Q1 2022 Penske Automotive Group Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin momentarily until that time your lines will again be placed on hold thank you.
Again, ladies and gentlemen, todays conference is scheduled to begin momentarily until that time your lines will be placed on hold.
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[music].
Okay.
Good afternoon, welcome to the Penske Automotive group first quarter 2022 earnings conference call.
Today's call is being recorded and will be available for replay approximately one hour. After the completion through may four 2022 on the car.
This website under the investors tab at double used to help with your top of your top Penske automotive Dot Com I will now introduce Anthony reporting the company's executive Vice President of Investor Relations.
Corporate development. Please go ahead.
Thank you Laurie good afternoon, everyone and thank you for joining us today.
A press release detailing Penske automotive group's record first quarter 2022 financial results was issued this morning and is posted on our website along with the 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 are.
Roger Penske, our chairman and CEO , Shelly Hall group's Chief Financial Officer, and Tony for Tony Vice President and 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.
And our leverage ratio, 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 at this time I would now like to turn the call over to Roger Penske. Thank you Tony Good afternoon, everyone and thank you for joining us today.
I am pleased to report Port all time record quarterly results for the first quarter as earnings before taxes.
Net income and earnings per share more than doubled when compared to the first quarter of 2021.
Our revenue increased 21% to 7 billion income before taxes increased 101% to $498 million or net income from continuing operations increased 102% to $368 million.
Our earnings per share increased to 111%.
The $4.76.
We repurchased one 9 million shares of common stock for 184 million year to date.
And we added approximately $665 million.
And annualized revenue over.
Over the last 12 months, we've completed acquisitions or open new dealership points that represent approximately.
One 9 billion in annualized revenue.
Our strong Q1 results really came from all segments of our business.
Retail automotive and commercial truck same store revenue improved 11% and 47% respectively, coupled with record earnings from Penske Transportation solutions.
Earnings before taxes increased 93% from retail auto 130, <unk>, 13% from North American commercial truck retail.
75% from Penske, Australia.
And 121% from Penske Transportation solutions.
Let's look at our retail automotive operations on a same store basis, comparing Q1, 'twenty two with Q1 'twenty one unit sales continue to be impacted by supply shortages and declined 1%.
During the quarter new declined 13%, however used increased 8% our revenue increased 11%.
And our gross profit increased 27%.
<unk>, a 200 basis point increase in our gross margin.
Our variable gross profit per unit increased 38% to $6026 from 4355.
Demand remains strong across our retail automotive dealerships with most allocation as new vehicle.
Pre sold before they arrive at the dealership.
Put that in perspective at the end of March we had 2500 units in stock in the U S.
And 14900, a year ago March in 2021, and then the U K, we had 3200 vehicles in stock.
In March of 'twenty, two and Haiti had 80 350 units in stock.
At the end of 'twenty, one and March just to put it in perspective Honda, We had 216 units in stock versus 3700, and with tired or only had 188 versus 2500. So you can see the impact of supply.
As we look out over the next nine to 12 months, we expect to supply shortages of new vehicles to continue.
I think unit grocers, where remains strong and the recovery of service in parts will continue.
Looking at car shop during the first quarter car shop unit sales increased 71% to 19500 units or revenue improved 113% to $516 million same store unit increased.
54% and our revenue increased 89%.
Same store variable gross profit per unit retail was flat at 2200.
The supply shortages of new vehicles continue to impact the affordability of used vehicles wholesale prices continue to rise. However, retail prices are not necessarily rising at the same pace.
Impacting our margin in some cases the price of a one to three year old used vehicle is near or at above the price of a comparable new vehicles as we look forward to future. We remain optimistic about the car shop model. We will continue to grow car shop based on the ability to pursue affordable vehicles, which may impact our goal of retailing.
150000 by the end of 'twenty, three obviously, reflecting our current market conditions.
Turning to our retail commercial truck dealership business, we continue to expand our commercial truck operations, adding four new locations.
At $150 million in revenue during the first quarter. We now operate 41 commercial truck locations in North America and during the first quarter unit sales increased 78% revenue was up 82% and gross profit was up 77.
