Q4 2022 Penske Automotive Group Inc Earnings Call
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Good afternoon, welcome to the Penske automotive group fourth quarter 'twenty to 'twenty two earnings conference call.
Today's call is being recorded and will be available for replay approximately one hour. After completion through February 15th 2022 on the company's website under the investors tab at Www Dot Penske automotive dotcom.
I will now introduce Anthony Borden, the company's executive Vice President of Investor Relations and corporate development. Sir. Please go ahead.
Thank you Alan and good afternoon, everyone and thank you for joining us today.
A press release detailing Penske automotive group's record fourth quarter and record full year 2022 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 email or by phone for any follow up questions. You may have joining me.
For today's call are Roger Penske, our chair and Chief Executive Officer, Shelley haul grave, EVP, and Chief Financial Officer, and Tony for Chinese 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 our assessment of business conditions. We may also discuss certain non-GAAP financial measures such as earnings before interest taxes, depreciation and amortization or EBITDA, our leverage ratio and free cash flow. We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures in this morning's press release.
An 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, and previously filed Form 10-Qs.
For additional discussion and factors that could cause results to differ materially at this time I'll turn the call over to Roger Alright. Thank you Tony Good afternoon, everyone and thank you for joining US today 2022 was a record year for pag.
Given by our diversification currently our premium brand mix and our capital allocation.
During 2022, we increased our revenue by 9% car.
Most 28 billion, we increased our earnings before taxes, 16% or $1 9 billion, we increased our income from continuing operations by 16% to $1 4 billion and we agree.
Grew our earnings per share.
Like 25% to $18.55.
We completed acquisitions, representing approximately one 3 billion in expected annualized revenue.
And during the year, we repurchased eight 2 million shares or 11% of our shares outstanding at the beginning of the year.
We returned 1 billion to shareholders through dividends and stock repurchases.
Now, let me turn to the fourth quarter and I'm pleased to report.
Record revenue and earnings per share, which was driven by our diversified business model.
Revenue increased 11% to $7 billion.
Earnings per share increased 6% to $4 in 'twenty one.
Excluding FX revenue increased 17%.
Seven 4 billion and earnings per share increased 8%.
$4 30.
Again during the fourth quarter, we repurchased approximately two 5 million shares.
For 284 million looking.
Looking at our retail automotive operations and this is on a same store basis Q4 'twenty to <unk>.
Q4 'twenty one.
Our new units increased 11%.
Demand for new vehicles remained strong and vehicle availability is improving however, we do expect supply constraints remain during <unk>.
2023 for most of the brands in the premium side.
We represent.
We continue to take forward order in fact.
And do you care for the order bank is 30% to 23% higher than it was at the same time last year, representing 31800 units or 100 million pounds of forward gross profit.
Used units declined 4% largely due to the challenges that are enquiring affordable inventory.
To meet our customer expectations.
Retail automotive revenue increased 4%, however, excluding FX revenue increased.
10%.
Variable gross profit remains strong and higher than historical levels when compared to Q4 last year variable gross profit declined 11% to $740. However, excluding FX variable gross already declined 7%.
If you really look at that on a sequential basis, excluding FX variable gross profit per unit already declined $33.
Our service and parts revenue increased 6%, however, when excluding FX service and parts revenue increased 11% driven by increases in customer pay warranty and our collision repair business.
Looking at car shop during 2022 car shop unit sales increased 12% to.
71242 units revenue increased 16% to one 7 billion. However.
Our variable gross profit per unit declined 19%.
One is vehicle acquisition prices.
Our reconditioning costs and law.
It just takes continue to impact customer affordability and certainly our profitability with continued focus on vehicle sourcing and cost improvement programs to improve car shop profitability car.
Car shop sell.
Also our 73% of inventory in the U S, but only 37% in the U K.
Let me now turning to our retail truck business as you know our Premier truck dealership business represents 39 locations in North America.
And then a very important part of our diversification in 2022. This business generated $3 5 billion in revenue and contributed $215 million in earnings before taxes and had a return on sales.
A 6%.
No commercial truck demand remains very solid and is being driven by replacement demand associated with supply constraints over the last several years.
During the fourth quarter, our unit sales increased 28%.
5700 for same store unit sales increased 22% to 5287 units.
We outperformed the class a market in the fourth quarter growing our sales by 36% compared to the market, which increased 30%.
