Q1 2025 Penske Automotive Group Inc Earnings Call
Yes.
Speaker Change: Good afternoon, welcome to the Penske Automotive group first quarter 'twenty five earnings conference call.
Speaker Change: Today's call is being recorded and will be available for replay approximately one hour. After completion through may seven 2025 on the company's website under the investors tab at Www Dot Penske automotive dotcom.
Tony: I'll now introduce Tony reported the company's executive Vice President of Investor Relations and corporate development Sir.
Speaker Change: Please go ahead.
Tony: Thank you Julian and good afternoon, everyone and thank you for joining us today.
Tony: A press release detailing Penske automotive group's first quarter 2025 financial results was issued this morning and is posted on our website along with the presentation designed to assist you in understanding the company results.
Tony: As always I'm available by email or phone for any follow up questions. You may have joined.
Speaker Change: Joining me for today's call are Roger Penske Chair, and CEO, Shelly Oh, great EVP, and Chief Financial Officer, Rich sharing North American operations Randall C more international operations.
Tony: Tony for Chinese Vice President and corporate controller.
Tony: Our discussion today may include forward looking statements about our operations earnings potential outlook acquisitions future events growth plans liquidity and assessment of business conditions. We may also discuss certain non-GAAP financial measures as defined under SEC rules such as adjusted.
Tony: Not earnings before taxes, adjusted net income adjusted earnings per share adjusted selling general and administrative expenses.
Tony: Earnings before interest taxes, depreciation and amortization or EBITDA, and adjusted EBITDA and our leverage ratio. We've prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures to their most directly comparable GAAP measures in this morning's press release and Investor presentation.
Tony: Both of which are available on our website.
Tony: Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward looking statements 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 future results to differ materially from that.
Tony: Expectations.
Tony: I will now turn the call over to Roger Thank you Tony and good afternoon, everyone and thank you for joining US today I am pleased with the results of our first quarter <unk>.
Tony: <unk> International Transportation service business generated record first quarter revenue the seven consecutive quarter of stable gross margin.
Tony: The 70 basis point improvement of adjusted selling general and administrative expenses as a percentage of gross profit when compared to the first quarter of last year during the quarter revenue increased 2%.
Tony: So a record of $7 6 billion.
Tony: Same store retail automotive revenue also increased 2%.
Tony: While related gross profit was up 3%.
Tony: Same store retail automotive service and parts revenue increased 4%.
Tony: The related gross profit was up 6%.
Tony: Service and parts gross margin increased.
Tony: 60 basis points to 58, 6%.
Our business generated $337 million in earnings before taxes.
$244 million and net income and.
And earnings per share of $3.66.
Tony: H, which increased by 14%.
Tony: On an adjusted basis earnings before taxes increased 5% to $310 million and net income increased 5% to $226 million.
Tony: And our earnings per share increased 6% to $3 39.
Tony: As I look at the automotive and commercial truck markets. The current environment remains very fluid we.
Tony: We believe the administration is encouraging companies and individual countries to come to the table to discuss their plans were.
Tony: We remain in close contact with our OEM partners.
Tony: Many Oems who announced their intent to hold current prices while tariff negotiations continue.
Tony: And we believe most brands are evaluating their individual geographic footprint, including production capacity model mix suppliers vehicle content among others as.
Tony: As we look to the future the diversification of pag will be a key differentiator.
Tony: The diversification provided by our premium brand mix, our president and international automotive markets.
Tony: Our retail commercial truck dealerships.
Tony: And our investment in Penske transportation solutions, coupled with our highly variable cost structure.
Tony: But the opportunities you have flex our businesses to meet.
Tony: The changing landscape.
Tony: Proximately, 59% of our revenue.
Tony: Is generated in North America, 31% in the UK.
Tony: At 9% and other international markets.
Tony: Our profitability is also diversified with 64% of our earnings in 2024 coming from our automotive retail operations and 36%.
Tony: From a non automotive operations as we generate that profit everybody across multiple sources.
Tony: Such as new use service and parts and finance and insurance in fact on a 26% of our total gross profit in 2024 was generated from new vehicle sales.
Tony: So now, let's turn our attention to a few additional details of our first quarter results.
Tony: During the first quarter, we delivered 120000, new and used automotive units and over 4700 commercial trucks.
Tony: Automotive units delivered increased 6%.
Tony: And 8% on a same store basis.
Tony: Used automotive units declined 16% and 11% on a same store basis than.
Tony: The decline is associated with our realignment.
Tony: Of our UK used all the dealerships.
Tony: The sitting there select which took place in the last half of 2024.
Tony: We sold or closed four locations realigning the cost base.
Tony: The focus to retailing purely share units at.
Tony: At higher margin.
Tony: Excluding the performance of certain of our select in both periods used unit delivered OLED decreased.
Tony: 1% in total on a same store basis.
Tony: Average transaction price increased 4%.
Tony: $59202.
Tony: Our average used vehicle transit.
Tony: <unk> price increased 12%.
Tony: $37624 <unk>.
Tony: No news vehicle gross profit per unit retailed remained strong.
Tony: Vehicle growth was 5059 down <unk> $87 when compared to.
Tony: For the fourth quarter of last year.
Tony: Used vehicle gross increased $352 per unit when compared to the fourth quarter of 2024, largely due to our efforts was sitting there select and the overall improvement in used vehicle inventory management.
Tony: Variable vehicle profit, which includes new used and F&I was $5281 per unit, representing a 38 dollar unit decline when compared to the fourth quarter of last year and the quarter service and parts revenue increased 6% to seven.
Tony: <unk> hundred $89 million, including a 4% on a same store basis with customer pay up 1% and were already up 17 or it continues to be driven by recall activity across several brands.
Tony: <unk> in the U S automotive business increased 310 basis points.
Tony: The 87, 1%.
Tony: 117, 5% for our North American retail commercial truck business.
Tony: As we look to continue growing this important part of our business. We have increased our technician headcount by 5% since March of 2024 and.
Tony: And the effective labor rate increased 5% in the U S and 6% in the UK.
Tony: Lastly, I remain pleased with our efforts to control costs.
Tony: On an adjusted basis.