On a same store basis revenue increased 47, including a 26% increase in.
Service and parts.
Service and parts represented 59%.
Of the total gross profit.
And covered 130% of our fixed costs in the first quarter.
Earnings before taxes increased to 113% to $58 million.
Approximately 75% to 80% of our new unit sales are class eight commercial trucks and that market remains strong in fact, our entire allocation of class eight product for 2022 sold out.
The class eight commercial truck backlog is 251000 units as of March 31.
And represents 12 months of sales.
We now turn.
The passenger transportation solutions, we own 28, 9% of Pts, which provides us with equity income cash distribution and cost savings cash savings.
<unk> currently operates a fleet of more than 373000 vehicles up 38000 units from the end of March last year.
Pts produced a record quarter driven by strong performance across all product lines revenue increased 22%.
The $3 1 billion and profit increased 121% to 410 as a result, our equity earnings increased 121% to $119 million year to date we've.
We received $45 million in cash distributions at this point I'd like to turn the call over to Shelly, Our Chief Financial Officer.
Thank you Roger good afternoon, everyone. Our capital allocation strategy continues to leave our balance sheet in great shape.
At March 31, we had $170 million in cash and over $1 3 billion in liquidity.
Year to date through April 26, we spent $184 1 million and repurchasing one 9 million shares our existing repurchase authorization has $46 3 million remaining.
We also paid $36 million in dividends and in total we've returned $220 million to shareholders. So far this year and over $650 million since the beginning of 2021.
We also spent $150 million on growth through Capex and acquisition.
All of this was funded with cash flow from operation.
Looking at our future capital allocation, we maintain a disciplined approach that focuses on opportunistic acquisitions and investments across both our retail automotive and commercial truck businesses cap.
Capital expenditures to support growth delivering a strong dividend to our shareholders share.
Share repurchases, especially in light of elevated valuations of current acquisition opportunities in the retail automotive market and reducing that where possible.
At the end of March our long term debt was $1 four 6 billion.
<unk> is a $1 billion of subordinated notes, which mature between 2025 and 2029 $327 million in mortgages 22 million under the UK revolver and $57 million and other items.
Debt to total capitalization was 26, 2% and leverage sits at seven acts.
At the end of March 2022, total inventory was $3 1 billion, which is down $158 million from March 31 of 2021.
We had a 16 day supply of new vehicles with premium at 18 and volume foreign at five days.
We continue to sell into our future new vehicle pipeline to support our customers maximize inventory turn and minimize our inventory cost.
We expect the current supply challenges coupled with strong demand to keep our new vehicle supply at low but manageable levels for at least the next nine to 12 months.
Used vehicle inventory is in good shape with a 41 days supply at this time I will turn the call back over to Roger.
Thank you Shelly turning to sustainability or ESG initiatives are an important part of our strategy and values as many of you know we published our inaugural ESG report in the fall of last year, where it lays out many of our activities to date, we focus on diversity and inclusion in our workforce. In addition to our <unk>.
Employee training to it.
Also used small groups to try and employees on the importance of diversity across our business.
Proud to be above the average for a diverse and inclusive workforce. In addition, we have a task force in place to drive our future efforts on sustainability of de Carbonization, we're committed to electrification and are working with our OEM partners to build infrastructure to support the sale and service of electric.
<unk> throughout their lifecycle.
To date, we've installed over 1100 charging stations across our network. However to put electrification in perspective in the first quarter. We sold 6700 electrified vehicles in the U S, including 646 pure battery units, which represent approximately two <unk>.
Percent.
Of new vehicle units all in the U K, we sold 1400 Bev units <unk>.
<unk> hundred 60 hybrids, where electrification is supported by lower taxes and government incentives net was 22% of our sales in the U K.
Moving on to our digital initiatives, our Omnichannel strategy focuses on customer lifestyle and continues to evolve with the changing landscape.
Online reputation management remains critically important.
And focus as we strive to exceed expectations of our customers. They focus on providing flexible buying options that allow customers to proceed at their own pace.
By buying their next vehicle are servicing their existing one.