Total revenue increased 40% to $1 billion and gross profit increased 16% to $138 million, our same store revenue increased 33%, including a 16% increase.
And our service and parts business serves.
Service and parts represented 65%.
Of our total gross profit and covered.
128% of our fixed cost.
EBITDA increased 14% in the quarter to $51 million and approximately 75% of our new unit sales are class eight commercial trucks in fact, when I look at 2023, our entire allocation is sold out.
The class a truck market remained strong with retail space of over 309000 units in 2022.
And as we look at the forecast for North American sales for 2023, it's 294000 and the backlog today sits at 244000 units where it represents.
10 months of sales.
Turning to Penske transportation solutions, our leasing rattler logistics business P. J P. E. G owns 28% of Pts, which provides us with equity income.
Cash distributions and cash tax savings.
TTS currently manages a fleet of over 414000 units.
And the goal is increasing it to 500000 by 2025 P.
<unk> produced a record fourth quarter revenue increased 13% to $3 3 billion on the strength of its long term contracts and commercial revenue.
<unk> increased 9%.
To a record of $344 million as a result, our fourth quarter equity earnings increased 9%.
For $99 4 million and year to date, we have received $357 million in cash distributions for the entire year P. T. S earnings before taxes were $1 7 billion.
We expect the current business environment for lease car.
Maintenance or commercial rental and logistics to remain strong in 2023, as we expect to continue increasing the size of our Pts fleet now let me turn the call over to Shelly haul grave, our Chief Financial Officer Shelley.
Thank you Roger Good afternoon, everyone as Roger indicated we had another strong quarter driven by our diversification and our commitment to maintain operational efficiencies achieved through cost reductions beginning in 2020, as well as automation and other efficiencies gained through AI.
G&A to gross profit was 68, 9% in the fourth quarter compared to 67, 1% in the fourth quarter last year and remains 1020 basis points below the fourth quarter of 2019 prior to the pandemic.
As we look to the future we expect the ratio of SG&A to gross profit to be in the low seventies.
Year to date, we generated $2 $1 billion and EBITDA, representing an increase of 14% when compared to the same period of last year.
Cash flow from operations was $1 $5 billion and our free cash flow was approximately $1 3 billion after deducting net capital expenditures.
In 2022, we completed acquisitions of new open points, representing approximately $1 $3 billion in annual revenue consisting of 19 retail automotive franchises to open point and for commercial truck dealerships.
For the full year, we repurchased $8 2 million shares of stock for 887 million, which represents 11% of the shares that were outstanding at the beginning of 2022.
In addition to share repurchases, we returned 154 million in dividends to our shareholders and most recently increased the dividend by 7% to 61 cents per share, reflecting our strong fourth quarter performance.
In total we returned 1.04 billion to shareholders, representing 75% of our net income.
In 2022, we spent 228 million of net Capex and an additional 42 million on land acquisitions for future growth.
As you can see our capital allocation strategy includes disciplined acquisition.
Investments for future growth and shareholder return.
Total inventory was $3 5 billion, which is approximately 400 million higher than December 31st 2021.
Floorplan debt increased 442 million and is that $3 billion.
We had a 25 day supply of new vehicles, including 18 days in the U S and 37 days in the U K.
Days supply of new vehicles for premium was 28 and volume foreign was 13.
Used vehicle inventory had a 53 days supply.
At the end of December our long term debt was $1 $6 billion, representing an increase of 148 million when compared to December 31st of last year.
35% of our debt is fixed the average interest rate on our total fixed rate debt is three 8%, which we have secured for an average remaining term of five seven years.
Debt to total capitalization was 28% and leverage sits at 0.8 acts at the end of December .
We have the ability to flex our leverage took four acts, leaving us plenty of opportunity to grow our business through acquisitions and to continue returning capital to shareholders.
In conclusion, our balance sheet is in great shape at December 31st we had $107 million in cash and over $1 1 billion in liquidity and we remain confident in our ability to manage through any macro challenges that may lie ahead. At this time I will turn the call back over to Roger Schrum.
Thanks.
We're committed to implementing.
Operational efficiency, which we believe will lead to lower cost structure as we go forward.
One of our key officially.
Initiatives is leveraging artificial intelligence, we continue to test and implement AI solutions on both the service and sales side of our business.
It allows us to automate tasks like answering customer inquiries and selling service and sales appointment.
