Penske Automotive Group Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: Penske reported Q2 revenue of $7.7 billion with net income up 4% and EPS up 5%, marking the third consecutive quarter of year-over-year earnings growth and a 20 bps improvement in EBT margin to 4.4%.
  • Positive Sentiment: Same-store service and parts gross profit rose 9% with a 50 bps increase in gross margin, driven by higher fixed cost absorption and strong customer pay and warranty revenues.
  • Positive Sentiment: The company generated $472 million of operating cash flow and $325 million of free cash flow in H1, raised its dividend by 4.8%, and repurchased $93 million of stock in Q2, reflecting a disciplined capital allocation strategy.
  • Negative Sentiment: Ongoing tariff negotiations led some OEMs to pause shipments, constraining new vehicle inventory and causing modest compression in unit sales before resolution of EU, UK, and Japan tariff agreements.
  • Negative Sentiment: International sales were pressured in the UK by inflation, interest rates, and lower incentives, with new unit deliveries down 16% and used units down 23% amid realignment of dealership operations.
AI Generated. May Contain Errors.
Earnings Conference Call
Penske Automotive Group Q2 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good afternoon. Welcome to the Penske Automotive Group Second Quarter twenty twenty five Earnings Conference Call. Today's call is being recorded and will be available for replay approximately one hour after completion through 08/06/2025, on the company's website under the Investors tab at www.penskeautomotive.com.

Operator

I will now introduce Tony Porton, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Anthony Pordon
Anthony Pordon
EVP - IR & Corporate Development at Penske Automotive Group

Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter twenty twenty five financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the company's results. As always, I'm available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, Chair and CEO Shelly Holgrave, EVP and Chief Financial Officer Rich Sheering, North American Operations Randall Seymour, International Operations and Tony Piccione, our Vice President, Corporate Controller.

Anthony Pordon
Anthony Pordon
EVP - IR & Corporate Development at Penske Automotive Group

Our discussion today may include forward looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity and assessment of business conditions. We may also discuss certain non GAAP financial measures as defined under SEC rules such as earnings before interest, taxes, depreciation and amortization or EBITDA, adjusted net income, adjusted earnings per share, adjusted selling, general and administration expenses and our leverage ratio. We have prominently presented the comparable GAAP measures and have reconciled the non GAAP measures to the most directly comparable GAAP measures in this morning's press release and investor presentation, both of which are available again on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward looking statements. I also direct you to our SEC filings, including our Form 10 ks and previously filed Form 10 Qs for additional discussion and factors that could cause future results to differ materially from expectations.

Anthony Pordon
Anthony Pordon
EVP - IR & Corporate Development at Penske Automotive Group

I will now turn the call over to Roger Penske.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Thank you, Tony. Good afternoon, everyone. I'm really pleased with the performance of our diversified international transportation service business in the second quarter. Our revenue was $7,700,000,000 which was consistent with Q2 last year. Our Q2 revenue was impacted by strategic divestitures of dealership closures made since quarter two in 2024, representing approximately $200,000,000 in revenue.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

EBT increased 4%. Our net income increased 4% and earnings per share increased 5% when compared to the 2024. Q2 represented our third consecutive quarter of year over year earnings growth and we generated $337,000,000 of income before taxes, $250,000,000 in net income and $3.78 per share. Our EBT margin increased 20 basis points to 4.4 when compared to Q2 last year. The second quarter performance was highlighted by a 9% increase in same store retail automotive service and parts gross profit and a 50 basis point increase in service and parts gross margin, also an increase in fixed cost absorption of three thirty basis points in The U.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

S. And 30 basis points in The UK. Our gross profit increased to $1,300,000,000 which compares to $868,000,000 in Q2 in 2019. The company gross profit margin increased 50 basis points to 16.9%, representing the eighth consecutive quarter of strong and stable gross margin. New and used vehicle grosses increased one hundred and forty one percent $141 in the quarter for new and $384 sequentially.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Used grosses increased $5.00 $4 per unit for the quarter and $177 sequentially. New and used vehicle gross and F and I combined or what we call variable gross profit increased $583 per unit or 11% to $5,691 Our focus on controlling costs such as advertising compensation as a percentage of gross profit helped drive selling, general and administrative expenses as a percentage of gross profit or SG and A to 69.9%, a 30 basis point improvement. As we look at the current environment, we are encouraged by the recent trade agreements. In fact, the recent agreement with the EU is expected to provide benefits to two of our largest partners that should benefit from the agreeing by exporting U. S.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Production. We've seen some OEMs increase prices modestly, while others have extended during the current pricing. The situation remains fluid. We remain in close contact with our OEM partners. I think our diversification is a key differentiator as approximately 61% of our revenue is generated in North America, 29% in The UK and 10% from other international markets.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