Tony: Our SG&A to gross profit declined by 70 basis points to 70.0 and compared to the first quarter last year and declined by 30 basis points sequentially when compared to the fourth quarter of 2024.
Rich: Now, let me turn the call over to rich sharing discuss our North American operations.
Speaker Change: You Roger and good afternoon, everyone and our retail U S retail automotive operations, we experienced a rise in traffic, especially near the end of March for the quarter U S. New units increased 8% while used units increased 2% during the quarter, 29% of the new units sold in the U S. We're at MSRP.
Speaker Change: Leasing in the U S increased to 33% on new vehicles retailed up from 32% in Q1 last year and leasing on our premium brands is in the mid 40% range compared to the mid 50% in 2019 prior to Covid.
Speaker Change: We sold 2800, new vehicles in the U S. During the quarter, representing approximately eight 5% of new vehicle sales.
Speaker Change: Our USDA supply for beds is vastly improved at 56 days compared to 76 days at the end of December at 87 days in March last year.
Speaker Change: Although we have done a great job working with our OEM partners to manage inventory to more closely align with consumer demand. The majority of that unit is still require significant discounting the average discount on Bev from MSRP was over 7400 during Q1 compared to <unk> 6300, Q1 last year.
Speaker Change: In our automotive business service and parts same store revenue increased 6% during Q1 and same store gross profit increased 8%.
Speaker Change: Turning to our retail commercial truck business, we operate 45 locations and remain one of the largest commercial truck retailers for Daimler trucks North America.
Speaker Change: The retail truck business is one of the core pillars of our diversified model and represented 11% of revenue and gross profit.
Speaker Change: We believe class eight commercial truck demand will continue to be driven primarily by replacement purchases in 2025, rather than fleet growth.
Speaker Change: Premier trucks sold for 714 units in Q1, which was up 4% when compared to Q1 last year and new units increased 7%, but declined 2%.
Speaker Change: On a same store basis.
Speaker Change: This compares favorably to the 12% decline in the North American class eight market in Q1, as the strength of our customer mix and the strength of the Freightliner Western Star brands outperformed.
Speaker Change: As of the end of March the current industry backlog was 132000 units or approximately six months of sales down from 163000 units in March last year.
Speaker Change: Units declined 7%, including 9% on a same store basis. However used gross profit more than doubled to 7541 from 3187.
Speaker Change: Revenue was $824 million and EBT was $45 million for the quarter for a return on sales of five 5%.
Speaker Change: Jim store SG&A to gross profit was 63, 1% and fixed absorption was 117, 5% looking.
Speaker Change: Looking to the future Freightliner is committed to a minimal price increase related to tariffs initially a tariff surcharge of 3000 heavy duty and 500 on medium duty trucks will be applied any customer who places an order prior to the end of May for production by the end of October we will see a not to exceed maximum tariff of 35.
Speaker Change: <unk> hundred dollars tariffs on future orders beyond this point are not known at this time.
Speaker Change: Further the potential truck pre buys for 2027 emission changes will be dependent on the outcome of the current EPA review of the waivers granted to certain states.
Speaker Change: Turning to Penske transportation solutions. During Q1 operating revenue was flat at $2 7 billion full service revenue and contract business increased 5% logistics revenue decreased 1% and rental revenue declined 10% as the freight recession continues to impact the number of units on rent and our overall rental.
Speaker Change: Elevation.
Speaker Change: During the quarter, Pts sold over 11000 units and ended the quarter with 428000 units down from 435000 at the end of December last year.
Speaker Change: Pts earnings were up $3 million when compared to the first quarter last year and our share was $33 2 million up 2% from $32 5 million in the first quarter last year I would now like to turn the call over to Randall C. Mark to discuss our international operations. Thank you rich and good afternoon, everyone. As a reminder.
Speaker Change: We operate retail automotive dealerships in the UK, Germany, Italy, Japan, and Australia, and our commercial vehicle and power systems business in Australia, and New Zealand are.
Speaker Change: Our international operations represents approximately 40% of <unk> revenue.
Speaker Change: Looking at the UK retail automotive market, new new vehicle market registrations increased 6% compared to Q1 last year, we outperformed the market as same store new units delivered in Q1 increased by 9%.
Speaker Change: New vehicle gross per unit remained resilient declining only $138 per unit on a sequential basis when compared to the fourth quarter last year.
Speaker Change: Same store used units declined 22% as a result of the transition of the UK car shop to sit in a select and the closure and sale of four locations exclude.
Speaker Change: Excluding sidner select same store used unit sales in the U K would have only decreased by 2%.
Speaker Change: However used vehicle same store gross increased by $589 per unit when compared to the fourth quarter of 2024 as a result of improved vehicle inventory management.
Speaker Change: Service and parts same store revenue increased 2% and gross and gross profit increased by 3%.
Speaker Change: Turning to Australia as you May recall last year, we acquired three Porsche dealerships in Melbourne.
Speaker Change: During the first quarter. These dealerships retailed 540, new and used units and generated $60 million in revenue.
Speaker Change: We remain very pleased with our progress in the commercial vehicle and power system business in Australia as well serviced.
Speaker Change: Service and parts represented approximately 61% of our total gross profits. So our focus on increasing units in operation is a key driver of the business.
Speaker Change: In the on highway market during the first quarter, we gained 150 basis points of market share.
Speaker Change: The off highway sector revenue and margin were driven by strong energy solutions demand, we have a $300 million backlog for 2025 delivery an order bank of over $600 million predominantly related to growth from the large data center and battery energy storage solution businesses, we continue to maintain market.
Speaker Change: Leadership in the high horsepower power generation segment with over 55% share.
Speaker Change: I would now like to turn the call over to Shelly old Raved to review, our cash flow balance sheet and capital allocation.
Speaker Change: Thank you Randall and good afternoon, everyone. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize capital allocation as.
Speaker Change: As you know we follow an opportunistic approach, providing us with the ability to grow our business through acquisitions and return capital to shareholders through dividends and securities repurchases.
We strongly believe that the strength of our balance sheet strong cash flow and disciplined approach to capital allocation and our diversification.
Speaker Change: I'll provide benefits as we work with our customers and partners in an uncertain environment.
