, within the last six months, Pts has issued $1 5 billion at five year notes at an average rate of one 5% finance or increasing levels of business.
Looking at our balance sheet, our balance sheet remains strong and in great shape.
Total inventory at $3 3 billion, which is down approximately $148 million from December.
And down 1 billion from March of 2020.
Retail automotive inventory is $2 8 billion, when compared to $2 or $2 95 billion.
In December of 2020.
New vehicle inventory is down $140 million of remains in short supply for most brands.
We expect of short supply to continue.
Used vehicle inventory was down $28 million commercial truck and power systems inventory was up $24 million looking at our day supply of New was 40 days of use was 35 at the end of March our long term debt.
That's down $111 million largely from repayments under our U S credit agreement at.
At the end of March our debt to capitalization was 31, 2%.
Compared to $33 seven at December 31, and $49 two at the same time in 2020.
Our leverage ratio sits at one four times an improvement from two nine at the end of 2019.
In Q1, we invested 42 million of capital expenditures, including $6 million to acquire land for future car shop expansions.
We ended the first quarter with approximately $1 1 billion in liquidity.
Under our credit agreements.
Moving on to our digital initiatives, our omni channel approach focuses on convenience and creating a connection with our customers, especially in the digital space.
We continue to grow and expand and enhance our digital footprint, including introduction of new tools and technologies.
This allows us to offer customers of hybrid type shopping model for the 40000 vehicles, we have on line depending on their specific needs of customers can purchase either fully online in store or any combination of the two in the first quarter of digital marketing efforts drove for 18 million visitors to our website at <unk>.
Digital retailing two in the U S is called preferred purchase has implemented at every dealership at.
It offers flexible buying options of accommodating customers any point in their buying journey.
We retailed 2700, 45 vehicles of approximately 4% of our U S unit sales directly to preferred purchase and 12% of our customer use preferred purchase in some way during their buying journey.
In the UK of customer May reserve of car for 99 pounds.
Lie for financing through our proprietary platform receive instant credit approval obtained of guaranteed trade in price and pay on line during the quarter. We sold 4200 vehicles through these channels in the UK of 10% of our unit sales.
Our online service scheduling tools continue to gain momentum in Q1 over 100, thousands of service appointments reschedule of online and I know the 370000 were scheduled to our business development centers.
More and more customers are opting for online payments, which we saw an increase of over 50%.
During the first quarter. So when you combine our online buying tools in the U S and the UK along with our online service scheduling online pay we have the tools to allow our customer to perform any part of the transaction online or at a shortened our visits to the dealership.
Looking at corporate development as previously noted we completed the acquisition of Kansas City of Freightliner, which is expected to add 450 million at annualized revenue. Additionally, we will add three new retail automotive franchise dealerships. This year, which are expected to add another additional 150 million.
And annualized revenue. This includes a LEED certified second Porsche dealership, serving the Washington, DC Metro area, which opened in January of.
New Audi dealership in southern California at 100 dealership in Texas, both of which are currently under construction. We also intend to grow car shop used vehicle supercenters for the.
Opening of Nottingham dealership in the U K in December we have started the next phase of our expansion plan.
Plan to open two additional car shop locations in the second quarter at all.
Another two locations by the end of 2021, we plan to execute our growth plan to increase the car shop footprint from 17 locations of 40 by the end of 2023.
At that time, we expect car chef will generate at least.
150000 unit sales and between two and a half and $3 billion in total revenue doubling the size of the current business.
We're targeting car shop to earn $3, 5% to 4% return on sales, while generating income from continuing operations before taxes.
Of approximately $100 million.
And finally, as we look across our.
Diversified portfolio of businesses, we're targeting organic and acquisition growth coupled with operating efficiencies to drive income from continuing operations before taxes to at least $1 billion by the end of 2023, which compares to $708 million last year.
And lastly, recently car facts awarded at 114 of our U S. Penske automotive dealerships, it's top rate of dealer award based on customer reviews.
I'd like to congratulate the management and the employees at every one of those dealerships for that special recognition and for their ongoing commitment to excellence in customer care.
Thanks for all of you for joining the call today and I'll turn it back to the operator. Thank you.
Thank you the floor is now open for questions.
You wish to ask a question at this time simply press Star then the number one on your telephone keypad.
