Penske Falls despite Q3 Revenue Beat, Earnings In Line - Analyst Blog

Penske Automotive Group, Inc.'s (PAG) shares fell 1.4% on Oct 29, after the company reported third-quarter 2014 results. While Penske recorded year-over-year improvement in earnings and revenues, the weakness in the market dragged the stock down.

The company's third-quarter 2014 earnings improved 16.4% to 85 cents from 73 cents reported in the year-ago quarter. The results were at par with the Zacks Consensus Estimate. Net income from continuing operations rose 15.6% to $76.4 million in the quarter from $66.1 million a year ago.

Revenues grew 17.5% year over year to $4.42 billion, beating the Zacks Consensus Estimate of $4.38 billion. The year-over-year rise was driven by a 10.2% increase in total retail sales to 104,963 units, including a 5.3% increase in same-store retail sales to 100,250 units.

Retail sales went up 9.2% in the U.S. and 12.5% internationally. Same-store retail revenues rose 11.2% to $3.9 billion.

New Vehicle revenues escalated 13.6% to $2.23 billion on a 9.2% rise in sales to 57,273 units. Used Vehicle revenues rose 20.7% to $1.3 billion owing to an 11.6% increase in sales to 47,690 units. Meanwhile, revenues from Service and Parts improved 16.1% to $435.5 million.

Revenues from Fleet and Wholesale Vehicle increased 22% to $215.9 million, while revenues from Finance and Insurance rose 16.8% to $114.7 million. Revenues from Commercial Vehicle, Car Rental and Other amounted to $118.8 million in the third quarter of 2014, up 80.3% year over year.

Gross profit improved 15.3% to $658.7 million from $571.1 million in the third quarter of 2013. Operating income augmented 17.1% to $128.0 million from $109.3 million a year ago.

Acquisition Update

During the quarter, Penske signed agreements to acquire a majority stake in The Around The Clock Freightliner Group ("ATC"). The former already has a 27% stake in ATC, which will increase to 86% on completion of the deal.

ATC is a heavy-duty retail truck dealership group located in Texas, Oklahoma and New Mexico. The company is expected to provide annualized incremental revenues of about $600–$700 million and incremental earnings per share of 12–14 cents to Penske following the closure of the deal.

Dividend Update

On Oct 15, 2014, Penske announced a 5% increase in its quarterly cash dividend to 21 cents per share from 20 cents. The increased dividend will be paid for the first time on Dec 1 to shareholders of record as on Nov 10, 2014.

Financial Position

Penske had cash and cash equivalents of $150.5 million as of Sep 30, 2014, an increase from $49.8 million as of Dec 31, 2013. Long-term debt stood at $1.23 billion as of Sep 30, 2014, up from $1.08 billion as on Dec 31, 2013.

Penske carries a Zacks Rank #2 (Buy). Better-ranked stocks in the same industry include Toyota Motor Corporation (TM), Tata Motors Limited (TTM) and Gentex Corp. (GNTX), all of which sport a Zacks Rank #1 (Strong Buy).