Speaker Change: During Q1, we generated $283 million in cash flow from operations, and our EBITDA was $400 million or $372 million on an adjusted basis.
Speaker Change: On a trailing 12 month basis EBITDA was over $1 5 billion.
Speaker Change: Our free cash flow, which is cash flow from operations after deducting capital expenditures was $206 million.
Speaker Change: During Q1, we paid $82 million in dividends and invested 77 million in capital expenditures to improve or expand our facility.
Speaker Change: When compared to Q1 last year.
Speaker Change: Those were down $26 million.
Speaker Change: During the quarter, we repurchased 255000 shares of stock for.
For $40 million and year to date through April 25th have repurchased 750000 shares for $111 million.
Speaker Change: We expect to continue repurchasing shares on an opportunistic basis as of April 25, we have $46 million remaining under the existing securities repurchase authorization.
Speaker Change: Our dividend is $1 22 per share since the end of 2023, we have increased the dividend by 54%.
Speaker Change: Using yesterday's closing price our current yield is approximately three 1% with a payout ratio of 36%.
Speaker Change: Additionally, as we focus on strategic capital allocation, we divested one retail automotive location in Q1, which represented approximately 200 million in estimated annualized revenue.
Speaker Change: Our strong cash flow has allowed us to keep it as non vehicle debt and leverage levels.
Speaker Change: At the end of March our non vehicle long term debt was $1 77 billion down $80 million from the end of December last year.
Speaker Change: 78% of the non vehicle long term debt is at fixed rate.
Speaker Change: Debt to total capitalization was 24, 7% and leverage is one two times.
When excluding floor plan, we have $4 4 billion in variable debt.
Speaker Change: <unk>, 5% on our variable rate debt is in the U S.
Speaker Change: We estimate a 25 basis point interest rate would impact interest expense by approximately $11 million.
Speaker Change: At the end of March we had $118 million of cash and the liquidity available to us with $2 1 billion.
Speaker Change: Upon the maturity of our 550 million three 5% senior subordinated notes due in September we currently expect to either repay those notes from cash flow from operation our borrowings under our U S credit agreement or refinance those notes in whole or in part with similar notes depending.
Speaker Change: On the prevailing interest rate.
Speaker Change: Total inventory was $4 5 billion down $140 million from the end of December 2024 floor plan debt was $4 billion new.
Speaker Change: New and used inventory remains in good shape, new vehicle inventory is at a 39 days supply, including 38 days for premium in 2009 days for volume foreign.
Speaker Change: Used vehicle inventory is that a 36 day supply.
Roger: At this time I will turn the call back to Roger for some final remarks.
Speaker Change: <unk> Q1 performance was certainly strong I remain particularly pleased with the continued resilience of gross profit per vehicle retailed.
Roger: For our pharma Trevor automotive service and parts operations.
And the success, we continue to demonstrate.
Roger: With our SG&A leverage and our focus on cost controls.
Roger: I remain confident in our diversified model.
Roger: Its ability to flex with market conditions.
Roger: And we remain very pleased with the performance of our business in the first quarter operator at this time, we can open up the call for questions.
Roger: Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw any questions Press star one again.
Speaker Change: Our first question comes from John Murphy from Bank of America. Please go ahead. Your line is open.
Roger: Okay.
Speaker Change: Hey, Roger Hey, everybody.
Roger: Just a first question on the U K.
Roger: Select it sounds like it's chugging, along and you are making great progress there we've got another two quarters.
Roger: Before that anniversaries itself, but it sounds like there's some other really good work going on in the UK to.
Roger: To make the business much more efficient and profitable overtime I Wonder if you could just maybe comment and highlight some of the things that are going on there.
Jon: Randall I will give you an update on that Hey, Jon how are you doing good how are you.
Speaker Change: Yes. Good. Thank you look at the Q1, the U K total market was up 6%.
Speaker Change: Sitting here, we were up 9%. So outperformed so that was certainly pleasing, but as you mentioned the gross profit.
Speaker Change: Used cars overall was up $589, we had a record fixed months.
Speaker Change: In our after sales gross profit as well in back to both new car and used car I'd really.
Speaker Change: The King pin there is inventory management.
Speaker Change: The aging is the <unk>.
Speaker Change: Best it's been in quite some time, we're really focusing on our new car day supply by models. So what thats doing is translating in lower inventory more efficient inventory better turn on the inventory and better gross profit so really hats off to the team there and then on the expense control as well, we're really looking at.
Speaker Change: All of our demos, where our head count we've had natural attrition, where we kind of head count reduction there with some savings back to fixed gross profit our gross profit per technician was up 7%. So I think theres a lot of levers there. We're pulling that is equated to the good result in Q1 I think the best news is.
Speaker Change: It's all sustainable as we move through the rest of the year.
Speaker Change: That's very helpful. And then just a second question on parts and service results are good, particularly on the on the margin side. So it sounds like warranty really dominated I think Brian you mentioned up 17% customer pay was up only one is there a crowding out effect going on there where there's just so much warranty work its kind of tough to get to the customer paying it.
Speaker Change: And grow it.
Speaker Change: And if also you could just remind us what the tech growth. There is in door rate increases are as well in the quarter.
Speaker Change: I think I mentioned that our head count is up.
Speaker Change: By 5% average technicians driving about 30000 gross profit.
Speaker Change: For.
Speaker Change: For the month and I think when you look at customer pay it declined 3% in the U S and certainly.
Speaker Change: 17% from a from a Pts perspective.
Speaker Change: I think the most important thing to think about from our standpoint.
Speaker Change: When we look at parts and service is really the utilization of <unk> and I think rich you talked about it we talked about earlier today, we're running at about 80%.
Speaker Change: Consolidation of their base, which is critical we have a big focus on our premises coming in because we've got to build these technicians from from the bottom up which I think is key from a warranty standpoint.
Speaker Change: We've got tundra, we got Mercedes we got BMW all with big.
Speaker Change: Recalls which is driving that mix, where it is at 17% overall versus 1%.
Speaker Change: The U K as Randall mentioned, we certainly have.
Speaker Change: Have grown.
<unk> profit there under.
