Penske Automotive Group Earnings 2019-09-30

PAG 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
CASY	6,341	3,837	2,348	9,391	1,999	219	593	7,567	21%	12.8	6%
PAG	3,920	13,361	10,700	22,418	3,380	447	553	6,103	15%	11.0	3%
AN	3,800	10,700	7,817	21,086	3,443	398	567	5,729	16%	10.1	4%
GT	3,276	18,470	13,421	15,034	3,264	476	1,877	8,305	22%	4.4	3%
MNRO	2,837	1,578	860	1,221	476	82	103	2,989	39%	29.0	5%
LAD	2,734	5,775	4,500	12,137	1,852	271	442	4,014	15%	9.1	5%
MUSA	2,719	2,571	1,755	14,206	0	160	388	3,374	0%	8.7	6%
ABG	1,620	2,814	2,258	7,016	1,134	180	352	2,538	16%	7.2	6%
CTB	1,560	2,704	1,512	2,806	452	72	292	1,741	16%	6.0	3%
GPI	1,375	5,226	4,062	11,612	1,753	153	268	2,630	15%	9.8	3%

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-12297

Penske Automotive Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware		22-3086739
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2555 Telegraph Road
Bloomfield Hills, Michigan		48302-0954
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(248) 648-2500

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Voting Common Stock, par value $0.0001 per share	PAG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of October 28, 2019, there were 81,066,017 shares of voting common stock outstanding.

Table of Contents

TABLE OF CONTENTS


	Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets as of September 30, 2019 and December 31, 2018	3

Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2019 and 2018	4

Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	5

Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	6

Consolidated Condensed Statement of Equity for the three and nine months ended September 30, 2019 and 2018	7

Notes to Consolidated Condensed Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3. Quantitative & Qualitative Disclosures About Market Risk	62

Item 4. Controls and Procedures	63

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	63

Item 1A. Risk Factors	63

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	65

Item 6. Exhibits	66

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS


	September 30,		December 31,
	2019		2018
	(Unaudited)
	(In millions, except share
	and per share amounts)
ASSETS
Cash and cash equivalents	$	77.5	$	39.4
Accounts receivable, net of allowance for doubtful accounts of $5.6 and $5.4		967.3		929.1
Inventories		4,043.9		4,040.1
Other current assets		98.8		86.6
Total current assets		5,187.5		5,095.2
Property and equipment, net		2,309.3		2,250.0
Operating lease right-of-use assets		2,384.4		—
Goodwill		1,876.5		1,752.0
Other indefinite-lived intangible assets		547.4		486.2
Equity method investments		1,362.8		1,305.2
Other long-term assets		21.6		15.9
Total assets	$	13,689.5	$	10,904.5
LIABILITIES AND EQUITY
Floor plan notes payable	$	2,444.1	$	2,362.2
Floor plan notes payable — non-trade		1,410.6		1,428.6
Accounts payable		672.3		598.2
Accrued expenses and other current liabilities		722.2		566.6
Current portion of long-term debt		96.8		92.0
Liabilities held for sale		0.5		0.7
Total current liabilities		5,346.5		5,048.3
Long-term debt		2,282.5		2,124.7
Long-term operating lease liabilities		2,334.7		—
Deferred tax liabilities		620.7		577.8
Other long-term liabilities		446.0		519.0
Total liabilities		11,030.4		8,269.8
Commitments and contingent liabilities (Note 11)
Equity
Penske Automotive Group stockholders’ equity:
Preferred Stock, $0.0001 par value; 100,000 shares authorized; none issued and outstanding		—		—
Common Stock, $0.0001 par value, 240,000,000 shares authorized; 81,066,927 shares issued and outstanding at September 30, 2019; 84,546,970 shares issued and outstanding at December 31, 2018		—		—
Non-voting Common Stock, $0.0001 par value; 7,125,000 shares authorized; none issued and outstanding		—		—
Class C Common Stock, $0.0001 par value; 20,000,000 shares authorized; none issued and outstanding		—		—
Additional paid-in capital		317.2		477.8
Retained earnings		2,607.7		2,365.8
Accumulated other comprehensive income (loss)		(286.0)		(234.5)
Total Penske Automotive Group stockholders’ equity		2,638.9		2,609.1
Non-controlling interest		20.2		25.6
Total equity		2,659.1		2,634.7
Total liabilities and equity	$	13,689.5	$	10,904.5

