Q2 2022 Penske Automotive Group Inc Earnings Call
Net income increased by 13% up to 383 million and earnings per share increased 20% up to $5 <unk>.
Additionally, when we compare the first quarter of 2022 earnings before taxes, our net income and earnings per share all increased sequentially.
Looking at our retail automotive operations on a same store basis Q2, 'twenty two versus Q1, despite despite the supply constraints that continue to impact new vehicle inventory and availability demand remains strong and our pipeline of vehicles remains forward sold.
Supply shortage has impacted total unit sales, which declined 17% during the quarter, our automotive revenue declined 8% and our gross profit declined 3%. However, if we exclude FX revenue only decreased 3% and our gross profit increased 2% our service and parts revenue.
<unk>, 4% without FX, it was up 8% and our variable profit per gross vehicle was up $841 or 16%.
<unk> thousand $999 from 5158.
Looking at car shop during the second quarter.
Car shop unit sales increased 7% to 20000 units.
And our revenue increased 15% to $468 million and our same store unit sales were flat and our same store revenue increased 6% same store variable gross profit per unit retail was $21 45 compared to $27 14 in the second quarter last year.
Nickel acquisition prices are reconditioning costs, along with logistics continue to impact our profitability at car shop in response to the current market conditions, we close two satellite operations in the UK and are focused on improving their reconditioning efficiency.
<unk> and are improving our cost structure overall.
Let's turn now to the retail commercial truck dealership business.
Our premier truck dealership business remains very strong and during the second quarter. Our unit sales increased to 4174 units up from 40 146 in the second quarter last year.
When looking at total revenue increased 23% to $769 million and gross profit increased 32%.
$136 million, our same store revenue increased 11% and that included a 23% increase in our service and parts business.
Service and parts represented 68% of the total gross profit and covered 133%.
Our fixed cost in the second quarter earnings protect per port taxes increased 32% to.
52 million the new class eight truck market remains strong and the backlog is 222000 units as of June 30.
Approximately 75% to 80% of new class eight sales or commercial trucks and that market remains strong in fact, our entire allocation for class a product is sold out for 2022 and 'twenty three orders will open up sometime in the September October timeframe.
Let's turn now to Penske transportation solution as you know we own 20.
28, 9% of Penske of Pts.
<unk> us with equity income cash distributions and cash savings.
<unk> currently operates a fleet of over 387000 units an increase of 21000 compared to the end of last year.
<unk> produced a record quarter driven by strong performance from contract.
Commercial rental our logistics business and remarketing revenue increased 20%.
The $3 3 billion and profit increased 33% to $472 million.
As a result, our equity earnings increased $34 million to $137 million year to date. We've also received $105 million in cash distributions now let me turn it over to Shelly, Our Chief Financial officer. Thank.
Thank you Roger good afternoon, everyone, our capital allocation strategy and record financial performance continue to leave our balance sheet in great shape at.
At June 30, we had $155 million in cash and over $1 1 billion in liquidity.
Year to date through July 26, we spent $363 million on repurchasing three 5 million shares and acquired 148000 shares from employees for $17 $2 million.
In July 2022, our board of directors increased the authority delegated to management to repurchase our outstanding securities by an additional $250 million, bringing the company's total repurchase authority to $331 million.
We also paid $74 million in dividends. So far this year our board of directors has authorized three increases to our dividend growing our quarterly dividend from 46 to 53 per share are up 15%.
In total we've returned $437 million.
To shareholders. So far this year, representing 59% of our net income.
We've also spent a $110 million on Capex and an additional $30 million for land acquisitions for future growth.
When looking at our future capital allocation, we maintain a disciplined approach that focuses on opportunistic acquisitions and investments across our retail automotive and commercial truck businesses cap.
Capital expenditures to support growth and our sustainability initiatives.
Delivering a strong dividend to our shareholders accretive securities repurchases, especially in light of elevated valuations of current acquisition opportunities in the retail automotive market and reducing debt where possible.