Speaker Change: Because our cost controls and better utilization and I would say, we've driven a lower turnover and our service riders because we're getting probably more share of wallet from the customer when they come in and I think.
Speaker Change: That absolutely is helping us grow our fixed absorption 300 basis points here and I'm not sure what it grew in the U K and interestingly in the U K in Q1, our customer pay was up 11%. So we're able to grow that business and you are right on the service advisor we've done a lot of training and best device with service drivers.
Speaker Change: Service adviser with customers coming through the lanes so.
Speaker Change: Good in our fixed absorption was was up.
Speaker Change: Just shy of three 280 basis points.
Speaker Change: So John better utilization more productivity from the technicians shortly more share of wallet on the Arrow is so I think that's interesting and one point I want to make that maybe you won't answer but as we keep monitoring.
Speaker Change: The Bev units to battery electric vehicles.
Speaker Change: The average return is running about $1400.
Speaker Change: Any ice vehicle at the same time same brand is running about 700.
Speaker Change: So we still have a big opportunity and I would say all about.
Speaker Change: Work is warranty so that's also driving the mix.
Roger: Got to love those Bev <unk> Roger.
Roger: Maybe just one last one tariffs are in.
Roger: Kind of impossible to call exactly where they're going to land right now, but it sounds like costs are going to go up to to automakers and pricing might go up to some extent Roger what's your sort of gut feel on the price elasticity of demand, particularly for your imports in your high end product I mean is there room to inch up pricing in the consumer.
Roger: Right now pushed back too much I mean whats your general just really got check on that it's tough to call well I think you've got to go back and we've got to look at the price increases that have taken place since 19, I think the average selling prices up 17000, just to put that in perspective, but I really want to focus on.
On premium luxury because.
Roger: As we look back we were at 55% leasing we've gone now to 45% here in the last say.
Roger: Two quarters, so I see the ability to lease these vehicles with higher certainly reschedule values. It.
Roger: The finance companies got put on nasal and mitigate some of the impact to the customer and I think thats going to be critical and having those lease cars come back will be important later on because we've had kind of a dip in that from the Covid time, when there is more cash buyers, but I think it is.
Roger: Certainly.
Roger: Certainly as I look at it.
Roger: Got to be a fluid situation I mean things are expected to change. They did last night, obviously when you put it in perspective.
Roger: About $7 9 million vehicles that are imported to the U S. Each year.
Roger: Ironically, Mexico on Canada, I think represent 51% or about 4 million units show with.
Roger: Certainly.
Roger: Mexico, Canada.
Roger: Initiative, hopefully that will drive that to be more fluid and costs will be more realistic based on on that opportunity for the people involved. So overall I think there'll be some impact probably on the lower price vehicles, depending if they are coming in.
Roger: From from outside the U S at the moment, but the stacking of tariffs I think was taken off the table here.
Roger: Our yesterday when it was announced so let me just say I think it's a fluid situation.
Roger: I remember when we look at our business today.
Roger: And look at the overall in our total gross profit was $300 million.
In the first quarter and only 26% of that was new vehicle.
Roger: And obviously.
Roger: With that.
Roger: It will give us it's not the whole gross profit chain because of parts and service and in our diversification. So overall, we're going to have to work brand by brand and I think rich you might want to comment today from an automotive standpoint and truck standpoint.
Roger: Yes.
Speaker Change: John Rich here I think start with the truck I think.
Speaker Change: We stay close to Daimler and as you know we support exclusively the Freightliner Western Star brand and I would say they've taken a real.
Speaker Change: <unk> leadership position in their communication and positioning in the marketplace and provided some clarity for how tariffs will impact our products there through the through October of this year. So I think initially they stated there will be a not to exceed amount of 3500 that was refined to 3000, having.
Speaker Change: <unk> duty 500 on medium duty through July 4th production. They subsequently come out and said that for orders placed prior to May 31, they would extend that pricing protection through October so really the balance of this year from a production and subsequent delivery to us of that.
Speaker Change: Dealer standpoint, with the caveat that those orders placed.
Speaker Change: Prior to May 31, noncancelable, So we will have a high.
Speaker Change: Assurance of those orders when they come in that customers committed to taking those trucks. So I think it's good that.
Speaker Change: Those customers have that certainty looking out in the future as things are very volatile at the moment on the automotive side a.
Speaker Change: A little bit.
Speaker Change: Very brand by brand relative to the communication, but I would say.
Speaker Change: The majority of brands have committed for price.
Speaker Change: <unk> production through.
Speaker Change: May or June timeframe.
Speaker Change: And whether the units we have on ground and inventory at the moment new units around 16000, we think that carries us through June from a retail sales standpoint, and as we've seen over the last 30 days with various different changes, it's not unrealistic to think we'd see further change before the end of June as well.
Speaker Change: Thank you very much guys I appreciate it thanks, John Thank you.
Speaker Change: Our next question comes from Mike Ward from Citigroup. Please go ahead. Your line is open.
Speaker Change: And Mike Thanks, very much good afternoon, everyone. Good afternoon, everyone.
Hello, everybody SG&A cost as a percentage of gross been pretty flat.
Speaker Change: Seven straight quarters.
Speaker Change: Is that sustainable and what are the some of the things you've done where can it even go lower.
Speaker Change: Shall I answer that question for you Mike how are you.
Mike: Yes, we are really pleased with our performance in SG&A to growth you mentioned relatively flat in the low <unk>, we have kind of guidance and feel very comfortable with that continued guidance.
Mike: Down 70 basis points on an adjusted basis year over year down 30 sequentially.
Mike: It's really all about our team's daily focus on what we can control and as our team.
Mike: Taking a look at head count, we remain still down 10% from pre COVID-19 levels.
Mike: On a same store basis, we look at turnover.
Mike: Daily effort by our teams and we remain below averages across the board, but really keeping our personnel costs low looking at comp to growth metrics and making sure that we don't leak growth. We had an excellent result, this quarter in the U S. <unk> declined 30 basis points in the UK.
Mike: <unk> declined 110 basis points and when you factor in that more of their compensation.
Mike: It's a tremendous result by our team so they did a really great job containing those cost.
Mike: And the other side of that equation, obviously is growing growth and when you look at some of our higher margin growth.