If at any point of your question has been answered and you wish to remove yourself from the queue at the balance sheet.
Our first question comes from the line of John Murphy of Bank of America.
Hi, Good afternoon, Roger how are you doing well.
Well thank you.
So if we think about what you just went over on the acquisitions the new store.
And of the new points of <unk> been awarded that you're building out.
Plus these for car shop stores, I mean any of that adds up roughly two of almost $850 million.
In revenue year to date in the year, It's got a long way to go.
I mean theres a lot of other companies are doing.
Great reservoir of acquisitions, others that are going very aggressive on opening for used car.
Stand alone stores.
Getting a lot done in a number of different ways here I'm. Just curious do you think about the asset intensity or the investment in these different channels versus making acquisitions and how you are making these decisions and could we see a lot more come this year, because I mean, we're approaching $1 billion.
Real numbers, but you're just not getting a lot of credit for that kind of growth.
Well I think I think number one.
For the years not over for sure we have of pipeline.
On the retail auto side.
And also certainly on the truck side and I don't want to Miss pointing out we did 600 million per.
Part of our ownership, obviously of Pts at Black Horse on December 31, So we're in the end of market, but we're going to be disciplined.
On the multiples I think right now anything you buy it looks good because of the high margin. So I want to be disciplined from a standpoint of what we would buy I also think that.
There's got to be of discussion on where we go.
E from the used car perspective.
Versus.
Adding on more of bricks and mortar and I think we've decided as a company that we're going to grow our used car brand car shop at a global basis, because when you look at it there's no OEM requirements.
Of the cost of getting into the market.
Certainly less from a from just from a capital perspective.
And if youre going to get any kind of volume you're going to need certainly large physical spaces in our case, where we can be both online and offline and we think when you look at the total returns we think that you get a higher margin lower SG&A and certainly better productivity from your salespeople and then it's the mix because if we <unk>.
Tried to grow our sales on used cars in our traditional OEM business.
We are really because of the certified used in most of our trades come without OEM, we don't have the benefit.
With those locations that have a multiple inventory of diverse inventory. So we think driving the car shop brand will be better for us and then with the tools. We have as we've shown in the UK with of locked down we're able to drive those tools and be able to continue of good online business and we see when we put cars outside of <unk>.
Really our marketing areas, we see lower margins and again from a CPO perspective on Oems that they are of higher cost in many cases. So to me we're going to continue looking at opportunistic.
Purchases from an Oem's brand perspective bolt on truck and on car, where we're definitely going to put our foot on the gas from the standpoint of growing the car shop brand and we want to meet that target or beat that target by.
2023 for 150000 used units I think when you look at <unk>.
Freightliner, just as a particularly just the acquisition.
In Kansas City of the multiple was 50% of what we'd be paying for $450 million of retail auto business. Today. So we think thats well disciplined and certainly the OEM requirements for a very little compared to on auto side. So I think we got a pretty good plan.
Right now of when you look at the SAR, John it's down on new it's probably flat to down on us at all of this discussion at all of these acronyms at all of the things that we're talking about is really substitutional, because we're really not growing the business at this point incrementally and I think that's going to be the true test or we can tell the analyst.
In the market, we've actually grown our overall business by using the online tool and I think that.
That's going to be an interesting time, when we get there. So I think overall, we're going to continue to have our dividend growth, which will have as we go forward for the rest of the year. So hopefully that gives you some insight.
That's helpful. And then just a second question on what's happening in the U K because it does sound like.
I think you've mentioned at the U K is really.
Spurting or bouncing back as things are opening up there I'm just curious on the new end use side. If you could talk about maybe some more recent.
Happenings on unit volume and performance post the quarter as things open up there.
Well, let's talk about.
In Q1, we were up eight new market was down 12, and what we did we focused over there.
So of finance product that they sell PCP, we're really focused on taking those people out early like we would here on a lease on a lease basis. So that was one of our action items and we kept our business development centers open seven days of week 24 hours a day along with our digital tool and then also we were able to upsell.
Many of the used car customer who had deposits.
New cars at <unk>.
And I think our brand mix was very important for that growth. So as we look at.
Where we are I think April probably is the best thing to look at right now.
You look at where we are from the standpoint of the of the.
The business were up 128% you take the first 12 days of April.