For sales, we continue to enhance our digital retailing strategy by embracing.
Our OEM partner initiatives, we are currently supporting programs for BMW mini.
Porsche Toyota and Lexus Honda Lincoln and Nissan.
The OEM initiatives offer some advantages versus an in house solution.
They enable a buy online function from OEM sites, which is particularly important for new vehicle orders, while inventory is low. They also integrate with our captive finance company for online credit approval rates and programs et cetera.
We also remain focused on a fully integrated end to end digital transaction system to extricate online orders for car shop in the U S through our partnership.
With Cox automotive in the U K, we have a proprietary system that supports digital retailing for our franchise operations and car shop.
Q1, we generated over 5000 transactions and approximately 2300 sales, which reflected 5% of our market.
On the service side, we continue to encourage online appointments and payments to improve efficiency.
Online payments have increased 22% when compared to Q1 last year and 90%.
When compared to Q1 of 2020.
Online BDC appointments increased 18%.
441000, when compared to Q1 of 2020.
Before closing as many of you know, providing a superior customer experience and exceeding expectation is an important part of our Penske culture.
I'd like to congratulate the 11 Penske Auto group dealerships that were recognized as a car facts 100 dealer for achieving superior star ratings of at least $4 nine.
In closing I remain confident about the opportunities that I see across our diversified enterprise.
Driven by our strong balance sheet capital allocation priorities.
And mostly our human capital. Thank you for joining us on our call today and for your confidence in Pag at this time I will turn it over to the operator for questions. Thank you.
Thank you and at this time to ask a question you will need to press star one on your telephone to withdraw your question press turnkey again to ask a question. Please press star one at all.
Our first question comes from the line of John Murphy.
A couple of America. Your line is open.
Good afternoon Roger.
Yes.
Wanted to ask a first question on cap allocation I mean, given the buybacks.
And the acquisitions that you've made on LTM basis. It seems like you've got at least a 12% bump.
Structurally going forward.
You have been reasonably aggressive there although the balance sheet is in more conservative shaped if you will relative to some of your peers. Just some of your peers have gotten a little bit more aggressive on on.
Redeploying capital and deleveraging the balance sheet to simply do.
Do you think there is a greater opportunity to maybe get more aggressive.
Over time or do you think we're in the point of the business cycle.
Just something that Youll.
Maintain in the near term is trying to understand.
Just sort of your view of redeploying capital and how aggressive you may or may not yet.
Let's talk about capital allocation and maybe share buyback at the present time, I think we announced today in our earnings.
<unk>.
<unk> repurchased one 9 million shares for the entire period of 2021 .
We've repurchased 3.1, so I think that.
With that kind of trajectory. It would look like we will continue at that pace going forward. So I would say part of the capital allocation certainly would be share buyback and from the standpoint.
Of acquisitions.
We feel good about it we're not going to chase. These high multiples as we've seen in the marketplace I think that to moment as we add up what we've done to date, we were at $665 million and it's a mix between auto retail and trucks. So we would continue that we obviously are in a position.
To meet the Capex requirements set by the manufacturers, we have a couple open points, which we've been awarded which we're building new locations and.
And again, the annual dividend the quarterly dividend would be it would be a focus so.
I think we're at this point reviewing several opportunities from them.
A new opportunity to buy them in the marketplace as far as acquisitions, but and.
That would both be domestically and internationally.
And both are in the truck and the and the.
Our retail auto side, so that would be pretty much. So we're going to watch valuations at the moment.
With Ukraine and with all the issues we have today the continued supply chain disruption.
I think that was a focus we had over the last 24 months.
You can see that all of our acquisitions and dividends and share repurchase during the quarter were done by operating cash flow with no debt increase and you know we're going to watch our balance sheet here and see what happens I guess, what we're all impact we might have but overall.
I feel good where we are.
Got it.
Helpful and then just a.
Second question I mean, SG&A was very strong.
In the quarter I'm, just curious how we should think about that going forward and how much of that may be able to be retained as it may be gross to come under a little bit of pressure or maybe not going forward. I mean, how should we think about SG&A to gross or even just a dollar number there.