Mike: <unk> line.
Mike: Service and parts, 40%.
Mike: In Q1 of 2019.
Mike: Randall and rich talked about fixed absorption in their business line.
Mike: And then some of the other items that we can control advertising for example, down $3 million quarter over quarter things like travel and entertainment down $1 million all of those items really continue to add up.
And we're seeing great results.
Mike: And so what.
Speaker Change: What I gathered from what Randall was saying it sounds like the U K market is maybe bottomed and started to turn the other direction gaining some momentum.
Mike: If a lot of those costs are fixed.
Mike: We started getting some momentum in the U K, we should see additional improvement.
Mike: Hearing that right.
Mike: Look at I would say as far as the macro market overall being up 6% I don't expect it to go up significantly, but I think just our leadership team over there is doing an amazing job when we're pulling some levers like I talked earlier relative to inventory management, one thing I didn't mention was upside on <unk>.
Mike: And I we've introduced.
Mike: So more products remember March was a registration month to September will be the next one.
Mike: But I think our performance and as it pertains to managing the gross growth opportunity in our expenses is absolutely sustainable and Super proud of what the team is doing well actually I mentioned two on the sit in our select what youre doing on inventory, yes. So we typically hold about 2000 units in <unk>.
Mike: Inventory and just to give you a note as of today, we have 11 cars over 90 days so.
Mike: We're really managing the age, but I think even more important than that is the sourcing and really trying to get more stickiness on on trades, whether it be on new car or used cars because our gross profit opportunity on trades. There is a lot better than raising your hand at the auction next 50. Other people. So the result of that was a record gross profit per unit.
Mike: At select in March.
Mike: After escalating even from January February being strong and the other point in that business. I mean, we're really focused on younger you used cars, meaning the zero to four maybe five six but as soon as you start getting over that we that space you end up selling it and then in.
Mike: Invariably have problems and you got to take care of the customers. So your policy expense goes up or you are buying the car back. So we've just found it better to keep it clean with the with the newer cars that are on the select side.
Mike: Shelly.
Mike: The share count currently or what we'll see on the 10-Q was at about $66 million.
Mike: It's pretty consistent with prior year.
Mike: We can make those buybacks that number's weighted Mike and we also have.
Mike: Sure grant within the quarter, so youll see a fairly consistent.
Mike: $66 seven.
Mike: In the quarter. However, we will continue to see that go down.
Mike: Repurchases are weighted differently throughout the year.
Mike: For <unk>.
Mike: You bought back in April.
Mike: We bought back in March and in April so.
Mike: The fact of our marks during Q2, and then a weighted Q2 number.
Mike: Okay.
Mike: Sure.
Mike: And so the <unk> number is going to be 66, 7% are extremely well known.
Mike: Sorry.
Mike: I thought you were talking about EPS for Q1, but yes.
Mike: Yes.
Mike: Yes, so it's a mindset of Tony so with the with the shares that we repurchased in the month of April the share count in.
Mike: In the second quarter than what it was in the first quarter correct right right. Okay no.
Mike: So when youre looking at repurchase is it just the big sell off in April with the Dara product opportunistic and is that the way youre going to look at it.
Mike: I know you balance it out with the acquisitions and other stuff.
Is that side of the market dried up and you just find your stock cheap enough and Thats why it ticked up a little bit.
Mike: I Wouldnt say that its drying up by any means Mike I would say the industry as a whole seems to be taking a pause.
Mike: Different outcomes.
Mike: Tariff discussion.
Mike: Certainly.
Mike: From an acquisition standpoint.
Mike: We will remain opportunistic and so.
Mike: If the market remains consistent.
Mike: Sure.
Mike: We find ourselves.
Mike: Alan.
Mike: Options, we're going to.
Mike: We're going to weigh the MSA.
Mike: We operated we really havent changed any offense, we've been operating under a <unk> five obviously, which goes out as of I think today, but thats been the driver specifically over the last quarter.
Mike: Okay.
Mike: What are your board meetings scheduled is there a specific date Tuesday of the month or anything like that.
David: No David.
Barry: Barry We our board meets up to five times of the year and the time varies based upon availability of the board.
Speaker Change: Okay perfect. Thank you very much everyone alright. Thanks. Thank you.
Speaker Change: Our next question comes from Daniela Haig Wang from Morgan Stanley. Please go ahead. Your line is open.
Speaker Change: Thank you so within used I know you mentioned in Q&A. There is a focus on zero to four year olds, maybe five to six year old vehicles.
Speaker Change: With the younger used supply is still tight and vehicle pricing only moving upwards from here do you see greater opportunity and this mix shift towards this kind of middle age cohorts.
Speaker Change: And how does that impact your <unk>.
Speaker Change: Gpus.
Speaker Change: Hey, Danielle let me say this.
Speaker Change: And in this business a long time and we have tried every model car.
Speaker Change: Our shop over here going down into the.
Speaker Change: Double digit.
Speaker Change: Yeah.
From an old perspective, and in the UK as we were trying to do 5000 cars a month.
Speaker Change: We're down deep into a double digit and the outcome was brand damage because of so many cars should we had to deliver policy on our buyback. So we've focused on the one to four and because of our premium.
Speaker Change: Business from the standpoint of new cars on lease returns that we get we see a much better profitability and we're running thousands of loaner cars, which we can turn and the young used cars on our quarterly and annual basis, which makes a big difference so I would say.
Speaker Change: At the moment.
Speaker Change: We're staying in the one to four and you can see our margin.
Speaker Change: And typically we don't get the F&I Bang, because we get flats and many of the leases that we do so but it's a three year, maybe Max four year and we get that we have the opportunity to buy that vehicle back obviously, everybody does but we focus on that along with trades are.
Speaker Change: As our first.
Speaker Change: Offense.
Speaker Change: As we look for used cars.
Speaker Change: Daniel the other thing to remember on used cars with our heavy leasing percentage.
Speaker Change: Approximately 40% of our used vehicle sales in the U S. A certified pre owned so that helps skew in that zero to four year, 1% to four year old timeframe.
Speaker Change: That's helpful. Thank you and then one more on parts and service.
