PENSKE AUTOMOTIVE GROUP, INC. Q1 FY2025 earnings call

• Diversified international transportation services business generated record first quarter revenue, with seventh consecutive quarter of stable gross margin and 70 basis point improvement in adjusted selling, general and administrative expenses.
• Same-store retail automotive revenue increased 2%, related gross profit up 3%; same-store retail automotive service and parts revenue up 4%, related gross profit up 6%, with service and parts gross margin up 60 basis points to 58.6%.
• Delivered 120,000 new and used automotive units and over 4,700 commercial trucks in Q1; new automotive units delivered up 6% same-store, used units down 16% same-store (due to Sytner Select realignment).
• Average new transaction price up 4% to $59,202, average used vehicle transaction price up 12% to $37,624. Variable vehicle profit per unit was $5,281, a $38 unit decline from Q4 2024.
• Service and parts revenue up 6% to $789 million, including 4% same-store; customer pay up 1%, warranty up 17% due to recalls. Fixed absorption in U.S. automotive business up 310 basis points to 87.1%, and 117.5% for North American retail commercial truck business. Technician head count increased 5% since March 2024, effective labor rate up 5% in U.S. and 6% in UK. Adjusted SG&A to gross profit declined by 70 basis points to 70.0%.

Penske Automotive Group's first quarter 2025 had diversified segment performance. North American Operations: U.S. retail automotive saw traffic increase, with new units up 8% and used units up 2% during the quarter. Retail commercial truck business sold 4,714 units in Q1, up 4% Y/Y, with new units up 7% but down 2% same-store. Penske Transportation Solutions (PTS) had operating revenue flat at $2.7 billion, with full service and contract business up 5%, logistics revenue down 1%, and rental revenue down 10% due to freight recession. International Operations: UK retail automotive new vehicle market registrations increased 6%, same-store new units delivered up 9%, while same-store used units declined 22% excluding Sytner Select. Australia's commercial vehicle and power systems business gained 150 basis points of market share in the on-highway market and had strong Energy Solutions demand. Overall, revenue for the quarter was $7.6 billion, a 2% increase Y/Y. Revenue contribution: approximately 59% in North America, 31% in the UK, and 9% in other international markets.

• Expect to continue repurchasing shares on an opportunistic basis, with $46 million remaining under existing securities repurchase authorization.
• Dividend is $1.22 per share, increased by 54% since end of 2023, with current yield ~3.1% and payout ratio 36%.
• Focus on strategic capital allocation, including divestment of one retail automotive location in Q1 with ~$200 million annualized revenue.
• Continued focus on growing business through acquisitions and returning capital to shareholders through dividends and securities repurchases.

• Uncertainty in automotive and commercial truck markets due to fluid environment, including tariff negotiations and OEM plans.
• Freight recession impacting PTS rental revenue and utilization.
• BEV inventory management challenges with majority of BEV units requiring significant discounting.
• Legislative uncertainties regarding 2027 emission standards and potential impact on commercial truck demand.
• Interest rate risks, with 25 basis point interest rate change impacting interest expense by ~$11 million.

Q: John Murphy asked about the UK's Sytner Select progress, service and parts margin, tech growth, and door rate increases.

A: Randall Seymore mentioned Sytner Select had record gross profit per unit in March, with focus on younger used cars. Roger Penske noted technician head count up 5%, average technician gross profit ~$30,000 per month, and customer pay trends in U.S. and UK.

Q: Mike Ward inquired about SG&A sustainability, share count, and UK market momentum.

A: Shelley Hulgrave discussed SG&A control through headcount management, turnover below NADA averages, and growth in higher margin service and parts. Randall Seymore highlighted UK market improvement through inventory management and F&I product introduction.

Q: Daniela Haigian asked about used car mix shift and parts/service capacity.

A: Roger Penske explained focus on 1-4 year old used cars for better profitability and lower policy expense. Rich Shearing mentioned parts/service utilization at ~80%, technician base growth, and digital tools improving efficiency.

Q: Ron Jewsikow questioned tariff impact on parts/service, new GPU outlook, and regional differences.

A: Roger Penske discussed parts inflation and BEV repair costs. Rich Shearing provided details on BEV inventory management and brand adjustments.

Q: Jeff Lick asked about commercial truck emissions standards delay and impact.

A: Rich Shearing explained legislative uncertainties around emissions standards and their potential impact on commercial truck demand.

Q: Rajat Gupta inquired about used car GPU sustainability, PTS freight market impact, and second half outlook.

A: Roger Penske and Rich Shearing discussed used car GPU variability, PTS freight market challenges, and uncertainty in second half due to tariff and legislative factors.

Q: David Whiston asked about technician gross profit pre-COVID and improvements.

A: Roger Penske and Rich Shearing mentioned pre-COVID average technician gross profit ~$26,500, and improvements due to labor rate increases, digital tools, and service advisor training.