At the end of June our long term debt remains below one 5 billion, which is consistent with December 31 of last year.
Long term debt consists of 1.04 billion of subordinated notes, which mature between 2025, and 2029 $416 million in mortgages and $30 million under our Australian credit agreement.
The average interest rate on our total fixed rate debt is three 8%, which we have secured for an average remaining term of five eight years.
Debt to total capitalization was 26% and our leverage sits at seven Act.
At the end of June total inventory of $3 1 billion, which is consistent with December 31 of last year and is up $118 million from June 2021 law.
Largely related to an increase in commercial vehicles and parts from acquisitions completed in the last 12 months.
We have a 21 day supply of new vehicles with premium at 23 volume foreign at eight and domestic at 21.
New vehicle supply is at 12 days in the U S and 32 days in the UK.
We continue to sell into our future new vehicle pipeline to support our customers.
Maximize inventory turn and minimize our inventory costs.
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 42 day supply at this time I will turn the call back over to Roger. Thank you Shelly, let's turn on to business development I am pleased to report we've completed acquisitions of new open points, representing $745 million in annual revenue.
So far this year. Additionally, this morning, we announced that we've signed an agreement to acquire five Mercedes Benz dealerships and three after sales locations in the U K from the factory. The acquisition includes their flagship dealership, which is located adjacent to our existing Audi West London dealership.
Which is a large audi dealership in the U K the.
The acquired dealerships in after sales locations are expected to generate approximately $550 million in revenue for the full year of 2022.
We expect to close this transaction during the third quarter subject to customary closing conditions.
Turning to sustainability, our sustainability initiatives initiatives are important to our strategy and we built a dedicated team to drive our future efforts on sustainability of de Carbonization, we are committed to electrification or working with our OEM partners to build infrastructure to support the sale and service of <unk>.
Trick vehicles throughout their lifecycle, we've already installed over 1300 charging stations across our network.
To put electrification in perspective through June 32022, we sold 16800 electrified vehicles in the U S, including 1800 pure battery units, which represent 3% of our new vehicle units, although in the UK, we sold 4700 units.
Including 200, 2200 pure battery units, where electrification is supported.
By lower taxes and government incentives. We're also focused on de carbonization through improved energy management, increasing the use of renewable energy and recycling programs at our locations to reduce greenhouse gas.
Gas emissions.
Moving on to our additional initiatives our Omnichannel strategy continues to focus on customer lifecycle and evolves with the changing landscape.
We are using digitization and organization wherever possible to improve the customer experience and drive satisfaction to improve loyalty and our customer retention. Additionally, we are using integrated digital solutions at our dealerships that automate and.
Streamline document processing during the sales transaction minimized paper physical paper output and ensure consistency and more important compliance and quality control across our organization.
We continue to focus on online reputation management, where our lifetime, who will star ratings for our U S. Dealership is four seven stars.
For sales, we continue to enhance our digital retailing strategy, rather embracing our OEM partner initiatives. We currently are supporting programs from BMW mini Porsche Toyota and Lexus Honda Lincoln and Nissan.
Our OEM initiatives offer some advantages versus an in house solution as they enable a buy online function from OEM sites and also integrate with our captive finance company for online credit approval rates and programs et cetera.
In the UK, we have a proprietary system that supports digital retailing for our franchise operations, including car shop in the second quarter, we generated 4800 online transactions and approximately 2400 sales, which reflected 5% of our sales in the U K market.
On the service side, we continue to encourage online appointments and payments to improve efficiency.
Online payments with increased 27% when compared to the second quarter last year and online in BDC appointments were 515000.
In closing our results reflect the dedication of the people that make our business one of the best company to work for.
Want to thank all of them for the record results. We produced so far this year.
Also I'd like to congratulate the 46 Penske.
Penske dealerships that are being recognized by automotive news on the list of the best 100 dealerships to work for in 2022.
This is an outstanding achievement and continue to set us apart from everyone else.
I continue to remain confident.
About the opportunities I see across our diversified enterprise.