Speaker Change: You have relatively inelastic demand there you mentioned, 80% utilization is there demand to grow your current capacity or do you think you have the base.
Speaker Change: Capacity currently to service incremental demand.
Speaker Change: Certainly Daniela rich here on the U S side, we have capacity I mean, we're as Roger said, we're about 80% utilization. So we probably have requisitions open right now for about 50 technicians, we grew our technician base in the first quarter.
Speaker Change: By 94 technicians.
Speaker Change: And we would obviously.
Speaker Change: Look to continue to grow that technician based.
Speaker Change: Leverage the utilization higher on our on our.
Speaker Change: Existing service facilities, and so I think we would do that certainly in near term before we need to look at adding any brick and mortar that we added 100 base in 2024.
Speaker Change: Correct.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ron <unk> from Guggenheim. Please go ahead. Your line is open.
Speaker Change: Yes, good afternoon, Roger and Ron.
Speaker Change: Thanks for taking my questions.
Speaker Change: Maybe starting off with kind of the tariff impact on parts and service.
Speaker Change: Any sense for how much parts inflation.
Speaker Change: Could hit your parts and service segment and it sounds like.
Speaker Change: Customer willingness to pay is quite strong, but just wanted to get your sense of.
Speaker Change: How the customer will absorb those costs, because I assume youre going to look to pass them through I don't think we've calculated that now when you think about today.
Speaker Change: Typically.
Speaker Change: Two thirds of the repair order if labor and one third of the repair order is.
Speaker Change: It is part and when we think about a lot of parts that are being utilized for an older cars are really not genuine parts and theyre coming out of China, and as China has a higher to 145% tariff that's going to drive their cost base shop, and we will get.
Speaker Change: Even with what we have here with the genuine parts. So we might even see a benefit from that.
Speaker Change: As we go forward, but that's speculation.
Speaker Change: I can't say I see it today, but it will certainly help us a lot in body shop parts, where there is a lot of non genuine parts paying us so we'll see.
Speaker Change: No. That's helpful color on how you could become more competitive versus versus some of the independent shops.
Speaker Change: For sure earnings I think it's been a while since we've been into our call. This long and haven't really touched on on new GPU kind of outlook.
Speaker Change: But it seemed like we got another data point this quarter that the trends are stabilizing at a much higher level I guess specific to your portfolio of brands should we expect a couple of hundred dollars of new GPU moderation on a go forward basis or do you think we're closer to the bottom and maybe that.
Speaker Change: Second derivative of declines continues to improve.
Speaker Change: When you look at when you look at new.
Speaker Change: In Q1, we were down 3%.
Speaker Change: New usually were up 15. This is on a total basis.
In our F&I say was up four so overall variable was up six and on a same store basis.
Speaker Change: We actually were up on new five and US we were up 10, and I think that.
Speaker Change: For the last five quarters.
Really $5229 in first quarter of <unk> 24 50.
Speaker Change: <unk> 305072 in Q3 and $51 46, so we have been I guess hovering around 5000.
Speaker Change: Lot of that has to do I think our mix of.
Speaker Change: Bev vehicles has gone down if you look at it overall.
Speaker Change: Place by ice and someone mentioned it earlier that our we're discounting bev vehicles, probably about 7000 under MSRP. So that has some impact on it.
Speaker Change: Mix is now down I think we've got it inventory rich of what.
Speaker Change: 16000, new units now above <unk>, sorry, yes, it's 10% of total in under 1700 units under 1700 units at this point so.
Speaker Change: Overall, I would say I think that is.
Speaker Change: As I look into.
Speaker Change: In the Q2 you'd have to think about where our business is up 11%. This month.
Speaker Change: And if you look at the quarter you had.
Speaker Change: Have to think there'll be some momentum going into the end now before the current.
Speaker Change: Vehicle inventory, we have is sold out because then youre going to be dealing with different cost pressures from the tariffs.
Speaker Change: And Ron to your point on our on our brand mix I would only add that in the quarter compared to our peer group, we had the lowest decline in new groups growth and we had the highest increase in used gross so I think that that supports.
Speaker Change: The premium brand mix that we've got.
Speaker Change: Any sense for how that trended in Europe versus the U S. Because typically we would see I think luxury underperformed going from <unk>. So just trying to get a sense of unpacking that by region.
Speaker Change: Yes.
Speaker Change: And in the UK, our new gross profit was down slightly so it trended very similar to what it was in the U S.
Speaker Change: On a new car side and again, it's going to be predicated on mix.
Speaker Change: Okay.
Ron: Ron we were down 76, a unit or 1%.
Ron: Okay. We had obviously we had a registration month.
March show, which drives some bonuses and other things at the end of the quarter, which could affect.
Ron: <unk>.
Ron: Gross profit.
Ron: Okay, No I really appreciate the color thanks for taking my questions.
Ron: Okay, great. Thank you.
Jeff <unk>: Our next question comes from Jeff <unk> from Stephens. Please go ahead. Your line is open.
Ron: Jeff.
Speaker Change: Hey, Roger Good afternoon, everybody. Thanks for taking my question.
Speaker Change: Question for rich.
Speaker Change: Rich in the U S. I know some of your brand partners the luxury side, Mercedes, particularly BMW.
Speaker Change: Last year, we're a little more focused on Bev.
Speaker Change: Yes.
Speaker Change: Allocation in terms of both.
Speaker Change: Sales play out in the GPU and I Wonder if you give me just unpack that.
Speaker Change: Sure how that benefited Q1 or how that rolled through Q1.
Speaker Change: But this year. So yes, so you can look at.
Mercedes: Sorry, Mercedes let's start there.
Mercedes: If we go back about a year ago now they were.
Speaker Change: North of 40% of our total inventory was battery electric vehicle and not only battery electric vehicle, but on the high end of the price point with the EQM and <unk>.
Speaker Change: Probably mid year last year is when they realize they had to make adjustments to balance production with supply and so they've made almost 180 degree turn as we sit here today.
Speaker Change: The Mercedes days' supply.
Speaker Change: Is significantly reduced and under 5% of our total inventory at this point and so we've seen a significant benefit in that two are our west coast dealerships and their profitability with the right mix and the right day supply for the demand in the market BMW has come off their peak.