PAG's premium brand mix are present in The U. S. And international automotive markets. Our North American retail commercial truck dealerships and earnings from Penske Transportation Solutions, coupled with our highly variable cost structure, provide us with opportunities to flex our business to meet the changing automotive and commercial truck landscape. Let me now turn it over to Rich Schering, who handles our North American operations. Rich?

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Thank you, Roger, and good afternoon, everyone. In our automotive retail business, during the second quarter, we experienced elevated traffic during April and May. We believe the pent up demand is driving customer resilience and we have seen stronger traffic and closing ratios so far in July with sales up approximately 10% month to date versus prior year. In the second quarter, our new units in The U. S.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Were up 1%. Some OEMs held off from shipping product as tariff negotiations took place limiting inventory of some brands. During the quarter, 34% of new units sold were at MSRP compared to 35% in the second quarter last year. Second quarter used vehicle sales declined 3% and were constrained by fewer lease returns and rising prices. We expect the lower level of lease maturities to bottom this year and begin improving in 2026.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

We expect franchise dealers will benefit from increasing lease returns for used vehicle sourcing in that time period. Our U. S. Service and parts operations generated record levels of revenue and gross profit. Same store service and parts revenue increased 7% and related gross profit increased 9%.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Same store gross margin increased 90 basis points. Customer pay gross was up 6% and warranty was up 24%. We have approximately 6,000 service bays and 5,800 technicians and our technician count is up 2% from June. While our service and parts revenue and gross profit is at a record level, we continue to focus on driving higher utilization of our bays and increasing fixed cost absorption. Turning to Premier Truck Group, we operate 45 locations and remain one of the largest commercial truck retailers for Daimler Trucks North America.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Daimler Trucks North America continues to have the largest share in the Class eight market at 42.5% year to date. Premier Truck Group is one of the core pillars of our diversified model and represents 12% of revenue and 11% of gross profit. As we look ahead, the US Congress revoked the EPA waiver California to adopt more stringent emission rules, the which mean manufacturers and dealers will no longer have to navigate different rules across different states. Coupled with the waivers being rescinded for advanced clean truck and advanced clean fleet rules, the ZEV mandates have also been effectively removed. As a result, we believe the potential cost increases for the 2027 model year Class eight trucks will be more muted than originally expected.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

During Q2, Premier Truck Group sold 5,339 new and used units. New was up 4% and used units was down 8%. Although used units declined, used truck grosses increased over 50% to $7,037 from $4,502 as late model low mileage trucks continue to be in short supply. At the June, the current industry backlog was 90,400 units or approximately four to five months' worth of sales. We did note some pull ahead ordering during the quarter as a result of tariffs as some customers looked to lock in lower prices.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Same store service and parts revenue increased 1% as well. Looking out over the next six months for the first time in approximately five years, Daimler Trucks are no longer being allocated on a distribution level to their dealers. This provides us with an opportunity to conquest new customers. Now turning to Penske Transportation Solutions. Penske Automotive Group owns 28.9% of PTS and records equity income, receives cash distributions and cash tax savings.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

PAG invested $956,000,000 for its ownership and has received nearly $2,000,000,000 in cash flow benefits since making that first investment. During Q2, revenue was $2,800,000,000 Full service revenue and contract increased 4%. Logistics revenue was flat, while rental revenue declined 9%. During the quarter, PTS sold over 11,000 units and ended the quarter with 414,000 units down from 428,000 units at the March. PTS income increased during Q2 as a result of efforts to optimize costs, improve utilization rates and hold pricing.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Equity earnings from PTS investment were $53,500,000 up from $52,900,000 in the second quarter last year. I would now like to turn the call over to Randall Seymour to discuss our international operations. Randall?