Thanks, all of you to join US today, and I'll turn it over to the operator for any of your questions. Thank you.
Thank you.
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Yeah.
Our first question comes from the line of John Murphy with Bank of America. Please go ahead.
Hey, John Good afternoon, Roger Roger Shelly.
Tony.
Just.
One of the big concerns I think people people have is that eventually volumes are going to recover and closures may come under a bit of pressure dams, which will be a market dynamic, but what you can control in a pretty significant way is your SG&A cost. So I'm just curious.
As you know volumes recovering inventory rebuilds, probably not going to be you know until late 2023 that we figure. This all out but we know what kind of actions on SG&A do you think you can take to keep a lid on them if any.
Waiting and if you could just maybe remind us how sales comp plans.
Are generally structured because that would be a big portion of our variable they could theoretically inflated as volume comes back or maybe not.
Well, John first let's go back and look at <unk>.
Pre COVID-19.
Our SG&A was running 78% of growth.
Today, it's at 66.
3% from.
From Q1 sequentially and I think that we're going to end up somewhere in the low seventies as we tend to get back to normal to our normal business. Obviously, we've had some impact.
Due to <unk>.
Salaries and wages there is pressure on that we've had.
The opportunity to open up our people to be able to travel which has increased some of our SG&A, our marketing costs and advertising is down. The good news is we took 10% of our people out.
The Covid, which has reduced our SG&A from that standpoint, not concluding the obviously the additions we've had from our acquisitions overall I think that.
Taxes have increased some but I think that.
Today, we are really tight our turnover.
Right now.
17%, 18%, depending on which area of the country you'll look at.
When you talk about comp growth, we're running at about 40% overall and that's consistent of what it was last year. When you look at our variable compensation that runs about 25% of growth and on the fixed side, which is parts and service. It runs about 25. So overall I think those are steady.
In line and we don't see really anything driving those higher because a big part of our business is variable. When you think about flat rate mechanic, you think about sales and the good news in the sales side with the reduction of our people we've been able to get more productivity and that's helped US drive some of this grosses from a standpoint of reducing the number of.
Salespeople, but adding.
Adding more units per.
<unk> per person, which has been key so again, we're going to be driven here from an SG&A probably.
The supply shortages from our marketing and advertising standpoint, we're going to keep that pretty much it.
Hand did not grow that expense and where we need to maybe on a new acquisition in the marketplace, we think that.
As we look at the business pre COVID-19.
We looked at how we would restructure the business and we've kept those.
Parts of our business in line and Thats, given us I think the ability to maintain probably anywhere from 500 to 700 basis points better as we get into a more normal.
Operation and again with a 10% reduction in people.
Okay. That's incredibly helpful. And then just a second question.
This is kind of a high class problem and it's got a little bit tough to give you a hard time about this but <unk> seven times net leverage you know what I mean.
That's pretty.
Yes, that's reasonably conservative relative to what a lot of your peers are running yet.
Admittedly you did $1 3 billion in acquisitions, and 275 million of buybacks year to date. So you are actually deploying capital so youre pushing it but I'm just curious if there may be an opportunity for <unk>.
We even take on on leverage and get a little bit more aggressive on buybacks or acquisitions, whether it be a new used or maybe even in the commercial truck side.
Well I think right now in the current business conditions and a lot of the uncertainties, we want to be safe and secure and.
And basically we.
Driven almost $1 billion worth of debt out since.
End of.
2020, and we want to continue to have that flexibility I think.
We will see within our numbers here that was at lower.
I think it was <unk> seven times gives us a really a war chest to do something but right now we're going to look at buyback versus acquisitions and right now with a high prices I think that we.
We will have to look at that even further quarter by quarter, but.
We continue to like our stock from the standpoint of buying it back if it's necessary and we've seen some great opportunities on underperforming and maybe.
Lower costs for some of these acquisitions that we're making throughout.
Total network around the world. So overall, if you look at acquisitions, we made $1 $9 billion over the last 18 months plus the share buyback, which was about 8% of our stock. So I think it's going to balance between that and it's so fluid.