Speaker Change: As well, but they are still around that 25% to 30% as a percent of total from.
Speaker Change: <unk> mix, but they have probably the broadest product line of battery electric vehicles.
Speaker Change: Servicing the lower end of the market to the higher end of the market and certainly the I four.
Speaker Change: As a good seller there if you look at days supply overall for battery Electric we peaked in June of last year at 91 days supply.
Speaker Change: And as we sit here today, we're at 56.
Speaker Change: Days at the end of the quarter and I think in April here, we're at 51 day. So it continues.
Speaker Change: To trend in a more positive direction and obviously from a growth standpoint, we see that the gross profit on <unk> all in when you look at the front side money in F&I.
Speaker Change: Generally 65% to 70% of what we would have on an ice vehicle and heavily discounted as Roger said over and over $7400 now so anything that balances that improves the other thing BMW is doing in.
Speaker Change: This this month of May is pausing wholesale deliveries of beds and supplementing with ice vehicles, which I think is going to be very beneficial for our our stores that are high on the bev concentration at the moment. So thats another adjustment they are making to the market conditions.
Speaker Change: And then just a quick follow up.
Speaker Change: Yes.
Speaker Change: Question on <unk>.
Speaker Change: Actual trucks.
Speaker Change: For retail truck.
Speaker Change: Can you give any context to the <unk>.
Speaker Change: <unk> in the 2027 emissions.
Speaker Change: Standards.
Speaker Change: Just how big of a deal do you think that is there was some thought that there'd be some.
Speaker Change: Pull forward of demand here has been all over the next 18 months just curious.
Speaker Change: By way of magnitude how much you think thats going to affect your business.
Speaker Change: Well I think.
Speaker Change: Any pull ahead and demand will be predicated on the outcome of the Congressional review Act of.
Speaker Change: The waivers that have been submitted by the legislation has been submitted by the house.
Speaker Change: For.
Speaker Change: Potential.
Speaker Change: Rescind themselves.
Speaker Change: Advanced cleaning car advanced clean truck and the omnibus rule, so those will be voted on.
Speaker Change: We think by the end of May.
Speaker Change: And if that if those waivers do get rescinded.
Speaker Change: Not only impacts, California, but the other 13 states adopt at the end of those regulations, Oregon being one of them that we operate in.
Speaker Change: And so that will have a positive.
Speaker Change: Positive impact, but it will obviously not.
Speaker Change: For any pre buy at that moment, because there won't be the rush to purchase trucks that aren't going to be impacted by the increased cost.
Speaker Change: Those vehicles, which our intelligence would say is.
Speaker Change: North of $20000 per vehicle for the technology has got to be added to meet these emissions requirements. If they were to.
Speaker Change: To go into effect I think the other important aspect of that legislation reform is is it one.
Speaker Change: Emission standard across the U S.
Speaker Change: Creates a lot of complexity for the manufacturers today and for us as retailers to make sure that that that truck is certified for the state is going to operate in.
Speaker Change: And it's being registered correctly, so I think if successful.
Speaker Change: So those legislative reforms that would only be positive for our for the transportation on the commercial side.
Speaker Change: That's great thanks for that.
Speaker Change: I don't want to detail.
Speaker Change: Well best of luck in Q2, and we look forward to talking to you soon thanks, Jeff. Thank you Jeff.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Rajat Gupta from Jpmorgan. Please go ahead. Your line is open.
Speaker Change: Great.
Rajat Gupta: Hey, Roger Hey, everyone. Thanks for taking the question.
Rajat Gupta: Just one one last question on just the used cars I know you've got a lot of that given the pretty substantial improvements.
Rajat Gupta: The level of GPU that you have in the first quarter.
Rajat Gupta: 'twenty 100 level is that.
Like base level, we should be thinking about.
Rajat Gupta: Going forward do you feel comfortable sustaining those kind of growth and I know it can be a little volatile <unk>.
Rajat Gupta: With a pre buy in line just to pull forward a bit.
Rajat Gupta: Thank you Scott inflation, but 'twenty 100.
Rajat Gupta: Sounds like a new normal for the business medium term.
Rajat Gupta: Well I think it can vary but we're getting the benefit when you look at the total company, meaning <unk>.
Rajat Gupta: International plus domestic.
Rajat Gupta: The impact of.
Rajat Gupta: Certainly sitting there select now highly profitable on the use is driving.
Rajat Gupta: A significant amount I think Randy you said you are up.
Rajat Gupta: In UK unused grosses 580, 588, we ended up being 357 I think.
Speaker Change: On a global basis, so to me.
Speaker Change: I think the one thing that could impact us some measure of vehicles during COVID-19.
Speaker Change: There was not a lot of leasing show some railcars that we would get back.
Speaker Change: We're not getting so they are building that pipeline back for us but.
Speaker Change: I think the.
Speaker Change: Lack of new vehicles, when you think about it during COVID-19 drove the used vehicle business.
Speaker Change: So again, we're probably going to see some upward pricing with that we might see advance rates from the finance companies capped should reduce our ability to get higher gross margins, but I think we'll deal with that case by case as we go forward but.
Speaker Change: I'm comfortable that we've got a lead the peer group on the used side because we're not into the 10 and 20 year old cars were in vehicles that are 1% to four which we can obviously and are certified as Tony said.
Speaker Change: It gives us the opportunity to get to get more margin in 70% of our sales in the quarter.
Speaker Change: One to four years old and I think that.
Speaker Change: And five to eight.
Speaker Change: It was 20, so you see it's a very very small part of that and I think.
Speaker Change: Overall, the same thing in the UK, 65%.
Speaker Change: Was one before and about 30% five to eight and that was probably skewed still by sitting there shall act.
Speaker Change: <unk>.
Speaker Change: Got it got it that's helpful and then just.
Speaker Change: One question on <unk>.
Speaker Change: Our discussion today.
Speaker Change: Just curious any thoughts on the outlook here I know you've talked about like some choppiness choppiness in the freight market.
Speaker Change: Curious how that impacts the <unk> business.
Speaker Change: Should we expect.