We did 6200 vehicles share and by the time. We finished at 28 214000, So we're up 128% and this is equal or slightly above where we were in April of <unk> of 2019. So theres no question that we've seen where the where the showrooms open on the 12, we've got really some acceleration in for.
From a car shop perspective, we're at <unk>.
Forecasting as we get into the month of May we'll be at a 5000 run rate on us, which will drive that negative number we had in Q1 two of positive number as we go through the rest of the year. So the guys have done a great job I think our premium luxury brands.
<unk> at all of those at all of the markets.
And I think the execution is good we've taken cost out with personnel. Some of the SG&A has come out there also so we think that.
We will see some strong growth here over the next two quarters.
That's helpful. And then just lastly on inventory you mentioned at being.
But it seems like in the U S. Net sales were generally.
Pretty strong just curious if you can comment then you get 40 day supply on the new when it's at 35 day on the use I think is what you mentioned.
Do you see that tightening as we go through the second quarter end and at what levels.
Particularly lower than that do you think you can still operate relatively normally I mean, obviously, there's some puts and takes between automakers, but I mean generally what day supply you think you can.
Manage the business relatively at just in case it does tighten up.
Well I looked at the inventory and I looked at the inventory of this morning and compared to.
To the end of the year.
December 31, and were down 5000 units and yet we've operated the business now for roughly four months and 3200 of those units would be Honda Honda and Toyota together so.
Sickly.
Inventory is not in great shape, we think there is pressure on some of the key models. One thing you have to realize I only have 1% of our mix of domestic so we don't quite have the pressure there and I think that.
With our key branch of Mercedes and BMW and Audi Porsche were flat.
Any of these were in decent shape I wouldn't say great shape as we go forward here in the quarter now if things get tighter through Q2, we could then have some more impact in Q3. So I think the diversification that we have in our overall business will certainly help us from the standpoint of she'll generating a solid bottom line.
Okay fantastic. Thank you so much Roger I appreciate it thanks John.
Our next question comes from Rick Nelson of Stephens.
Hey, Ryan.
Good afternoon, Roger Tony Alright.
Great great quarter for Roger.
From very simple math.
You've gone pre tax here at this quarter at 248.
If I annualize out of it looks like here.
Chips come out of 'twenty to 'twenty three.
Pre tax income target.
That also wouldn't contemplate.
I'll pick up.
The U K opening up Craig.
Liner.
Contribution.
Carter's shop.
True.
To gauge here.
Caught from that.
Well I said at the same thing to Tony when we looked at the numbers when they came out with just take at times for and we'll be we'll be in good shape, but I wish. It was wish it was that easy I think we've kind of giving you a charge.
To get there.
Obviously grocers.
It will impact us.
We go out through the year end, maybe availability with we don't we don't know that now I think that our acquisition target.
500 million of year three.
3% return is realistic we talked about our car shop, and then our organic growth look.
This was a forecast we put together we wanted to be realistic.
Maybe under promise and over deliver hopefully that would be the case here, but.
This is unbelievable.
First quarter and I think as we go into the second.
There is some tailwind as we get into the second quarter.
Based on Penske truck leasing, but their utilization has been so strong I'm not sure we'll maybe get that bump this year in Q in Q2, but.
I think it's a realistic target and I understand your math for easily and I hope that hopefully we could get there sooner.
Thanks for that also.
Several of some parts has been more challenged share during this pandemic.
Love to get your thoughts about the outlook.
There is two.
One of my my turn.
While there is no question that the miles driven.
Come down.
I guess you'd have to say over the last five or six months and really as we entered into.
Into Q1, 2021, and we saw at.
In January we were down 16% in the U S and parts and service revenue were down 18%.
In the U K and overall down 16, now that's really swung around so things are people are getting out we're doing a big job from our bdc's, calling customers, saying look the fact, you haven't driven your car is one thing we need to bring it in for certain checks you have based on a time and what Thats done we generated.
An increase of 26% in March.
On a same store parts and service revenue.
In the U S and of 48% increase in the U K. So overall, 32%. So I don't want to say that we're going to be running at that kind of a growth rate, but as you know we were flat in.
In Q1 and were up 2% on growth so I think that.
You will see that move on I don't know what the what the comparable number is as we look at Q2. This sitting here, but at the end of the day I think.