It'd be hard for me to say, which is going to be the main focus I think we're going to look at all of them on a monthly basis as we look at our overall capital structure.
If you were to think about sort of a normal times that all the chaos that it appears to be swirling at the moment, what would you think sort of net net leverage.
There should be what would be the target that you and Shelly.
You're looking at there.
Well I guess when things get back to normal.
Probably what two summer Shelley.
Yes, I think two is accurate.
I think certainly our target to remain below two five on an adjusted basis and we certainly have a lot of runway to get us there, but we have we have flexed the balance sheet in the past to make acquisitions like we did with the Pts acquisition to go above three if we needed to you Mike mentioned, where we are from a <unk>.
Credit ratings perspective, what the expectations are from the agencies.
The conversations that we've had if we can keep that adjusted level below 253 times.
The remainder of the year, we can start talking about investment grade.
And as I mentioned, we've got a lot of room, we've got.
A lot of runway to get there and all the things that we've mentioned.
The acquisition the share buybacks the dividend.
All of that is as cups.
The finance that through cash flow from operations and keep our debt at steady levels. So.
It certainly hasn't keeping our leverage at <unk>, certainly hasn't hindered us from a capital allocation standpoint, and we wanted to be very careful we don't stray off.
Road, where we are obviously, we are seeing the benefit of our Pts investment.
<unk> continues to grow and we like what we're doing there from a standpoint of that business and overall, we just had our board of directors in the UK and the ability for them to grow as a real opportunity there as people move forward. So overall, we're going to try to stay safe and secure John but I think we'd like to get to investment grade.
We're certainly in a position.
To move on into a bigger acquisitions, but.
They're going to come to us.
And we're not going to overstretch if possible.
Okay. Thank you very much I appreciate it thank you.
Thanks, John .
Thank you Mr Murphy.
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Next question comes from the line of Rajat Gupta with Jpmorgan. Please go ahead.
Our as yet.
Hey, good afternoon, Tony Andrew Shirley.
Just had a question on PPL and the first one.
Really strong trends again.
In the second quarter.
Could you quantify like what was the gain on sale this quarter and excluding the gain on sale.
How do you see trends.
Maybe if you could give us some color across the different business lines, how you see that progressing through the remainder of the year and I have a follow up thanks.
Yes good.
From a full service lease perspective, our revenue was up 8% and commercial rental was up 35% and remember 50% of our commercial rental business comes from our lease customers and where the growth we've had on that over the last three years at paying real dividends for us for now and I think vehicles on rent.
From a commercial renter perspective daily <unk> been running about 65000, if you can believe it we have the largest rental fleet probably in the world. When you look at it and it probably is two to three times higher than our closest competitor. When you look at the revenue coming out of that and from overall from the overall standpoint, our business with <unk>.
<unk> up 7% to 8% if you take out if you just take out the gain on sale increase over the year. So again, it's still been a very good growth business and we think the logistics impact we've had we were up 11%.
In the quarter, our consumer rental was down and that's the one way rented here leave it there, but the good news is were able to repurchase those trucks into our commercial rental fleet, which obviously were getting markup and good margins on that probably the biggest impact. We have is we only have 4000 units to sell because we're being backlog from the truck.
Manufacturers with over 60000 units on order and we get those in as soon as we get them, we either add them into our rental fleet getting older unit out which is we'll reduce our maintenance costs. So we're pushing hard on the Oems that we still see that going to be probably through 'twenty three 'twenty four before we get back to a normal supply.
Train capability for us on heavy trucks.
Got it and the gain on sale.
Uh huh.
<unk> and <unk>.
How much was that and how much was that year over year.
What it was a 100 was $140 million and it was up $95 million, we get in from the standpoint of Pag, we get $27 million of that would accrue to our to our profitability for the quarter, Tony correct. Our ownership percentage of 28, 9% times, the $95 million or 27 million.
So it would have increased on a year over year basis in the second quarter.
Got it got it and maybe just to follow up on the SG&A question.