That allows our employees to be more efficient provides quality support after hours.
In the fourth quarter 37000.
Our online service appointments and the U S were created using AI.
Total online BDC appointments increased 10% to over 520000.
We continued to integrate digital solutions to automate and streamline processes to ensure consistency our compliance and quality control.
Pursuing digital sales through our preferred purchase program.
Digital programs in our proprietary websites in the U K and.
In Q4 digital sales represented 5% of our total unit sales. We also focus on reputation management and we're proud to congratulate.
126 of our dealerships were being recognized as top dealers by car facts.
I'd like to talk about some management changes that's happened just recently as of the effective January 1st of this year, Greg Penske has been named Vice Chairman of the Board, Greg Pesky brings extensive automotive retail industry experience as relationships are the key automotive partners and has familiarity with all of the companies.
Operations.
Rich sharing formerly the president of Premier truck will oversee Penske automotive group's north American operations, including its automotive and commercial truck dealerships.
<unk> seen more formerly executive Vice President Global operations for commercial trucks in power systems will oversee Penske automotive groups International operations in the U K, Europe , Japan and Australia.
These new roles will work in tandem with both with me and Rob Kearney car, President and our executive leadership team while building further depth to ensure that we have the best leadership in place to remain a leading transportation service company in the world.
In closing our results continue to demonstrate the benefit of our diversification across the retail automotive and commercial truck industry, our cost control and a disciplined capital allocation strategy.
We remain confident that our business model, thanks for joining us today and I'll turn it over to the operator.
Thank you ladies and gentlemen, if you do have questions. Please press one then zero on your touch don't phone.
You'll hear an indication you've been placed into queue and you may remove yourself from the queue by repeating the one zero command.
If you're using a speaker phone we ask you to please pick up your handset and make certain your phone is on mute it before pressing any buttons.
Again for questions Press, one then zero at this time.
Well first go to the line of Daniel <unk> with Stephens, Inc. Go ahead. Please.
Roger Kelly and team congrats on the quarter and congrats to everybody on the promotions.
Thanks, Dan I wanted to start on the demand side, you know new vehicle demand is clearly hung in there on the automotive side. Despite price increases rate increases you know what I think of a volatile backdrop. So can you discuss what you're seeing from your core customer today and how do you think consumer demand shapes up as you progress through this year.
On the automotive side.
Well, let's talk about our business.
Which obviously diversified the point number one is.
On the vehicle side, where premium luxury so we see the demand on new vehicles, consistent and strong and we're turning our inventory very quickly as we talked about earlier here today at our pre salt inventory both in the U S is 40% to 50% and I mentioned earlier in my remarks at a 23%.
Forward sold orders that's up from last year of almost of over $100 billion 1 million pounds is certainly positive for us as we go into this first and second quarter I think that lease penetration is down significantly.
Due to certainly when we look at our risk.
Reschedule support and also some of the support we get from the finance companies and when you look at it in real numbers, 55% of our.
Premium was leasing prior to maybe the last 12 months to 18 months and our overall from a Penske perspective was 34% were down to 11. So we really haven't seen the premium Oems get back into the market at this point and I think at this at this time, we're gonna have to wait and see but those customers are stickier with what those used car.
Cars coming back so to me that's going to be something we will look at it as we go forward, but I think the premium customer right now afforded barely hasn't hit them, obviously, even with the higher interest rates, but whats driving our margins and our success again.
Italy is supply and when you think about what we're getting they are building the best cars. They have with the highest margins for not only the factory the OEM, but also for us and I think that our growth.
<unk> continues to be strong and I think when you look at our inventory it's way below our historical levels, which you can see that based on looking at our numbers. When you even think about Toyota and the volume foreign is only six days, so again low inventories.
Oems building the right product for us in the premium side, I think bodes well for us as we look over the next couple of quarters.
Great and then I wanted to shift over to the SG&A side, you know if if but what you. Just said you know new GPU is going to stay stronger how are you and the team thinking about maybe SG&A margin as a percent of gross for 2023 are they're still operational changes I think at the end of your comments you talked about AI and some smarter task automation can you help quantify what the percent.
Cost savings are so.
Any help kind of thinking about the outlook on expenses there. Thanks, well, let's look at SG&A when you look at the fourth quarter.
Our SG&A went up.
Probably 100 basis points from before and really that was indicated really do from the standpoint that we had more compensation in the UK from the standpoint of our people we had at one time.