That.
We're going to go against the number which is not really realistic because of the closed down last year with COVID-19. So I think we ought to look sequentially.
How we're going to look from March to April this year, we will give us probably a better picture, but I can say this there's definitely more.
More of momentum and more interest in the shop of body shops are still weak.
We've talked to PPG and some of the other people and we're showing probably were down about 15%.
In the U S up slightly at 9% in the UK and overall down about nine so we still have some real opportunity there in just a matter of getting people out net strictly miles driven will drive that.
Great great color.
Thanks, a lot.
Good luck thanks.
Thanks, Rick.
Our next question comes from Stephanie Benjamin of true.
Hi, good afternoon.
I wanted to touch a bit on your SG&A costs for the quarter, obviously very impressive and would just love to hear a bit about.
How much of this has been driven by the improvement of <unk> growth as well as internal initiatives just trying to get a sense of some of the what could potentially come back at growth start to come down at that and what is also just based on the app.
At structural changes to that business.
Well obviously.
Sure.
990 basis points reduction in net.
SG&A to gross was.
Excellent I think about 460 basis points so maybe.
Call. It called 500 was in personnel as you know, we we've taken out about 13% of our overall workforce. If you go back and look at the same time I think advertising is another component that we've been able to reduce I think the mix, we're going more digital obviously more pointed.
Traditional TV radio and newspaper has been cut back some of the costs associated with that which has given us a benefit and then when you look at <unk>.
Just overall of less people.
Less <unk> less travel less vehicle maintenance.
With service down we've had less loaner cars, which shortly for some of that could come back and outside services. So those are all things, which I think of Ben had been good and we've got lower health care costs, we got lower workmen's comp costs, because we have less people, which is something that you really don't think about that as you look at that now we had some.
Some increase.
During the quarter.
Due to.
We had some stock compensation, we had to do but I think overall.
It was really it will stick obviously, the gross will be the big test from the standpoint of.
Gross profit on new but.
At higher gross adds obviously helped us.
Drive that big number I think kind of run rate, we're going to be in the 72% to 74%. If you look at it on at <unk>.
Yearly basis, when we get back to normal.
Great. That's really helpful. And then switching gears to the youth side your business and you can make car shop in both of your day in the U S and the UK, but love to hear a bit about some of the sourcing initiatives. I believe you mentioned getting some more sourcing from your franchise dealers in the U K, but you can talk a bit about what you're also doing.
At the U S. Just given how hot environment and kind of your outlook as you look forward.
Well I think when you when you look at sourcing here in the U S. Just I've seen some other numbers that have been.
Been shown.
We probably are a little bit over 50% trades.
Probably 13% would be our.
Lease returned.
By your cars for 5% to 6%.
And we have the.
Certainly our loaner cars in and of balance, which would be somewhere between 15, and 20% depending of its U S or UK.
From auctions in the UK, it's kind of unique I think I don't know if I mentioned it on this call or not but in the U K. The OEM does not allow you to have our non OEM make.
And a lot of your of your existing franchise. So what we've done with our Sidner net.
And on line.
The tool we have wholesale tool we put these cars online and car shop, then take seats from that online tool and uses at probably is the inventory, we think theres, 4% to 500 of week that we'll be going from that online tool from our dealerships, which you could call trade ins to of certain extent go over to car shop.
For.
That's been.
Really strong plus we have a very strong relationship.
With the Oems right now the inventory, they're not of lot of it there because of him and running a lot of company cars, but we've been a big buyer of the company cars, along with of finance sources being able to buy the cars coming off lease and I think that by your car were doing probably when you look at our marketing we are doing as everyone else's we're not.
And in that space are using buy your car, which has also helped us not only in the U K, but here, but those of the tools.
We have probably over 60 buyers in the U K.
Buying vehicles, which is significant for over here in the U S. We do it by region and by area of the individual managers have buyers at would be out we don't have the benefit of buying the used cars from the Oems like you do in the UK are internationally, but still and I think we've got to ramp that up I think there is competition.
There. There's no question and then we have a captive customer that arrives at the service Department of every single day, and I think Theres, a real opportunity we're showing the success there where we could have a VIP treatment for our customer and service and do deals in the service drive which has been very healthy.
And we've been successful with that not just in 2021, but we've been doing this for for a couple of years.