See Notes to Consolidated Condensed Financial Statements

Table of Contents

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2019		2018		2019		2018
	(Unaudited)
	(In millions, except per share amounts)
Revenue:
Retail automotive dealership		$	5,155.4	$	5,148.5	$	15,442.9	$	15,900.0
Retail commercial truck dealership			692.3		385.3		1,451.4		1,016.5
Commercial vehicle distribution and other			119.9		124.8		393.5		429.3
Total revenues			5,967.6		5,658.6		17,287.8		17,345.8
Cost of sales:
Retail automotive dealership			4,407.9		4,386.3		13,159.0		13,561.5
Retail commercial truck dealership			605.7		327.5		1,251.9		859.7
Commercial vehicle distribution and other			84.3		92.2		287.9		317.8
Total cost of sales			5,097.9		4,806.0		14,698.8		14,739.0
Gross profit			869.7		852.6		2,589.0		2,606.8
Selling, general and administrative expenses			672.8		662.8		2,008.1		2,001.3
Depreciation			27.5		25.9		81.0		77.2
Operating income			169.4		163.9		499.9		528.3
Floor plan interest expense			(21.4)		(20.2)		(64.2)		(59.0)
Other interest expense			(32.9)		(28.3)		(93.2)		(86.7)
Equity in earnings of affiliates			43.3		41.7		109.6		95.0
Income from continuing operations before income taxes			158.4		157.1		452.1		477.6
Income taxes			(42.4)		(27.1)		(118.6)		(104.7)
Income from continuing operations			116.0		130.0		333.5		372.9
Income from discontinued operations, net of tax			0.1		0.1		0.3		0.2
Net income			116.1		130.1		333.8		373.1
Less: (Loss) income attributable to non-controlling interests			(0.1)		(0.1)		(0.4)		0.2
Net income attributable to Penske Automotive Group common stockholders		$	116.2	$	130.2	$	334.2	$	372.9
Basic earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations		$	1.42	$	1.53	$	4.02	$	4.37
Discontinued operations			0.00		0.00		0.00		0.00
Net income attributable to Penske Automotive Group common stockholders		$	1.42	$	1.53	$	4.03	$	4.37
Shares used in determining basic earnings per share			81.6		84.9		83.0		85.2
Diluted earnings per share attributable to Penske Automotive Group common stockholders:
Continuing operations		$	1.42	$	1.53	$	4.02	$	4.37
Discontinued operations			0.00		0.00		0.00		0.00
Net income attributable to Penske Automotive Group common stockholders		$	1.42	$	1.53	$	4.03	$	4.37
Shares used in determining diluted earnings per share			81.7		84.9		83.0		85.3
Amounts attributable to Penske Automotive Group common stockholders:
Income from continuing operations		$	116.0	$	130.0	$	333.5	$	372.9
Less: (Loss) income attributable to non-controlling interests			(0.1)		(0.1)		(0.4)		0.2
Income from continuing operations, net of tax			116.1		130.1		333.9		372.7
Income from discontinued operations, net of tax			0.1		0.1		0.3		0.2
Net income attributable to Penske Automotive Group common stockholders		$	116.2	$	130.2	$	334.2	$	372.9
Cash dividends per share		$	0.40	$	0.36	$	1.17	$	1.05

See Notes to Consolidated Condensed Financial Statements

Table of Contents

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2019		2018		2019		2018
	(Unaudited)
	(In millions)
Net income		$	116.1	$	130.1	$	333.8	$	373.1
Other comprehensive income:
Foreign currency translation adjustment			(44.3)		(19.6)		(54.1)		(57.2)
Other adjustments to comprehensive income, net			(1.9)		2.1		1.9		(1.3)
Other comprehensive loss, net of tax			(46.2)		(17.5)		(52.2)		(58.5)
Comprehensive income			69.9		112.6		281.6		314.6
Less: Comprehensive loss attributable to non-controlling interests			(0.6)		(0.2)		(1.1)		(1.0)
Comprehensive income attributable to Penske Automotive Group common stockholders		$	70.5	$	112.8	$	282.7	$	315.6