For cost of living which hurt us and most likely an impact here in the U S was the fact that our water car vehicle maintenance was up significantly.
Significantly due to the fact that we have more loaner car here in our fleet and we can't turn them today as we did in the past because we don't have the availability. So I think those are the points that were key for us on SG&A as far as the lift now when I go forward.
And we look at it I think we've got to look at really look at two components number one what's the growth from the standpoint of our growth and I think we're looking today. We were 3200 in 2019, we were 60 702022 and I looked at the numbers for January and we were at 6600. So I think we've got a nice glide slope.
On a certainly on our on our growth, but to me when I look at our SG&A. If we took 2000 off the gross profit.
During the year, just as a number of our SG&A would go from roughly 69% to 72 from a gross profit standpoint, and our SG&A. So I think what we're doing is looking at how we can reduce our labor force in many cases using AI. Many of these people who were taking inbound calls can be put into other jobs.
The company or they can move on and we're seeing the customer satisfaction go up the ability to schedule work and the way we want to var seasonally and also based on the data availability has been much better plus we've got the benefit of putting filling our jobs at times and we wouldn't be able to do before and again I think that will.
US with automation will all help us in our absorption because we will get more work through our shop, which maybe will offset.
Lower margins with higher unit sales, but also higher parts and service gross profit.
Great I appreciate all the color and best of luck going forward.
Thank you.
Okay.
Our next question, we'll go to John Murphy with Bank of America. Your line is open go ahead.
Good afternoon, Roger and team.
Just a reference to a first question on slide 15.
Slides around the dinner also pretty helpful. But if we focus on on this one.
You can clearly see that units in total were up 13%.
They actually trended fairly well through the course of the year.
The short supply.
And sort of the lack of availability coming from automakers can you just maybe just talk about how you were able to on the new vehicle side actually get these vehicles to drive that kind of an increase because it is far and above what we saw in the industry at large.
I think that number one we had the benefit of the U K because you know they were locked up probably had less availability in in 'twenty. One so we had a bigger lift shortly.
In the premium luxury side over there you know, we're 91% of our mix is premium luxury I would say that drove quite a bit of it and again, we are running with very very low day supply.
To me that was probably when you look at the mix between U S and internationally I'd, probably helped that number.
Okay. That's helpful and may be staying over in the UK for a second I mean the.
Car shop, UK self sourcing and 37% is far lower than what Youre doing.
In the U S. So I'm just curious is there an opportunity over there to over time or is there something structurally in that market is going to keep that.
You have that much lower than what we'd see in the 70% to 80%.
Range and in the U S.
While we've made a we made a structural change John you talked about efficiencies in the business is talking to each other.
In Europe .
The Oems do not like you to have non OEM vehicles on the lot is used so if I'm a porsche dealer they don't want to see if we're savings been so what we've done is taken all the non vehicles.
In each dealership, which are not proprietary and what we're doing there, we're putting them onto sitting here and giving those vehicles. The car shop, because it's made a big difference. We're looking somewhere between 215 400 cars, a week, which will help us build that shelf.
Purchase vehicles from us rather than having to go out into the auctions and I think that.
At the moment most of the fleets are selling their cars themselves. So we don't have the opportunity to pick those up as we normally when we have these bigger buys and basically when you look at the <unk>.
We used to buy three or four or 500, maybe even 600 cars at a time from the Oems are now they don't have the goodbye. So we're somewhat restructuring that which is going to help our margin also help our availability and we had a we had a very good months. We did over 5000 new units in the month of January was a good margin. So I think we're starting to see.
A pickup in margin and also the internal process for giving us the fleet, we need to sell.
Okay and then just that's helpful. And then just just lastly for you or Shelley you mean.
Whether you're a bull or bear.
<unk> estimates for 2023, Youre still going to have the high class problem of reallocating a significant amount of free cash flow.
So if we look at what happened in <unk>.
In 2022, it was kind of.
Spread across buybacks acquisitions, and obviously the dividend as we think about.
What your priorities are in 2023 could you just kind of remind us or even give us a fresh view, where you think the excess cash will go.
Sure John I can take that so we had about $1 $5 billion in cash flow from operations. Yeah. We've talked before we typically start with about a 50 50 split of return to shareholders versus crowds.
That was certainly slanted a bet more two thirds returned to shareholders. This year a third in.