Got it well that's excellent color I really appreciate at the time.
Good thank you.
Yeah.
Our next question comes from Rajat Gupta of Jpmorgan.
Hi.
Alright.
Roger Hi, Jeremy Thanks for thanks for taking the question.
Hum.
So just I just had a question on the on the.
The $1 billion target by 2023 on the bridge.
You talked about the 160 million from organic growth.
<unk>.
You mentioned that new guards levels are elevated because of gross margin. So presumably a lot of that 160 million is going to be driven by volume.
The service business recovering just curious as to.
How does the online strategy play into that number.
Is there any incremental contribution from.
The online channels or.
Do you just see the online channel more of a supplementary offering.
Not really.
Incremental to your growth profile.
I think you hit the first one right on the nail on the head of the service will obviously help drive that.
We think there'll be a higher SAR as we look during this three year period, which will will drive certainly more use I think.
We'll go we'd be going more to single price.
And we'll be commissions and compensation will certainly be adjusted during that time, we've seen that productivity.
At a one price selling at our in our car shop businesses, where we're getting better productivity, maybe 15 to 20 units per person versus maybe 10 to 12 or 13 units on the traditional business. So we see that.
Giving us.
Some opportunity to grow and also with costs out so.
I think overall more use we will do more use because of the sourcing we are doing and also the focus and thats irrespective of what's going on with <unk>.
With our our car shop business, we get again, we get some tax.
<unk> benefits from our Pts for investment and I think that's key and I think we'll continue to see.
Of the organic growth of coming out of <unk>.
At of Pts.
Their business with a market share of Theyre, taking the size of the fleet and our 30% that we get out of that will certainly helped at organic growth.
Our next question.
And just sorry.
Sorry go ahead.
And on the digital aspect of this like is that is that meaningfully incremental.
Incremental growth contribution from that they're consumed in that or.
Is that just more of a supplementary.
Well.
As I said earlier I think that too.
<unk> certainly said at substitutional.
People have the opportunity.
At a buy online.
Delivery at home.
Come to the dealerships.
There's no question about it but as we get.
More tools available and just per.
Perfect example is.
We're seeing I think we need to be careful because as we not different and carvana and maybe room an end.
Of course.
I think carmax.
<unk> now.
Getting into the game and I think it's important.
We think about that today, because today, we buy Toyota shrimp, Toyota as a finance them through there.
200 of financial they also are the ones that provide probably 70% to 80% of our financing all of our leasing and they are coming out with a digital path for their customer and our customer and I think on the Toyota side, they call at smart path and on the Lexis side they call at Monogram and when you look at it at its almost of carbon.
Copies of what all of US are trying to do with some of these acronyms in the tools that we can buy outside.
We think about maybe.
Eight or 10 years ago, when we were using all of using different sources for our websites and the Oems have come to US and said Hey, we want you use these tools in order to compete with the brand and I think we're going to see that some pressure from the OEM. So but we wanted to do is we flexible of not build of shortly of infrastructure here that we're going to have to try.
To adapt.
To all of these Oems requests and when you think about it.
It will be a seamless.
Online in store solution with the brand.
It will be exclusively built for Toyota and Lexus So again.
All of that money all of that technology is going to be owned by Toyota and Lexus based on what they're learning from their own dealer group plus our own they've added a tremendous amount of capability and I think that it.
It would be supported by TFS.
The captive and at this deal.
Also from our ecosystem.
We're going to be able to secure data so what I wanted to be sure is at.
We continue to drive digital which we are and we think that having this I would say playbook for the customer or he can go in different directions is key I just wanted to be sure that we are savvy enough being kind of goes like on the racetrack.
We still of how to go but we've got to go faster and I think what's being driven here by these tools and the opportunities of this technology and we're going to take that into consideration no matter of its new or used but with the support of the Oems and I think theres another opportunity coming for us probably at much less cost how they don't have the used car capability yet but.
I think as we go down the road, they're going to tie together all aspects of the customer journey.
Got it got it that's really helpful color just kind of follow up on <unk> you.
Talked earlier about some of the new.
At the contribution of the PDL strength also going forward.
But within it.
Today, if you look at the run rate of quarterly net BTL I mean, obviously.
Ranjan pricing organization.