No they are going to a number of.
<unk> electric vehicles hitting the market no next 12 to 18 months.
If you could give us a sense of you know.
How those models coming in changes.
Just the head count structure of the store.
The composition of payroll.
Just productivity just given those those those units are going to require a little bit more of an education experience and maybe a little bit more handholding.
Relative to the ice engine customers so well.
Maybe any thoughts on that you know, how you see that progressing and changing.
Just the look and feel of the dealership.
Well I think that.
Good point, Jeff we see the training this necessary, we see the tools and also the facility changes you would have to make to be able to handle.
A better vehicle because of the electrification and that will take some of the at least initially it's going to be all under warranty, but as we go out into the longer life of vehicles electric vehicle those will come back into into the shops. So I feel that will be a benefit.
Have to train our people based on OEM requirements, we've talked about a number of.
Electrification points, we have from the standpoint of already there and that's to meet many of the Oems requirements for fast charging and we will continue to add to that as we go forward, but from a training perspective. This is always accomplished with an arm in arm with the OEM.
Got it great. Thanks for the color and I'll jump back in queue.
Alright, Thanks John .
Sure.
Thank you Mr Gupta.
Our next question.
From the line of Daniel <unk> with Stephens, Inc. Please go ahead.
Hey, good afternoon y'all, congrats on the quarter.
Thanks, Roger I wanted to start on the demand side of the equation can you just maybe provide an update on.
However, you measure it the amount of inventory pre sold or how many how much visibility you have basically into the back half of the year on the demand side and then maybe can you touch on auto and commercial truck and how that differs.
Well look.
Look at auto here in the U S. Right now we get allocations and then giving it now maybe 30 to 60 days and they might give you an allocation of 300 cars and within a week they pull it back so again.
It's really a variable we're selling into that allocation on a day to day basis and typically as we look at our inventory at 12 days everything Thats coming in is going back out and in fact, when I look at.
I think we're running at 95% of allocation or turning and that's how we're driving obviously the inventory from a look at some of the high priced cars corvette in some of the fancier luxury cars, we probably have six months to a year on the other hand, if we go to the UK where people typically.
Specced their car and build it we have 35000 forward sold orders in the UK today, representing about 100.
$130 million U S dollars when you look at it from our standpoint, and we have a 30% flow through on that roughly as we look at it going forward so quite positive from the truck side.
Again, we're sold out.
Through 2022 on the heavy duty truck side and we're all as I said earlier, I think where we're going to be starting to have allocation September October into 2023, and we can even see that from the standpoint of what's available across our leasing business.
Sure.
Got it that's helpful and maybe on the used on the auto side I wanted to touch on car shop, I think of the slides that same store units were flat, but obviously overall retail same store, we're still I think down 11. So so how is that segment able to outperform so materially in can you accelerate that growth or use some of those learnings back.
The rest of the dealership Tran.
Well I would say today.
Car shop, both in the U S and the UK is a huge focus because where we normally find within this say 12 to 410 or 15000 pound vehicle in the UK. We just can't volume and then the U S. We've had to move up from a 20000 cost car to a 30, we tried to back up and look at these.
8% to 10 to $12000 vehicles, but to me there.
They are really wholesale and we've just told our people the customer experience the guest experience buying those cars along we've seen our policy go way up on those types of vehicles. So we've really had to pull back because we just don't have the ability to buy the cars that we want because of the lower new car volume is reducing a number of years.
<unk> entered the market and therefore that we're really looking at volumes being down over the next several months until this whole market changes, but we're going to use technology, we're going to shorten up the time potentially between reconditioning, because we think we've got money there that we're losing because of just logistics getting cars into our locations.
To be able to recondition them properly for the customers. So there is quite a bit of.
Opportunity I think the self sourcing is key in the UK, we've got to use more using more auctions are here in the U S. We've been able to move that up we're up to about 80% to 85%, which is certainly good but it's a focus for ours. We're in the business, we're staying in it but I would have to say that with all the turmoil.