I think if you look at the.
In the last two quarters, we've been around $800 million and on a same store basis actually we were down sequentially about $10 million of five if I'm correct. So that's positive we're still getting the benefit of the employee reduction we did back.
At Covid time, we were down approximately 9% to 10% on a same store basis, we continue to follow.
Followed that we've been learned we've learned to technology to a certain point also from a productivity perspective, our technicians, we're giving them more tools I think we picked our better salespeople who picked up the units per salesperson, maybe from nine or 10 do now at 12% to 13, which is key and obviously when you look at our costs.
It's primarily.
People cost because you've got the variable.
<unk> up because of the grosses of the business and I think that at the end of the day the compensation is up to the management because of the profitability.
And then just just lastly, you mean, we're hearing these rumblings of some potential weakness in the consumer particularly for companies.
Like Carmax I'm, just curious in car shop or in your dealerships.
If youre, if youre hearing or seeing anything like that or is it a question of of price. It just seems like a weird statement given the what appears to be a extreme supply demand imbalance in favor of demand being much higher than supply just just curious what your thoughts are there.
John One thing I think that we have to do we are a different business than carmax or carvana and some of these used car retailers because number one we've got a large parts and service business, which covers 60% to 70% of our fixed costs. We also have Oems who are tied to it give us scenario.
Market that we operate in and they provide us with Ali umbrella advertising to drive customers, both new and used.
To our stores and then we have the relationship with a with a captive finance.
Companies and then the lease returns that are coming in give us in the future. When cars are available additional used so looking at that taking that is it.
Really a base to work from we've got a short supply of new cars.
Which is driving our.
Used car prices up and certainly our acquisitions.
Our Ben.
A very tough at the moment when you think about just looking at car shop in the U S and the UK and the U S or our cost of sales up $8500 in the U K, it's up 44, and when you when you add that onto the existing number it's really pricing on the used side up into almost new car numbers and then.
There is some affordability issues, there, which which obviously youre going to have some impact on margin, but from an overall standpoint. The demand is strong we're selling into our pipeline from the standpoint of our our new car business and sequentially our units.
There are up from 101000 to 114000, if you look at Q4 to Q1, so we're not seeing it at the moment.
That we're having any impact negatively at this point.
Alright, Thank you very much Roger.
Josh Thanks.
Thank you and our next question is from Stephanie <unk> from truly Securities. Your line is open.
Stephanie Hi.
Hi, good afternoon.
I hope you could talk a little bit.
The new vehicle industry environment.
Maybe what you're hearing from your OEM in terms of.
Key topics, we're always looking for production.
And also I think there's a little bit of conversations around pricing.
Spread between Oems and our.
ERP that dealer so maybe if you could just give us a little bit of a pulse of how you feel the relationship between the Oems and the theaters are as we start this year.
Number one.
<unk> are not raising our costs without giving us the opportunity to have an <unk>.
A corresponding increase in MSRP.
That's point number one now obviously.
There are different discount that we get based on performance you have a basic discount maybe 15% but to earn that you have to have you have to have your CSI to heavier market share. So some people might not get the full discount because of their performance and thats store by store certainly OE.
By OEM, but if you look today, where we're going to be in Q2 from.
From a vehicle availability.
We are seeing from Mercedes Benz perspective, an increase of about 10%.
And I would think that that would be what we would have as you go through Q2 into Q3 were flat at Honda Acura.
China's shut down is impacting is impacting that allocation, obviously and we look at Toyota and Lexus could be slightly higher in Q1 based on the information we have from the OEM shortly.
Surely from a partial perspective, we've been impacted.
And the market has been impacted because of the fire and that one ship. We lost 66, Porsches and I think 33 Audis and then there was a second ship that had rough water, where we lost to another 33. So that is a personal impact we have for our company, but it's a better supply than we've had in the past, but it's all pre sold Audi.
Have a better allocation in Q2 than it had in Q1, <unk> will be flat and BMW be flat with Q1, So I don't see anything.
We say, we're going to be stronger I think youre going to have a slight increase with some of the manufacturers I did my homework on this hoping I might get a question, but you can see that the market is going to take time to recover in fact.