Some of the gain on sales is helping the earnings.
In the near term I mean, how should we think about the new.
More of a malaise.
Run rate of annualized earnings at <unk>.
Once you're back to a more normal environment.
Obviously, taking into factor like the acquisition debit growth.
Bruce.
That would be really helpful.
Well when you look at <unk>.
BTL, our Pts for the quarter are.
Our revenue growth was up was up 13%.
Our pre tax was up as we know 284%. So these are tremendous numbers when you look at it but again.
It's driven by an increase in our in our logistics business.
Year over year were up 26% our lease business was up 8%.
You look at our commercial rental was up eight so to me I am leaving consumer out consumer is rendered here leaves you at leave that at all together I think the other thing that's been key is the used truck pricing. So there could be some impact slightly if used truck prices go down we saw that both in the freightliner business, but.
On the other hand.
I think that we're seeing a market share gain.
Our largest competitor announced their earnings and I think our revenues were a couple of hundred million more than theirs.
I think that just shows you the market share that we're able to take here but.
And overall I think the only thing would be the at least penetration is up our contract maintenance continues to grow.
And rental has been strong and we've cut our rental fleet back because of after 19, and we had these lower used truck prices, we actually cut it back maybe too far and we see growing net fleet as we go into 'twenty, two and 23, so we should see.
Good ride here over the next 12 months for sure.
Got it great. Thanks for all of the color and good luck.
<unk>.
Yes.
Our next question comes from the line of Michael Ward of Benchmark company.
Good afternoon, Roger Good afternoon, Tony.
Hi, Michael.
Roger.
Talking a little bit of a car shop, I think you've touched on some of them, but are there any structural differences between the U S from the UK used business that favors expansion in one region versus the other.
No I would just say that the car shop brand started.
When we made the acquisition back what was it Tony.
I think for years.
For years ago, and then we added car people and obviously changed at the car shop, and we already had.
Car sense here in the U S. So we just wanted at one global brand and it's at one price.
The sales commission or flat.
And it's a it's a large these are over there obviously on line.
It's probably today one of.
Of the areas that we're continuing to grow and with our tools, but.
Large footprints and big inventory today, we're sitting with about 6000 units in inventory. So we sit here today.
Plus 2500 going through reconditioning, and if we can sell 5000 and of <unk>.
Month of May you can see what we're running at for a 45 days supply. So I would say we're in good shape and that would be the same period and we have a front end gross over there and our back end growth in the F&I, which pretty much of the same as we as we go forward and again the margins as we see both in the U K at over here.
About the same when you look at the combined finance in front end and I think the thing of what we've been able to do over there is of sourcing that they have.
In the U K and at what we're doing at looking at how we can improve the sourcing here as we expand the footprint of me in the U S. But.
The marketing obviously, some nuances so we've really taken their playbook from a marketing and branding perspective, and really utilizing net over here. So we have of consists of look on a global basis.
So as you go from 17% to 40 stores.
Well some of that expansion be acquisition or will all be greenfield sites.
I'll be greenfield.
We might make an acquisition to get to get at a location, but we've looked at that.
Do we buy at an existing location, but when the Brent by the time they get the branding done.
You can't you won't buy cars youll buy either have people and locations and I think for current format is that we would look at maybe we take a whole base or a home depot was shut down of big footprint like we did over in New Jersey.
The purpose of that but.
Most cases, we would build from the ground up or we would continue to expand the online connection with our customer.
Is there a ballpark of investment for a greenfield site.
Yes, we've said that to get to.
40, 40 locations, but we're probably looking somewhere around 200 to 225 billion. So you can say, it's $10 million to $12 million.
Yes, depending if the sale leaseback or we buy at or what are we repurpose something yet, but I think thats really then youll look if you had to do the same.
To the same level of say $3 billion and we're talking at about three 3% return.
We're probably going to spend.
And acquisition and goodwill and what have you are going to spend two of three times more of maybe.
For them today and to get the same revenue.
Lot more complexity of as an OEM brand for sure.
Fantastic. Thank you alright.
Alright, thank you.
Again, ladies and gentlemen in order to ask a question simply plus Star then the number of one on your telephone keypad are new.
Next question comes from David Whiston of Morningstar.
Hey, David.
And Roger at anytime.
I wanted to start on.
