Penske’s Q3 net surges 59% on strong U.K. sales

Roger Penske, a winner on and off the track

Penske Automotive Group Inc., the nation's second-largest dealership group, reported strong third-quarter gains due in part to its concentration of stores in the United Kingdom. The company also kept costs down and had solid sales of finance and insurance products.

Penske's net income surged 59 percent from the year-earlier quarter to $65.3 million, as revenue rose 15 percent to $3.82 billion.

"We remain confident in our ability to continue growing our business, and we expect both the U.S. and U.K. markets to continue to perform well," said Chairman Roger Penske in a statement.

The United Kingdom accounted for 35 percent of Penske's revenue mix in the quarter. The United States accounted for 63 percent, and "other international" accounted for the final 2 percent.

So far this month, Penske's U.S. retail new-car sales were up by 5 percent and retail used-car sales were up by 16 percent compared with the year-ago period, said Penske during an analyst conference call.

He expects the market to continue to accelerate.

"That customer is there. I think leasing is driving a lot," Penske said.

Penske said some luxury automakers such as Mercedes-Benz and BMW will have many customers coming off lease in the next few months.

Other business areas remain solid, he said.

"I see credit being strong," Penske said. "Certified pre-owned growth continues to be strong because of the warranties being offered. When you combine both new and used and you look at the numbers of the last 24 hours, I see upside on new and on used."

Future growth

Penske said the acquisition market remains "vibrant."

"We have the opportunity to look both nationally and internationally," he added.

Penske said 5 percent to 6 percent of the company's future revenue will come from acquisitions as it continues to hunt for deals domestically and abroad.

There are "a couple" of points Penske is in the process of buying that should generate "a couple hundred million" in future revenue, he said.

Internationally, Penske eyes Western Europe, where prices are "considerably less."

"We have now executed in Italy and we'll start to report that next quarter. We have opportunities in those Western European countries," Penske said.

Penske's capital expenditure for the first nine months was $109 million. The company estimates its capital expenditure for 2013 will be $130 million.

Trimming fat

Selling, general and administrative expenses as a percentage of total gross profit dropped 150 basis points to 78.3 percent during the quarter, down from 79.8 percent a year earlier.

To improve costs, Penske consolidated its customer relationship management system and evaluated all of its vendors, terminating many of its advertising agencies and putting a stronger focus on digital marketing.

Penske is spending less for loaner cars at its service centers too, Penske said.

"We've been able to take a look at that and manage it more effectively," Penske said. "We're taking our customers home in a van rather than give them a car. Our management team is really focused on that, our people understand it."

Margins strong

On a same-store basis, U.S. retail revenue grew 11 percent in the United States and 13 percent in other markets. Penske said that demonstrates "the strength and resiliency of our key markets."

Penske's retail sales of new vehicles rose 13 percent to 53,509 units, but gross profit per new unit sold declined 2 percent to $2,791.

Retail sales of used cars rose by 14 percent to 43,518 units, while gross profit per used vehicle rose 1 percent to $1,870.

Gross per-vehicle profit on F&I products rose 5 percent to $1,028.

Penske's decline on new-car margin was staved off by its brand mix which is weighted toward premium luxury brands, Penske said.

On the used side Penske gained a steady flow of used vehicles for its stores by being the exclusive operator of some Hertz rental locations in Memphis, Tenn., and parts of Indiana, including airport locations in Fort Wayne, Indianapolis and South Bend.

Penske, of suburban Detroit, ranks No. 2 in Automotive News' list of the top 125 U.S. dealership groups based on new-vehicle retail sales, with sales of 180,764 units in 2012. autonews.com