I talked to one of the Oems at the end of the quarter and they said normally we have 250000 units in dealer inventory at the end of the quarter. This.
This year, we had 25000, so it's 10 times higher than the 25. So you can see that it's going to take time to meet their current requirements until were solid up down the pipeline and then try to build any sort of inventory and I think the Oems have learned the benefits of lower inventory.
And I think that they'll hopefully keep that.
Major mission plan that we're not going to end up with excess inventory and have to discount and add incentives. So overall I think we're going to see some of the same here through the next quarter.
Okay.
Great.
That's helpful. And then maybe if you could touch a little bit on the Penske transportation solution JV, just what youre seeing from yoga health of that business and there's been some some tone about just seeing.
Slightly moderating freight rates in the beginning of the year, how you view the health of the business and kind of the opportunity this year on leasing rental and some of the logistics on that side.
Well I think the analysts are saying.
The experts are saying that.
It will be up 3%.
During 2022 now what that does is spot rates I don't know I think the biggest issue that most of the carriers have is drivers right now and we're certainly not seeing any slowdown in rental units on the Pts side, so from an overall standpoint.
Our COO.
Truck leasing around logistics business had.
Terrific.
Had a terrific quarter and from the standpoint of you know.
Our revenue they were up 22% to $3 billion and their profitability with $418 million up over 120%. So again very strong.
From the standpoint of utilization and it might be interesting to note. We grew our revenue by 22%.
And if you look a year ago, our debt was down 300 million. So what we've been able to do.
The prudent use of our equipment and selling off our units instead of having 10 or 11000 units up for sale.
Down to about 3000, and Thats taken the interest and depreciation off our costs and giving us that cash that we can used to purchase new trucks, so balance sheets in good shape.
We're investment grade.
You, probably know and we have about 64000 units.
On order right now to me.
It's going to be it takes some time to catch up we had 62000 rental units.
On on rent.
Certain days over the last 30 days and our commercial or excuse me our consumer business.
That's been driven by high profit record pricing. This is the one way and local business and I think overall when you look at the business. It's never been stronger vehicles on rent, obviously up utilization consumer logistics rental was up 8%. We did have the benefit of the strong used truck market. So.
Probably we wouldn't expect quarter by quarter going forward that we'd see quite our percentage was probably up about 20 $20 million to $25 million this quarter on gain on sale at the head because of the strong used market.
Perfect and then just a housekeeping question for me Shelly could you remind us what the free cash flow generation from the first quarter.
Yes, certainly.
Cash from operations.
Just under $400 million.
Paid $36 million in dividends and then you talked about the share repurchase.
$19 million within the quarter.
No no I'm not a huge debt pay down there about $10 million Stephanie so.
It's very strong I expect the same out of Q2 as Roger mentioned, we've received $45 million in cash distributions from <unk>.
TTS and we'll get about $105 million overall within the quarter Capex was what about 56 million capex of $56 million. So I think that still gives you the pieces you need there Stephanie.
Excellent I can do that math, alright, well, thanks, everybody for hit it.
Great.
Thank you.
Churn comes from the line of Mike Wood from Benchmark Company. Your line is open.
Thanks very much.
Joey could you remind me how the Formula works for Pts.
For the cash.
Formula Sir.
50% of it and so we received that on a quarter lag with the first one Q4 coming in April another otherwise, it's a quarter lag. So we received those May August and November for the preceding quarter.
Okay, and it was 160 $565 million last last year right.
Okay.
This year.
Sure.
Roger.
We're kind of in this unprecedented time with the inventory and everything else, but the flip side of that is you have better visibility on orders and I would assume if somebody's preordering your vehicle the price portion of the transaction is resolved is that correct.
Well when we're preordering obviously.
They take our orders in the factory and we don't have a price change we do get a price change on trucks, if we order a new truck build.
They typically can change the price on us on the heavy duty side thats been the current.
Business practice by the Oems, but from a new car customer.