Right now I think the best thing, we're doing is just making us better building a stronger foundation and we will continue to look for ways that we can enhance our gross margin.
Great, Okay and last one for me just on the used commercial truck side, you mentioned new backlog, so a real strong.
On the used side are you seeing any softening of demand as the freight market softens or anything changing there as we see prices begin to fall in the used truck side.
Well I think right now the region, we're seeing price falling is because you are way too high I mean, just real realistically a lot of these trucks that are being purchased at these high margins were owner operators with freight rates trade availability being down. These people just can't afford these payments on these higher price.
Use and I think that's having some impact on the overall market right now are our big customers from BTG I had been selling their trucks themselves. So we have the opportunity as we go forward to action some of those trucks into our inventory and we're pricing those today on a 30 day basis, meaning that we're not giving you a P.
On a trade more than 30 days out and we'll continue to we'll continue to adjust those accordingly, and we've seen that come down and yet we made an acquisition.
And out West in Portland, and Salem, and we took on some trucks newer trucks, but I would say two to three years old with low mileage, which obviously are at higher rates and those seem to have some impact on some of our margins right now, but that's the 100 to 150 trucks. So as we get through those we'll be back pretty much the level on the other hand.
When you look at at Pts and our truck leasing business I think I mentioned it earlier that we're selling trucks that are four to five years to six years old and those margins continue to be very strong we see very little deterioration on those at the moment. So I think overall, we're in pretty good shape.
Yes.
Great. Thanks, so much guys good luck going forward.
Thanks.
Thank you Mr <unk>.
Our next question comes from the line of David Whiston with Morningstar. Please go ahead.
Hey, David.
Hi, everyone I.
I guess I wanted to start with.
Used vehicle question.
Obviously, it's very expensive to buy a car for both consumers and for the retailers right now.
But is that is that affordability issue is that are you seeing any indication that is hurting the carhop customer more than it is at the franchise level customer I would say I would say so for sure. Once you Tony Yes, absolutely basically where remember that car shop.
With someone and I'm talking about in the UK, we're talking 12 to 15000 pounds and in the U S. We're looking at a car being sold between 2020 three well obviously the revenue per unit has gone up.
<unk> as we look at the business right now and Thats, just taking some people out of the market and I'll always say with our acquisition cost is squeezing our margin too at the same time and in the U K, obviously, there they're looking at buying that have 6000 cars in inventory and turning it about.
<unk> 32, or 33 days, but the margin has really been impacted because of the overall cost of sale.
Yes, I hear you there.
I guess on <unk>.
SG&A going back to the earlier discussion.
Is there any more you can take out without reducing head count.
Well look there is always more that we can take out I mean, I think that when we.
Think about people traveling now we want our people out we run this business with zoom and some of these other things for the last 12 months to 18 months and our people want to get out we want them to we think training is important a lot of the things we're doing with the Oems and that's going to continue to grow from our standpoint, I said theres certainly wage pressure.
Yours with inflation right now people are living in a different environment silver or having additional costs there and certainly when you look at our company vehicles you look at the cost of fuel costs, just I don't know how many I forget how many loaner cars, we have with several thousand and providing those to our customers. So these costs will continue.
To go up on the other hand, we're going to be looking for ways through.
Certainly true.
Our technology, it will be able to reduce costs time time to customer and other things that we're doing it will reduce our overall margin our overall cost as we do business across whether it's new used.
Parts and service and I think we can do that right now the customer on service doesn't even have to come in the shop and we got to a point where it makes this an appointment online you drops just kharafi pays online and either we can deliver it and so these are things that will take less people and we'll be more efficient in our shops and I think the training that we've been able.
To do from the standpoint of our parts and service has made a big difference and our commitment and technology and body shops, where we're doing a lot of we'll work now, which we hadn't been doing before across all way.
Hi, the German brands, where quite honestly, there really piling in and in the UK, but made a big difference as far as margin.
David This is Tony there is also other processes that we're working on to improve automation that should help reduce some of the costs as we move forward to so you can look for that to come in the future.