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

Thanks, Rich, and good afternoon, everyone. PAG's international operations represent approximately 40% of total consolidated revenue. During Q2, international revenue was $2,900,000,000 In The U. K, the macro operating environment remains challenging as inflation, interest rates, higher taxes and consumer affordability impact the overall market. The U.

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

K. Market continues to transition new vehicle sales to BEVs and hybrids. In 2025, the government target for BEV penetration is 28%, many of which are being sold through the corporate fleet channels. During Q2, the number of new units we delivered declined by 16% and were impacted by several factors resulting from OEM product changes and reduced incentive offerings, also impacts the new car markets from The U. K.

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

ZEV mandates and the previously discussed disposed or closed dealerships. Turning to used cars, same store used units declined 23%, which is attributable to the realignment of the company's U. K. CarShop used only dealerships to Sytner Select in 2024. Through this realignment, we have taken out approximately 500 people through attrition, which helped drive a lower cost structure.

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

The realignment began in Q3 twenty twenty four, so the year over year decline is expected to abate in the second half of this year. We view this as a positive change for our business. And as a result of this strategy and improved management of overall used inventory, gross profit per unit has increased by over $800 or 56% quarter over quarter and $221 sequentially when compared to the 2025. Service and Parts remained strong as same store revenue increased 6% and gross profit increased 8%. Pleasingly, customer pay gross profit increased 10% and warranty declined 5% largely due to the 20% growth we achieved in Q2 of last year.

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

Turning to Australia. We operate three Porsche dealerships in Melbourne, which we acquired in 2024. During the first half of this year, these dealerships retailed eleven thirty six new and used units and generated $128,000,000 in revenue. The used to new ratio is nearly one:one and has doubled when compared to the ratio prior to the acquisition. We use our existing scale of the commercial vehicle and power systems business in Australia to leverage costs while executing our One Ecosystem strategy at the Porsche dealerships, which provides for a superior customer experience.

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

We anticipate generating approximately million in annualized revenue through these automotive dealerships. Turning to Australia Commercial Vehicle and Power Systems business. We are diversified with revenue and gross profit, which is split approximately fifty-fifty between our on and off highway markets. In the on highway markets, the brands we represented picked up 30 basis points in market share as the products we continue to sell gain customer preference. In the off highway sector, revenue and margin were driven by strong energy solutions demand.

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

We have $350,000,000 backlog for 2025 delivery and a total order bank of over $500,000,000 predominantly related to the large growth in data center and battery energy storage solution businesses. We see a potential for the total energy solutions business to generate over $1,000,000,000 in revenue by 02/1930. Our defense business continues its strong momentum too with projects for infantry fighting vehicles and several Navy applications for frigates and submarines. I'd now like to return the call over to Shelly Holgrave to review our cash flow, balance sheet and capital allocation.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Thank you, Randall. Good afternoon, everyone. Our strategy has been to focus on the strength of our balance sheet, cash flow, disciplined approach to capital allocation and our diversification. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize effective and opportunistic capital allocation. For the six months ended 06/30/2025, we generated $472,000,000 in cash flow from operations and EBITDA was $800,000,000 On a trailing twelve month basis, EBITDA was over $1,500,000,000 Our free cash flow, which is cash flow from operations after deducting capital expenditures, was $325,000,000 Through June 30, we paid $165,000,000 in dividends and invested $147,000,000 in capital expenditures.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

We increased our dividend by 4.8% to $1.32 per share last week, representing the nineteenth consecutive quarterly increase. Since the 2023, we have increased the dividend by 67%. On a forward basis, our current dividend yield is approximately 3.1% with a payout ratio of 34.7% over the last twelve months. During the quarter, we repurchased 630,000 shares of stock for $93,000,000 and year to date through June 30, we have repurchased 885,000 shares for 133,000,000 representing approximately 1.3% of our outstanding shares. Over the last four plus years, we have returned over $2,500,000,000 to shareholders through dividends and share repurchases.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