Shutting down the pipeline they are able to pre order and we get a fixed margin full margin on that typically and he gets that he gets the components or I guess the options would be a better word of what he wants today when he goes and a lot looked at a new vehicle, sometimes he buys more than he needs and it's less about one thing thats happening.
Some of the Oems have done this at vehicles that we're getting shipped.
Might have a lowest lower MSRP for only one reason, that's because they've left out certain options, which they can't provide because the chip shortage.
Okay, so but on the transaction with a customer that comes into the retail auto the prices determined when they order the vehicles there Mike.
Some trade ins or whatever else add ons.
You have to always look at the value of the trade, which could move right that could go up or down right.
Sure.
In the as you look at our finance income we've got two components, we've got the finance piece and we got the product now we would sell gap, we can sell tire and wheel theres number of things that we sell so ultimately the customer would possibly pay more for that and I think that the.
<unk>.
After sale opportunity, where we would sell a prepaid maintenance is typically is something that is a great product we sell to the customer. So basically they are a one payment and are on their way.
So am I thinking about it the right way there's at least over the next six to nine months as some of these orders turned into deliveries there's less risk on the on the growth side of new vehicle retail on just the gross margin part of it.
And there has been historically.
Great point, because obviously.
We're selling into the pipeline at full margin. There is no question. So that's going to help us sustain this margin.
As we go forward and I think thats.
Obviously, something both in the U S and the UK that we're seeing now.
And then and then it.
Just my own personal experiences I think indeed, it enhances the relationship with your customer at the dealer level. So there's a lot of things as transformative.
Customer orders occurring wants it sticky.
Interesting.
Because you know in our premium side, 55% of our customers are leasing what we're doing now is <unk>.
Standing leases and when we extend to offer the customer an opportunity to extend because basically we can have that car back now. We then ordered a new car for them. So.
We'll probably end up with less people moving from us to maybe the lease of another competitive vehicle, but that's been very very positive with our customers and again.
A customer experience standpoint, it makes a big difference because they know that they will have a car what they want and the lease price. Obviously is set at the time that we do that quarter that new car.
Fantastic. Thank you. Thank you very much for your time appreciate it.
Take care.
Thank you and our next question is from Danielle Brill of Stephens, Inc. Your line is open.
Hey, good afternoon, Roger and congrats on the quarter.
Roger I Wonder if follow up on Stephanie's question on the OEM, how do they feel about the consolidation going on across the industry. I mean do they realize the benefit of having maybe fewer larger dealer groups and have there been any discussions or have you heard any discussion around changing or increasingly framework agreements to allow for larger scale M&A.
And all of you guys grow.
Well, we've had we signed up for framework agreement is probably.
10 years ago, there were some with some by Honda Lexus had it and we believe live with those over time now they are getting more active now when you look at BMW and other of these manufacturers are coming in now with with probably not as much to try to curtail a growth, but more to be sure that the dealerships that you already have.
And our meeting the CSI requirements and the Ci and the market performance and Thats, what theyre looking at before they would allow you to grow that probably is the biggest issue today I don't think they are saying no. In fact, if you are a good dealer and you've got a good track record and you're in a market.
<unk> due to the number in a particular market. So you don't you're not the only dealer in the marketplace I think other than that.
They're very.
I appreciate when we come to them with an opportunity because I know we've got the capital we've got a track record.
We've got a management team that many of them know and I've seen well you've seen the growth just in the publics.
And Thats been approved.
Big Big acquisitions out in some cases, you might have a market, where you have to sell something off but I.
I think the I think that that is easy I mean, we made a move from lexis in over in New Jersey to buying the two Lexus stores in Austin, and we had to divest it to to get to more but obviously I looked at the jersey market versus the Austin market and fill it on a longer term basis, it would be a better opportunity.
For the company so.
Those are those would be my comments.
Got it that's helpful. And then one on the open points you guys are opening Roger I think historically that helps you get more allocations at first to maybe get the stores up and running.
One I guess is that true and then two for how long do you get better inventory allocations at those new open point well on an open point.
They have.
A plan that says this is the planning protests were for a point lets say its <unk> hundred and what they will do as preload, you where those cars when used with before you open and you'll get you'll get those for about I think probably about 90 to maybe 180 days, but then you're on a run rate based.