See Notes to Consolidated Condensed Financial Statements

Table of Contents

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS


	Nine Months Ended
	September 30,
	2019		2018
	(Unaudited)
	(In millions)
Operating Activities:
Net income	$	333.8	$	373.1
Adjustments to reconcile net income to net cash from continuing operating activities:
Depreciation		81.0		77.2
Earnings of equity method investments		(77.8)		(69.5)
Income from discontinued operations, net of tax		(0.3)		(0.2)
Deferred income taxes		48.2		64.3
Changes in operating assets and liabilities:
Accounts receivable		(38.0)		6.1
Inventories		119.9		205.2
Floor plan notes payable		108.7		(165.2)
Accounts payable and accrued expenses		128.6		26.2
Other		(43.3)		18.7
Net cash provided by continuing operating activities		660.8		535.9
Investing Activities:
Purchase of equipment and improvements		(188.8)		(188.5)
Proceeds from sale of dealerships		7.3		58.4
Proceeds from sale-leaseback transactions		7.3		10.7
Acquisitions net, including repayment of sellers’ floor plan notes payable of $138.5 and $25.8, respectively		(326.9)		(168.6)
Other		(2.3)		(3.5)
Net cash used in continuing investing activities		(503.4)		(291.5)
Financing Activities:
Proceeds from borrowings under U.S. credit agreement revolving credit line		1,458.0		1,163.0
Repayments under U.S. credit agreement revolving credit line		(1,383.0)		(1,335.0)
Net borrowings of other long-term debt		95.3		131.0
Net repayments of floor plan notes payable — non-trade		(18.0)		(59.6)
Repurchases of common stock		(174.1)		(55.8)
Dividends		(97.3)		(89.7)
Other		0.1		(6.2)
Net cash used in continuing financing activities		(119.0)		(252.3)
Discontinued operations:
Net cash provided by discontinued operating activities		0.2		0.3
Net cash provided by discontinued investing activities		—		—
Net cash provided by discontinued financing activities		—		—
Net cash provided by discontinued operations		0.2		0.3
Effect of exchange rate changes on cash and cash equivalents		(0.5)		(0.5)
Net change in cash and cash equivalents		38.1		(8.1)
Cash and cash equivalents, beginning of period		39.4		45.7
Cash and cash equivalents, end of period	$	77.5	$	37.6
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	139.6	$	127.4
Income taxes		69.8		36.5
Non cash activities:
Deferred consideration		—	$	6.8
Contingent consideration	$	10.6		—

See Notes to Consolidated Condensed Financial Statements

Table of Contents

PENSKE AUTOMOTIVE GROUP, INC.

CONSOLIDATED CONDENSED STATEMENT OF EQUITY


	Three Months Ended September 30, 2019

								Accumulated		Total
	Common Stock			Additional				Other		Penske
	Issued			Paid-in		Retained		Comprehensive		Automotive Group		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Income (Loss)		Stockholders’ Equity		Interest		Equity
	(Unaudited)
	(Dollars in millions)
Balance, June 30, 2019	81,956,305	$	—	$	356.5	$	2,524.3	$	(240.3)	$	2,640.5	$	20.5	$	2,661.0
Adoption of ASC 842 (Note 1)	—		—		—		—		—		—		—		—
Equity compensation	132,244		—		4.3		—		—		4.3		—		4.3
Repurchases of common stock	(1,021,622)		—		(43.6)		—		—		(43.6)		—		(43.6)
Dividends	—		—		—		(32.8)		—		(32.8)		—		(32.8)
Purchase of subsidiary shares from non-controlling interest	—		—		—		—		—		—		—		—
Distributions to non-controlling interest	—		—		—		—		—		—		(0.1)		(0.1)
Foreign currency translation	—		—		—		—		(43.8)		(43.8)		(0.5)		(44.3)
Other	—		—		—		—		(1.9)		(1.9)		0.4		(1.5)
Net income	—		—		—		116.2		—		116.2		(0.1)		116.1
Balance, September 30, 2019	81,066,927	$	—	$	317.2	$	2,607.7	$	(286.0)	$	2,638.9	$	20.2	$	2,659.1