In growth, but that was not insignificant by any means so.
No.
From a growth standpoint, we typically target you know, 5% growth through acquisitions, and 5% growth organically when you exclude FX, we certainly got there over the year.
So we're happy from that standpoint, the Piggy bank was just of that larger and so you know given the prices of our acquisition and the multiples compared to where our multiple in the market. You know we took a very proactive stance on share repurchases.
Shareholder return, so that was about $1 billion of that $1 $5 billion.
Especially I guess, we should assume that it remains kind of dynamic to target a 50 50, but if it's tilted towards you start being a lot cheaper than the acquisitions that that will be the direction you lean in even in 2023 is that a fair statement I think that's fair yeah.
Okay. Thank you very much guys.
So it was really seen from an acquisition standpoint, the things that we're interested in are certainly high priced at the moment. So we're going to be very selective in the one good thing about our diversification is shot all retail auto U S International plus our truck business and we have opportunities in all those areas and I think what we'll do is pick the ones that we see.
We get the best returns.
Go forward.
And there's certainly an opportunity in your stock so.
That gives you an avenue to so thank you very much guys. Thanks for the time thanks Jonathan.
As a reminder, ladies and gentlemen, if you do have questions. Please take this opportunity now to press. One then zero on your telephone keypad.
We'll go next to the line of David Whiston with Morningstar go ahead.
Good morning, Dave Hi, everyone.
I guess first just on the continuing on the acquisition topic I know I know theres opportunities. He said it all all throughout the business, which is great.
Like what variables would probably make you.
Or perhaps there aren't really any variability just how reasonable is the seller what variables would make you choose to do the deal on the truck side versus the light vehicle side or vice versa.
Well I think there's no question as we look at the truck side the multiples have been less.
Then there on the auto side point number one point number two the capex requirements I E.
<unk> furniture et cetera, we don't have that on the truck side. So to me. The capex requirements are significantly less when you were talking about typically buying.
The us dealership, so and also that if it's contiguous or we can go into a market, where we already have scale.
Have infrastructure in place that we can take out certain admin costs, which helped us and gives us the returns we want but we typically was tape in the premium luxury side here in the U S and volume foreign which is primarily tilted to our Toyota and Honda business.
Internationally.
We think that the.
91% market share we have today are our mix, we would stay in that lane from the standpoint of international and on the truck side, we're committed to Freightliner.
Across all markets and even in Australia with Western Star and we they want us to grow we have we have a framework agreement where we are.
Nowhere near the top of that.
Framework agreement from a standpoint of total market share. So I would say, we will continue to look at freightliner opportunities.
And then what about another major Truckmaker can you still do that or are you to have a contractual obligation with freightliner right now we're committed to freightliner.
Okay, and then shifting over to a light vehicle used I'm just curious when you look at say at the franchise stores used vehicle customer versus the car shop customer.
I think affordability is probably an issue in both channels, but are you seeing perhaps the franchise customers, perhaps a bit wealthier and not as hit by the affordability issue or is it just really bad across the board.
Well I guess affordability for sure in the car shop model, I think or four to five to $6000 more than that typical customer was paying 12 months to 18 months ago. So that's had some limiting factor for us to be able to source vehicles recondition them pay for logistics and b it would be market share.
Yeah on the price for the customer so putting that aside I go to the OEM business and we've been had a luxury over the years number one because of the leasing penetration we've had a lot of lease cars coming back that we bought from the Oems feel that are filled our leasing and used car opportunities across the premium brands.
And also within that mix as our loaner cars today, we have 6000 loaner cars in our premium luxury fleets today. If you go back the last year or so we would turn nodes, probably every 60 or 90 days and today, we're turning those six to nine months. So basically when you look at that.
Limiting us maybe at a 10 to 12000 units for the premium side. So we're not going to struggle, but I would say this that we want that young used car. It's a good lease car. It's a good way to get people into the brand and of course as we grow this and grocery our parts and service business. So I think those are dynamics, we're looking at today.
Right and just the last question.
I know basically you don't have any forward representation now, but in the future would you be interested in one of their model E stores with the direct to consumer type approach.
No inventory really really really haven't looked at that I think that the mix that we have today on the premium luxury side volume foreign probably is the direction I wouldn't say that we wouldn't take a look at it these are going to be opportunities as they have maybe truck dealerships and other things that become separate franchise youre starting to see that kind of noise in them.