Based on your history, so it works out well and I think.
After spending 15 or $20 million on a facility certainly need.
The cars too to start the business, but I don't think it's.
Not it's fair.
Thank you.
Certainly good for future allocation because you you continue to meet the requirements of the planning potential and Jay give you.
The cars or trucks to be able to meet that early on so it's up to you to drive it and then maintain it.
Got it and then one last one for me on the on the parts and service on the commercial truck side. If we did go through a broader freight recession or pull back on the industrial side.
Good parts and service still organically grow and comp positively through that or what have you seen through past industrial cycles on that.
Commercial truck I would say the parts and service would grow because people would not be buying new vehicles, and we see that in our own truck leasing fleet, we run past a certain point of mileage or maintenance costs go up so that would always be an opportunity for the freightliner dealer for us too.
Give us the.
Give us more parts and service so I think the at the end of the day.
Very positive for us.
If there is because we will have more parts and we saw that during the last recession I think we saw parts and service will be pretty steady and solid.
Got it thanks, so much for all the color and best of luck guys.
Thanks.
Thank you and our next question is from Rajat Gupta of Jpmorgan. Your line is open.
Hi.
Alright.
Alright.
The question.
Just final question on Fox and purposes on the automotive side.
Could you give us a sense with no.
Segments during the quarter.
How should we think about.
Just the outlook for the rest of the year, given what given the trends youre seeing so far in <unk>.
And also like you know in April .
Well when you look at.
You're asking about the growth for I didn't ask me. The question again I was unfortunately I didn't get it so I want to be sure I tried to give you a right answer sure.
Just within parts and services the different components within that customer pay warranty et cetera.
Although the data in the first quarter.
And just how should we think about the progression through the rest of the car.
I would say, we're seeing more miles driven and there is no question because mark the car.
<unk> has opened up which is driving more mileage, which will will drive more parts and service. So I see that being key our repair orders were up 13% in the U S and up 11% in the UK and our body shop was up 22% so cut.
Customer pay was up.
Warranty was down now one thing that had some impact on our pag margin because we have a fixed margin on warranty and on customer labor. We haven't negotiated because you have different age vehicles coming in.
Obviously drove a slight reduction in our and our and our total margin, but still very strong at 59%.
Our effective labor rate went up and this is a good one our effective labor rate went up about 8% in the U S. During during the first quarter, if you compare to a year ago.
Got it and in terms of like the outlook for the rest of the R.
Any visibility we can get them done.
This should be for the business.
Well I mean overall, though.
The overall pag business, Youre, saying, our parts and service.
Parts and services on the retail automotive.
I guess I'm, sorry, I think it's got a I think it's going to go up I don't see it going down for sure and the only thing will be will be if the parts supply, which we have had.
<unk> had some impact on parts supply because of the supply chain and that could have some impact on slowing it down the other which I didn't really mentioned I just came as a thought here now is our loaner cars.
And the ability to offer you a loaner car because a lot of people don't want to come in for service. If they don't have loaner cars will all of us have reduced our loaner cars because of availability of new car should put into that service and in fact, we've used some used cars that might have some ability to dumbed down.
The strength of the us.
The business, but I'm not sure it's going to be a major because people will wait it puts the customer out if you have a critical issue, we're going to try to take carry on the day, but.
Overall, I think we're in really pretty good shape miles driven is recovering, but it's still lower than pre pandemic. There's no question about that.
<unk>.
I think it's positive.
Got it.
A follow up what PDL.
Could you give us an update where is the utilization rates are.
You know what they were in the first quarter, how do you expect that to trend.
This year, maybe into next year and then maybe if you could give us an update on just the fleet size.
What your plans are for the next couple of years in terms of where you'd like to get the Joseph a.
Long term, we place where people go well I think that we went up 38000 and my goal obviously.
But by 'twenty five would be to be at 500000, if we can grow now a base certainly based on availability.
And the amount of signing were doing when you look at.
On the full service lease side.
That business.
It was up 8%.
During during the first quarter and contract maintenance was up 14% so.