	Three Months Ended September 30, 2018

								Accumulated		Total
	Common Stock			Additional				Other		Penske
	Issued			Paid-in		Retained		Comprehensive		Automotive Group		Non-controlling		Total
	Shares	Amount		Capital		Earnings		Income (Loss)		Stockholders’ Equity		Interest		Equity
	(Unaudited)
	(Dollars in millions)
Balance, June 30, 2018	84,865,069	$	—	$	483.9	$	2,199.7	$	(186.4)	$	2,497.2	$	28.6	$	2,525.8
Adoption of ASC 606	—		—		—		—		—		—		—		—
Equity compensation	(1,900)		—		4.0		—		—		4.0		—		4.0
Repurchases of common stock	—		—		—		—		—		—		—		—
Dividends	—		—		—		(30.7)		—		(30.7)		—		(30.7)
Purchase of subsidiary shares from non-controlling interest	—		—		—		—		—		—		—		—
Distributions to non-controlling interest	—		—		—		—		—		—		(0.1)		(0.1)
Foreign currency translation	—		—		—		—		(19.5)		(19.5)		(0.1)		(19.6)
Other	—		—		—		—		2.1		2.1		0.4		2.5
Net income	—		—		—		130.2		—		130.2		(0.1)

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	84	$3,920

10-Q	2019-10-30	Quarter: 2019-09-30
10-Q	2019-07-31	Quarter: 2019-06-30
10-Q	2019-04-26	Quarter: 2019-03-31
10-K	2019-02-22	Annual: 2018-12-31
10-Q	2018-10-26	Quarter: 2018-09-30
10-Q	2018-07-27	Quarter: 2018-06-30
10-Q	2018-04-27	Quarter: 2018-03-31
10-K	2018-02-22	Annual: 2017-12-31
10-Q	2017-10-26	Quarter: 2017-09-30
10-Q	2017-07-28	Quarter: 2017-06-30
10-Q	2017-04-27	Quarter: 2017-03-31
10-K	2017-02-24	Annual: 2016-12-31
10-Q	2016-10-27	Quarter: 2016-09-30
10-Q	2016-07-29	Quarter: 2016-06-30
10-Q	2016-04-27	Quarter: 2016-03-31
10-K	2016-02-25	Annual: 2015-12-31
10-Q	2015-10-30	Quarter: 2015-09-30
10-Q	2015-07-30	Quarter: 2015-06-30
10-Q	2015-05-01	Quarter: 2015-03-31
10-K	2015-02-26	Annual: 2014-12-31
10-Q	2014-10-29	Quarter: 2014-09-30
10-Q	2014-07-31	Quarter: 2014-06-30
10-Q	2014-05-05	Quarter: 2014-03-31
10-K	2014-03-03	Annual: 2013-12-31
10-Q	2013-10-30	Quarter: 2013-09-30
10-Q	2013-08-01	Quarter: 2013-06-30
10-Q	2013-04-30	Quarter: 2013-03-31
10-K	2013-02-28	Annual: 2012-12-31
10-Q	2012-11-02	Quarter: 2012-09-30
10-Q	2012-08-03	Quarter: 2012-06-30
10-Q	2012-05-04	Quarter: 2012-03-31
10-K	2012-02-24	Annual: 2011-12-31
10-Q	2011-11-07	Quarter: 2011-09-30
10-Q	2011-08-02	Quarter: 2011-06-30
10-Q	2011-05-03	Quarter: 2011-03-31
10-K	2011-02-28	Annual: 2010-12-31
10-Q	2010-11-04	Quarter: 2010-09-30
10-Q	2010-07-30	Quarter: 2010-06-30
10-Q	2010-05-03	Quarter: 2010-03-31
10-K	2010-02-24	Annual: 2009-12-31

8-K	2019-12-18	Enter Agreement, Exhibits
8-K	2019-10-29	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-10-16
8-K	2019-07-30	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-07-12	Enter Agreement, Other Events, Exhibits
8-K	2019-06-27	Enter Agreement, Exhibits
8-K	2019-05-09	Shareholder Vote, Other Events, Exhibits
8-K	2019-04-25	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-04-24	Regulation FD
8-K	2019-02-07	Earnings, Regulation FD, Other Events, Exhibits
8-K	2019-01-30	Other Events, Exhibits
8-K	2019-01-22	Regulation FD
8-K	2018-12-17	Enter Agreement
8-K	2018-12-13	Enter Agreement, Officers, Exhibits
8-K	2018-10-25	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-10-17	Other Events, Exhibits
8-K	2018-07-26	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-07-18	Other Events, Exhibits
8-K	2018-05-10	Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K	2018-04-25	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-02-08	Earnings, Regulation FD, Other Events, Exhibits
8-K	2018-02-01	Regulation FD, Other Events, Exhibits

EX-31.1	ex-31d1.htm
EX-31.2	ex-31d2.htm
EX-32	ex-32.htm