Marketplace. We certainly would look at is there an opportunity for us we do have a ford parts distribution business as part of Pag that operates out of Tulsa, Oklahoma, which is our parts operation, which has been very successful for us with Ford.
Okay. Thank you very much.
We have a question in queue from the line of Rajat Gupta with JP Morgan go ahead.
Alright, great. Thanks for taking the questions.
Just the.
First question on the on PPL.
Pretty strong quarter here in the fourth quarter.
Can you help us think about 2023.
Maybe you won't come on year over year standpoint.
Any parts of the business.
When do you expect to get worse or better in 2020.
How should we think about revenue picture there.
Maybe.
On the on the expense side.
Things like wage inflation I know you mentioned some of the debt refinancing.
And then maybe the gain on sale I should think about all those buckets for 2023.
But did you all.
Any color or guidance, there would be helpful and a quick follow up.
Okay. Let me let me take a shot at these I think number one when you talk about gain on sale, we had $500 million and gain on sale in 2022 that was about 22000 units. Our forecast for 2023 is 27000, you know obviously because of the mix, we will have a lower gain on sale.
Good news is that we did 3200 units in January and we had $50 million again, now I wouldn't write that down and straight line it but at least shows that the market is still there for our used vehicles that are coming out, but I think we will have a deterioration on the.
Gain on sale, probably somewhere around 100 million. If we look at it today, just looking out in pricing and mix as we go into the rest of the year.
Looking at interest cost.
I think I've talked about that before we did a bond here 750 million here in the last 10 days. It was 400 basis points higher than we had two years ago for the same $750 million. So we're probably going to see a 100 million more of interest cost it will have to our financing and our bond portfolio, we are investment grade but.
Where we're.
Knowing where the market at this point from an overall standpoint in our maintenance cost will be up for one reason because we're growing the business, but also because we have 71000 units on order and many of these units are replacement used for customers and many of those units are running high mileage and we need to get them out of the fleet. So we're gonna.
The opportunity hopefully to get them out here as we go forward, but I think it's important that we also look at maintaining our employee and our employee base. There is pressure on mechanics on wages, certainly and in hours of working so well also drive some higher costs, but overall, we've got a very strong business.
Into next year with the growth in our truck leasing or contract maintenance and when I look at our utilization of our truck business and rental side in Pts if you looked at January we were at 86% on our tractors you remember we have 70000 units and read every day, 86% of our.
Tractors around on rental.
82% of our mid range and when you think about that because of the size of our fleet. The quality of our fleet I think that we have those customers coming to us and because of the size of our leasing fleet, 50% of the revenue we get in and rental comes from our lease customers. So again.
The number of units on order the <unk> thousand we expect those to commence so we'll have more gain on sale opportunity on the other hand will help drive some maintenance costs down, but I still think we'll see some creep on maintenance during the year.
Got it got it.
That's helpful.
On parts and services.
How are you thinking about growth in that segment.
No.
Mid single digit plus range in the fourth quarter.
I believe the U S was more like 19%.
Do you expect that they were trying to continue here into 2023, maybe if you could help us across the different buckets like warranty customer pay our body shop any color there would be helpful.
I think we're seeing a catch up by miles driven you remember we've had people sitting with their cars and people not working not going into work now where <unk> come in for three days. So we're gonna see more demand, but when you look at our parts and service growth.
After excluding FX, we were up 11%.
Certainly in the fourth quarter, we see that continuing its been very strong in the U. K also so we expect a nice increase as we go forward in Q1 and Q2 at least as far as we can see right now and again, it's going to be labor rate efficiency that we get from our standpoint, our MLR effective labor rate, we've been able to.
To increase that across the board in all of our locations really generally not only internationally, but also domestically about $7 last year, and we would expect less discounts and hopefully grow that ALR effective labor rate that we charge the customer which will drive more gross profit body shop business is up.
<unk> was down but now we're starting to see warranty creep back up again and I can't tell you exactly why but we're seeing some spike in warranty.
Got it great. Thanks for all the color alright.
Alright, thanks for that.
We have no further questions in queue and with that I'll turn it back over to Mr. Penske.
Alright, Thank you and welcome everybody coming to our call today, and we will say at the end of next quarter all of Us Bye bye.
Ladies and gentlemen that will conclude your conference call for today. Thank you for your participation and for using AT&T event Teleconferencing you may now disconnect.