Yes.
Do you think that's more of a six month story or more won't be realized for another couple of years on the automation.
Both to that I think it's I think it's happening every day, but we're also getting costs going up so remember we're in a high seventies.
Pre COVID-19.
We were at 63 in Q1, we've opened up travel and what have you. We got some higher rents that have come in.
And we're now we went from 63 to 66 I showed earlier in our conversation that we'd be looking to settle somewhere around 70% to 71%, which still has a 10% reduction in where we were before absolutely significant.
Yes, it's been really cool to see all the improvement both on cost and also on your balance sheet with the leverage ratio going down just one other quick one.
On Australia.
I'm just curious how you were able to grow <unk>, 5%, despite a 14% top line decline.
Well I think I think basically it was again as we merged the businesses. We have two businesses there before our off highway and on highway to emerge those together.
So we're using a single facilities, which has helped us from a cost perspective, and the margins that we're getting on our truck business has made a big difference even though the volume is down and I think that the mix is better and fusion of courses, where we're doing the parts and service on trucks within our own.
What I would say the <unk>.
After sale network that we had available to us for the off highway business and again the margins we're getting on when you think about right now when we look at Gen sets over 1200 kw, we probably got 50% of the market, which is really key and we continue to get <unk>.
<unk> powers, we've got about 650 trucks running in Australia, and New Zealand with a big.
<unk> 4000 engines, and we're doing a lot more re powers, which are giving us more margin, even though the truck business is down meaning the commercial truck business is down which would hurt our overall volume again parts and service will be the annuity when you think about the fixed coverage in Australia is at 160%.
And the fixed coverage in New Zealand is a 130. So we think we've got a solid business. Then you take the when you look at the $500 billion of spend that the government is going to have over the next 10 years and to think about the things that we've won there from the standpoint of our contracts on power packs on the combat combat.
Vehicles.
Sharp patrol vessels and were working on the Collins class Repower submarines. All of these things are key as we go forward and many of those you don't have a sales dollar we're getting paid on truckload just for the labor hours a week.
Provide for the government. So this might be some of the reason you see that benefit.
It will ebb and flow as we go through the rest of the year.
Okay. Thanks, a lot.
Alright, great. Thanks, Dave.
Yes.
Thank you Mr. Winston.
Our next question comes from the line of Glenn Chin with Seaport Global. Please go ahead.
Great. Thank you good afternoon folks.
Thanks, Helane Raj, Jeremy maybe Shelly given your.
Under leveraged status and the abundance of capital you have to deploy can you just fill us in on what you're seeing in the pipeline.
Just in terms of availability, even what you're seeing on valuations, whether or not they've come in at all.
And then what's your preference may be light vehicle versus commercial vehicle and then I guess further to that.
I know you've done some deals up north what you have.
Preference, maybe U S versus Canada.
Sure Glenn I can take this one.
We've acquired 1 billion nine ml.
And the trailing 12 months, it's roughly 50, 50 auto and truck and we really like it there.
Trucks are a cheaper multiple typically about 50% of the multiple and automotive dealership. They don't have the CPI or the ci requirements, but that we see on the auto side. However, we've made some really great acquisitions on the auto side.
Okay.
Valuations that are attractive to us so.
U S and Canada both of those on the truck side.
Our acquisitions have been along major highway routes, that's very important to us from a customer standpoint to be able to.
Take care of that trucker from start to finish on his Brian .
And.
And I'll, both Canada and the U S. We see a 60% gross profit related to service. So that's really important to US. We also have made quite a few acquisitions and we announced one this morning.
And that's coming out of motive and we made one earlier with BMW and plan to make the Mercedes one here before the end of Q3.
So it's really a mixed bag.
There is no script that we're not following any particular.
Disciplined only that word.
We're evaluating each opportunity as they come up and I know I sound like a broken record in pain, we're disciplined but it really has proven out for us.
Sure.
Okay and speaking of disciplined can you speak to us about what youre seeing in terms of valuations recently.