The UK business.
In particular, the retail automotive segment at the numbers in the press release, there are just outstanding.
When considering the stores from closed.
But it looks like car shop in the U K didn't get that any help from any kind of digital expertise at the retail group did so as there is a room to maybe improve the digital capability for kind of shop.
I think it's a <unk>.
Customer because when you think about we're talking about 12000 pound car of 15000.
Pounds dollar sale cost of sale in the U K at.
We saw that business fall off because of showrooms clothes are big days are over on the weekend and that business really stopped in the UK and I said as we opened here just on the 12th of of April that shot ahead, and we're going to operate at 5000 units so from our perspective.
Right now were up 43%.
Just over these last 14 or 15 days and it was strictly having the showrooms closed there because people want to see the car new car. They know, it's a new car, but wanted to used car at that price level I think that customer probably is not as sophisticated and wants to see that especially and even at customers wanting to travel.
Out of their out of their home and what the restrictions were in the U K, probably was a bigger factor for that poor performance.
Okay, and then of shifting over to trucks.
I guess of two part question first of all why is use those.
When new is and I know use at a really bad quarter of year ago, but then at.
Also despite the weakness of new volume.
Good day ASP.
At 1%, yet new GPU was up 48%, but was there a favorable mix shift on your new truck sales to GPU growth.
I think look number one it was just timing on our on our new truck units.
As I said the plants were shut down in Mexico, where we get the majority of our cascadia product and so that had some impact and a lot of those trucks were pushed forward into Q2, and Q3 are and I think that at the end of the day, we're going to see the backlog is going to move up.
237000, so a lot of those trucks will be built and basically what we've checked yesterday it looks like starting the beginning of the month they were pushing anything out based on availability.
Either COVID-19 problems or availability of components that strictly timing and on the used truck side.
The shortage of new trucks availability, just because some of it's just drives used truck prices I mean, it's of supply and demand I think.
I think it's key and with with of freight movement today in all of the distribution at all of the things going on.
And then with COVID-19 and people moving across the country from a social perspective or utilizing a lot of this equipment.
Obviously.
It is certainly driving.
Prices up these vans that we have almost can get new price for them because people want those grubhub at a lot of these guys are using these types of pieces and they buy us and it's just.
As for trading trends on that stuff right now that's driving some very strong used truck.
Profit share on a per unit basis.
Okay and then.
Slide 28, you talked about.
6% of total unit sales were completed online does that mean for.
For those for that those customers are thinking about 6% of it was 100% digital they didn't come into a store at all.
I would say I had I don't have the exact numbers I don't think with me here, but they were on line.
Started online and at the.
At the end of the day when you take a look at the U K we had.
4200 vehicles I got the numbers here for 200 vehicles.
So fully online in Q1.
Car shop, obviously thats all I really had was 3200 and the franchise sold of 1000 that was on the new car side, because we can reserve of vehicle in the UK for 99, and then they apply for finance, we had 570 transactions instant online approval, we had share in fact 71 paid by credit card.
So we have the data to support that and digitally process documentation, which we have here and then they had a choice of over 100 locations for delivery and we had some Youtube videos to tell the customer exactly how they would operate and I think thats been.
<unk> been quite good net why we like somewhat.
The ability to use this online tool, but yet have the ability for the customer they want to get off at some point they can and go directly to the two of the source of they can do that rather than staying on line and I think that this obviously gives it provides.
For the convenience. So we're trying to do this is what we're trying to do with US online make it convenient personal I think we want the flexibility of the transparency.
And it's all self directed is at by you or by me and it's a low pressure environment, which certainly is important and we shortened of buying process.
Okay and just last question in your opinion do you think the chip shortage gets better in second half of this year.
But I'll tell you.
Can't tell you that I know on the truck side.
For the heavy truck side, they say, we're going to be fine.
I think it's more.
What I am seeing hearing is at the.
For the premium luxury players might be in better shape than the big three that's the only thing I can say for sure.
Think.
Capacity.
Because of some of the fires and at some of the issues they have as their capacity out there to meet the demand.
Okay appreciate it.
Thank you.
And at this time I would like to turn the floor back over to Mr. Penske for any additional or closing remarks, I just want to thank everybody for joining us today and thank our people for great execution during the quarter. Thank you.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
Okay.
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