That's very positive and we still see where the requirement and transportation across the country. Our commercial rental is the strongest it's ever been and that was up 55%. So we see that continuing to grow were held back a little bit because the supply of vehicles right now so it will add to those fleets.
As those rental fleets as we go forward, which will make a difference so our logistics business grew at about 8% and when you look at the balance of the business. The one way continues to be strong when we get good pricing or full service is up our contract maintenance and we continue to add probably <unk>.
<unk> to 16 locations a year, new along with the when we go in we can take over the customers' locations and that gives us a chance to add another shop with the captive shop, we called out with our customers. So I think in Q1, we benefited by a higher gain on.
Sale Pag perspective, we've got about $25 million and I think it would be lower in Q2, and Q3 going forward because we've really reduced the vehicles available for sale as I said earlier from about 12000 to 3000. So I don't think we're quite see that gain but overall the business should be strong.
Got it great. Thanks for the color and good luck. Thank you.
Thank you and our next question is from David Whiston of Morningstar. Your line is open.
Hey, David.
Hey, Roger Hey, everyone.
The first on the equity income if I remember running normally Q1 is the weakest quarter.
For equity income this year, obviously, you outstanding growth of 116%.
So just curious if you are expecting Q1 should not be the weakest quarter of this year.
Well I think.
We will have from an equity income perspective, when you start looking at it.
At Pts when we get into the July August September because of the one way business will drive that probably higher and we continue will have some impact as I just mentioned that we had in the gain on sale but.
I see it being equal here as we go forward other than the gain on sale for the rest of the year I feel good about it.
Okay, I'm sorry, how much was the gain on sale.
Gain on sale for Pag was up about $25 million.
Alright, Tony during year over year over year over year. So I wouldn't expect that every quarter because we had vehicles. We wanted to run in rental which were there was such a demand at the end of Q4, we decided to run those vehicles through Q4 took them out in Q1 and sold those and that's why we had the bigger gain.
Okay and on on car shop.
Disclosure about the self sourcing.
That's helpful.
The U K.
The lowest there at 39%, making you think that can get over time.
Repeat that again, so you're talking about just on car shop David.
Yes.
Why.
You broke up there Targa broke up go ahead.
You there.
Yes, sorry slide 30.
Yes, so youre looking at the sourcing coming out.
Of where what we're self sourced sourcing on used vehicles in the different markets and we think that the UK is continuing to trend positive if you look at.
Just the traditional franchise business in the UK they increased in the quarter on a year over year basis from 18% to 25% in terms of purchases direct from the consumer and I think they've got a team of buyers working on this and we would expect that that to continue on the car shop side in the in the U K, they're not sourcing nearly as many vehicles from.
Consumers as we are in the U S and what we would see.
Happened there is that over time, they would use the sitting our auction as a as more of a.
Direction to help gain and get more cars and that's been somewhat limiting right now because of the cars and trades coming off of either out of fleet or trades coming in from the overall business. So we do expect those to improve overtime.
Yes.
Okay, Thanks, and just finally.
I think it was slide 16 talks about your retail automotive brand mix.
And BMW is a little more than double.
And Toyota.
25% versus 11% in BMW is obviously, a great brand, but over time do you want to try and narrow that gap or are you pretty much capped on the Audi Toyota sides.
No when you take our Audi and you had Porsche to it and Bentley and the other were probably getting close to 20%.
With them I think that.
We have no limits with any one I think the BMW is driven because we have the majority we have double digit.
Market share with BMW in the UK, which probably drives a little bit higher we don't quite have that kind of.
Number here in the U S. But it is our number one brand and we have been strong with many right from from the beginning but theres no limit in fact, we just made an acquisition of three storage BMW stores in the last 30 days in the U K and we'd expect more and as we go through the rest of the year, we have some other.
Possibilities in the pipeline.
Okay. Thanks, everyone.
Thank you and welcome David.
Thank you and there are no further questions at this time I will turn the call over to Mr. Penske for closing comments. Thank you everyone. We had a great quarter appreciate the support and our team is ready to take on Q2 will talk to you next.
Next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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