Speaker Change: The fourth quarter type of crime flat year over year growth type of trends to continue for the remainder of the year.
Speaker Change: Should we expect to be a little more volatile.
Speaker Change: Well, let's say the freight market, let's just answer with that first the freight market. Obviously has not been good for the last 36 months when you think about it and in our rent or excuse me.
Speaker Change: The rental business is certainly seasonal but where the freight market down what we're saying is that our customers.
Speaker Change: Our leasing trucks on a three or five year basis with CPI as we see those customers not reaching out for extra vehicles, which is typically 50% of our rental revenue. So it had to do is reduce our fleet, which we have done from 88000 down into the 70.
And thats, driven lower maintenance lower costs lower depreciation so we're trying to match it but if we don't see an increase.
Speaker Change: Certainly.
Speaker Change: Because of the freight I don't I think are our rental business will continue to suffer and again that drives maybe gain on sale of vehicles, because when Youre D. Fleeting, we can't get the margins you can if youre selling them one at a time and we sold 4000 vehicles last month so.
Speaker Change: We're watching it the good news is we outperformed the first quarter of last year. Our income was about $1 million more for our percentage that we owned the company but.
Speaker Change: Overall, our fleet is young.
Speaker Change: Think that well.
Speaker Change: Well balanced.
Speaker Change: On the head count we've taken out hundreds of people in the rental product line because of.
Speaker Change: The lower utilization and the lower demand.
Speaker Change: Got it got it.
Speaker Change: Helpful. Just last one here.
Speaker Change: You talked a little bit about some pull forward or maybe some pre buy here in the second quarter.
Speaker Change: Primarily the premium luxury brands.
Speaker Change: Do you expect the second half to see some material deceleration here or.
Speaker Change: Irrespective of what happens with prices.
Speaker Change: Just curious if there's any way to size.
Speaker Change: What degree of pull forward of pre buy you might be seeing in the business. Let me say, if we've got any momentum it's going to be momentum on our existing inventory in that correct.
For us to be able to project.
Speaker Change: What potential cost increase we have in a vehicle, we don't know that right now other than the some of the things that were brought up last night in Trump's latest declaration as far as tariffs so I would say the.
Speaker Change: The second half would be more cloudy for me from the standpoint.
Speaker Change: Where we're going to be we've got 16000 vehicles that we can we can sell at current costs with no no increases due to tariffs and of course, we hope to go through those over the next 60 days. So again, we're going to then have to look at what we've been able to be supplied at what prices. We go forward rich.
Speaker Change: Do you have any other comment no I think you've covered it I mean to your point or is that we saw a little bit of a <unk>.
Speaker Change: A tailwind at the end of March and certainly that.
Speaker Change: Carried into the beginning of April.
Speaker Change: But with each which each discussion around tariffs and then Susquehanna coming lower it's difficult to predict what that demand looks like in the near term, yes, one other thing that I didn't mentioned.
Speaker Change: When you talked about the freight market, we are understanding that.
Speaker Change: The porch receiving.
Container ships from China, It looks like it's going to be down 60% here over the next several weeks. So that will certainly have some impact on the freight market.
Speaker Change: Understood. Thanks for all the color and good luck.
Speaker Change: Thank you.
Speaker Change: Our last question comes from David Whiston from Morgan Morningstar. Please go ahead. Your line is open.
David: Hey, David how are you.
David Whiston: Good Roger Hey, everyone.
David: I actually just have one question.
David: You mentioned that.
David: Early in the call you said.
On a monthly basis.
Can you hear me about 30000 in gross profit per month I was just curious roughly what was that number Frank right before COVID-19.
Speaker Change: I don't think anybody have that number IV I'll get Tony to get that for you, but we've been growing that.
Speaker Change: We've been growing it for a couple of reasons because.
Speaker Change: Our effective labor rate has gone up.
Speaker Change: You follow me and we pay a percentage of that to the technician, obviously that's driven.
Speaker Change: The opportunity plus.
Speaker Change: Our rose from the staff had more <unk> more service. So that's driving and that's one of the reasons, we want to continue to grow the mechanic base, because we can drive more business, which I think is.
Speaker Change: Which is key which will drive gross margin and for the technician because it's the best job in the company because we provide the customer provided the location and we collect the money either from the factory or they are a customer and I think.
Speaker Change: Our turnover when you look at turnover in that in that sector. I think we're running probably about 11 or 12 or 13% which is.
Speaker Change: This world class because it's so important to get these highly skilled people to stay with you because of the complexity of the <unk>.
Speaker Change: Vehicles today.
David Whiston: And David I would add to.
Speaker Change: To Roger's comments on.
Speaker Change: The growth I would attribute some of it to our digital tools as well that we've deployed that enable us.
Speaker Change: To load the shop more effectively so we're getting.
Speaker Change: Better.
Speaker Change: Utilization out of the available hours that the technicians have through our.
Speaker Change: Artificial intelligence with service booking and reception.
Speaker Change: <unk> video adoption is something that is still relatively new that we.
Speaker Change: Get better proficiency add across the.
Speaker Change: The businesses.
Speaker Change: Last August we launched.
Speaker Change: Hey, communication tool for our customers booking service appointments with its called fast lane that enables us to add previous recommended not done.
Speaker Change: Items that the customer decline at a previous Savannah enables us to get that information in front of them that generated an additional $5 $4 million in revenue and in the first quarter are on average about $704 per appointment so.
Speaker Change: So all those things collectively and then other things we're doing in the shop from an efficiency standpoint to keep that the technicians in the bay where there.
Speaker Change: Most productive and most happy or things, we continue to look at as well as service advisor training.
Speaker Change: So it's not any one thing it's a bunch of little things that are adding up year over year to make that improvement.
Speaker Change: Just checked and pre Covid the average technician growth was about 26500.
Speaker Change: Okay. Great. Thanks, Thanks, guys Thats all very helpful. That's all I had.
David Whiston: Alright, Thank you Dave thank.
Speaker Change: Thank you everyone for joining us today.
David Whiston: Okay.
David Whiston: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
David Whiston: [music].
David Whiston: Okay.
David Whiston: Sure.
David Whiston: Okay.
David Whiston: Yes.
David Whiston: Okay.