Versus last year holding up.
Let me answer that one.
And I would say if youre looking at.
At a premium luxury is German brands BMD.
BMW and Mercedes.
Porsche Audi you're looking at.
Probably eight or nine times trailing 12, EBT for goodwill plus assets would be what we see.
We've been able to make acquisitions for less than that where there are smaller and maybe not in the premium luxury side.
And Honda are very strong and to me. There are some people just are going to get out of the business. At this point I think the there is competition out there to buy these better points, but what's happening is many of us are in.
We're running into what we call framework agreements, which limit the amount of stores you can have in a particular market or were there particular brand and on top of that Youre CSI and some of the other components of customer satisfaction become a factor so that will play into it as we go forward, but right now.
The premium stuff is at a high high multiple and we're all experiencing that I don't I think we're just the only one on the other hand as we go.
To Europe , and the U K, we see that down significantly from what we're paying here.
And it has to make sense from an SG&A perspective.
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Our area markets and the acquisitions that we made have made sense. So that we're not taking on additional administrative costs, but right now.
From what we have purchased so BMW that Candido is a great example, we already have presence in that autumn on it fits really nicely into our.
Socal management group.
As well as the BMW Mercedes dealerships in the PE Holden really well to the structure that we already have there. So that is one way we will continue to reduce cost is to make acquisitions that make sense for us from a cost standpoint too.
Yes.
Yes.
Okay. Okay very good thank you.
Thanks, Glenn Thanks.
Okay.
Thank you Mr. Chen.
Our next question comes from the line of Mike Ward with benchmark. Please go ahead.
Hey, Mike. Thank you very much good afternoon, everyone.
Hey, Mike.
I'm just curious about you see some of the other dealers getting into financing.
<unk>.
It's an acquisition that you just announced this $5 billion of revenue from Mercedes stores in the U K. It seems like you have a lot of growth opportunities with your additional structure I'm. Just curious what you think about alternate businesses, whether it's captive financing or anything else that makes sense.
Got it.
Well, we've been calling ourselves a big D diversified I'm glad to see other people now are following.
Going the same route but look all of us have different reasons, we're growing our business and our peer group and look.
My head off to them, but I've talked to our board over the last five or six years. Many many times we've looked at it but we just don't think at this time that our captive finance company really makes sense for us because when you look at our brand mix, 70% of it is premium and in the premium side leasing is a big factor of that.
That along with certified and when you look at it.
A third or fourth of our business is in the U K and when we look at it from the standpoint of.
Our car shop business, we're doing well.
We'll do 12% to 12% to 20000 units over the next say 12 months in that business. We just don't have enough volume and when you look at the average length of the customer financing, it's probably 72 months and the credit scores, probably below 700, and today with delinquencies going up on retail.
Across all other markets I Wonder and then you've got a you're going to blow up your balance sheet and on top of that youre going to youre going to have to take that and sell it into the market securitize. It and I think today that people that buy that are going to say is this really what we want to buy 72 months or 16 months paper from the standpoint in the car business where the.
<unk>, we've had on used car prices, so not that we won't ever get into it. We think it's about idea right now we don't think that glove fits our hand.
Okay that makes sense.
Charlie can you talk a little bit about the cadence of expected dividends from PPL I think it was $105 million is that what it was in the second quarter.
Yes, so we received $105 million, so that related to our Q4 and our Q1 of 2022.
Earnings and so it's.
50% dividend policy.
No.
We can just follow that cadence and will receive additional dividends in August and November .
August and November Super Thanks, very much.
Yes.
Thanks, Mike Thank you Ms Sue thank.
Thank you Mr. Wang.
Again to ask a question. Please press star followed by one on your telephone keypad.
Currently there are no questions waiting at this time I would like to pass the conference back to Mr. Penske for any final comments.
Thank you thanks, everyone for joining us and we'll see at the end of next quarter have a good day bye bye.
Okay.
That concludes today's conference call I Hope you all enjoy the rest of your day.
Okay.
Yes.