Penske Automotive Group Inc. (PAG) witnessed a 31% rise in adjusted earnings per share to 55 cents in the second quarter of 2012 compared to 42 cents per share in the corresponding quarter last year. With this, the profit surpassed the Zacks Consensus Estimate by a penny. In absolute terms, profits escalated 26.4% to $49.5 million compared with $39.2 million in the year-ago quarter.
Revenues increased 19.2% to $3.4 billion in the reported quarter, surpassing the Zacks Consensus Estimate of 3.3 billion. The rise in revenues was attributable to a 20.9% increase in retail sales to 84,346 units. New vehicle sales increased 24.8% to 46,766 units while used vehicle sales improved 16.4% to 37,580 units. Fleet sales volume rose 86.8 % to 2,836 vehicles and wholesale volume augmented 24.3 % to 17,796 units.
Revenues from new vehicle sales grew 23.6 % to $1.73 billion and revenues from used vehicle went up 12.7 % to $964.5 million. Revenues from parts and service improved 8.6% to $368.8 million. Meanwhile, the company’s finance and insurance business witnessed a 19.8% growth in revenues to $82.7 million.
On a same-store basis, total retail sales improved 12.0% to 77,819 units. Same store revenues went up 9.4% to $2.9 billion in the quarter.
Gross profit increased 12.6% to $513.4 million from $455.9 million in the year-ago quarter. As a percentage of gross profit, selling, general and administrative expenses declined to 79.8% from 82.1% in the second quarter of 2011. The company reported a 29.5% increase in operating income to $90.3 million. This translated into a 20 basis point improvement in operating margin to 2.7% during the quarter.
Share Repurchase
During the last six months ended June 30, Penske repurchased 405,631 shares for $9.8 million with an average price of $24.23. As a result, the company has approximately $98.3 million worth of shares remaining for repurchase.
In the second quarter of 2012, the company made redemption of $63.3 million of 3.5% outstanding senior subordinated convertible notes. The redemption was completed on July 16 and the company did not use any shares for this purpose.
Financial Details
Penske had cash and cash equivalents of $37.2 million as of June 30, 2012, an improvement from $28.7 million in the corresponding period of the prior year. Long-term debt amounted to $793.6 million as of June 30, 2012 compared with $846.8 million as of December 31, 2011.
Our Take
Penske Automotive Group sells new and previously owned vehicles along with finance and insurance products. It operates 340 retail automotive franchises, providing 41 different brands and 30 collision repair centers. Apart from its franchises in the U.S. and Europe, the company offers repair and maintenance services to the brands it sells.
The company’s product mix, including a wide range of imported and luxury brands, helps it maintain a strong foothold in both the U.S. and international markets. It competes with Lithia Motors (LAD) and Sonic Automotive (SAH). Currently, the company has a Zacks #3 Rank, which translates into a Hold rating for the short term (1 to 3 months).
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