In May, our Board authorized an increase in the repurchase authority of $250,000,000 As of June 30, we have $295,700,000 remaining under the existing securities repurchase authorization. As part of our strategic capital allocation, in July, we acquired a Ferrari dealership in Modena, Italy. As many of you know, Modena is the home of the Ferrari brand. While we continue to evaluate the impact of the One Big Beautiful bill on our financial statements, we do expect to recognize positive cash flow impacts related to our 28.9% ownership in the PTS partnership. Bonus depreciation, in particular, will provide an estimated benefit of approximately $150,000,000 on the $3,000,000,000 worth of capital expenditures in trucks that PTS expects to purchase in each of the next three years and beyond.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

At the June, our non vehicle long term debt was $1,780,000,000 down $69,000,000 from the December. Debt to total capitalization improved to 24% from 26.1% at the December and leverage remained at 1.2 times. 77% of the non vehicle long term debt is at fixed rates. When including Floorplan, we have $4,600,000,000 of variable debt. 54% of our variable rate debt is in The United States.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

We estimate a 25 basis point change in interest rates would impact interest expense by approximately $12,000,000 At the June, we had $155,000,000 of cash and liquidity of $2,300,000,000 In September, our $550,000,000 of 3.5% senior subordinated notes will mature. We currently expect to repay those notes from cash flow from operations or borrowings under our U. S. Credit agreement. Total inventory was $4,800,000,000 up $2.00 $9,000,000 from the December 2024.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Retail automotive inventory was up 44,000,000 New vehicles declined $20,000,000 Used vehicles increased $49,000,000 and parts increased $15,000,000 Commercial vehicle inventory was up 166,000,000 Floorplan debt was $4,200,000,000 New and used inventory remains in good shape. New vehicle inventory is at a fifty seven day supply, including fifty nine days for premium and thirty eight days for volume foreign. Used vehicle inventory is at a forty four day supply. At this time, I will turn the call back to Roger for some final remarks.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Yes. Thank you, Shelly. As I mentioned earlier, I continue to be pleased with our performance and the resilience of our business and would like to thank each of our 28,000 team members that work in our business each day for their efforts to exceed expectations. Our results continue to demonstrate the benefit from our diversification across the retail automotive, commercial truck industries, our cost control and a disciplined capital allocation strategy and certainly a strong balance sheet and cash flow. I remain confident in our diversified model and its ability to flex with market conditions and remain very pleased with the performance of our business.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

I want to thank all of you for joining the call today, and we'll open it up for questions with the operator. Thank you.

Operator

Thank you. Our first question comes from Mike Ward from Citi Research. Please go ahead. Your line is open.

Michael Ward
Michael Ward
Financial Analyst at Citi

Thank you very much. Good afternoon, everyone.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Mike.

Michael Ward
Michael Ward
Financial Analyst at Citi

I wonder if you can quantify a few of the moving pieces that affected your unit sales in The US and The UK.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Sure, Mike. It's Shelly. I'm happy to take that. As we mentioned, we had approximately $200,000,000 of revenue in the quarter, in 2024 that we did not have in 2025. We sold, and divested of a few stores.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

We also closed some stores, some of which related to the sitter select business in The UK as mentioned. So when you look at, new and used vehicle units that had an impact as well, new units related to those divested stores, were approximately 2,000 units. And we also had the mini brand, transfer over to agencies. So that impacted the new units by approximately 1,300. When you take that against the units that we reported, we actually were only down about 17 new units quarter over quarter.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

From a used perspective, those divested or closed stores, attributed to about 4,400 used units.

Michael Ward
Michael Ward
Financial Analyst at Citi

Okay. And and and what about that's The UK. Right? The, divested in the mini?

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

It's all well, it's all of it. We had some stores that we divested in The US as well, but even The US mini is just The UK.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

We also had, Mike, mobility in The UK as as a product that, people that qualify for mobility credits, that was really slowed way down by Audi, BMW, and Mercedes during the quarter. Really, we're not in that business, which obviously was an impact to us, from the premium premium sector. We see that coming back, this this quarter. I think this was all part of a strategy. They were waiting to see what the tariff structure was gonna be and didn't wanna pour a lot of their incentive money into mobility.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Now that's changed now. We'll have to see how that rolls out here based on the current, information we have regarding the 15% tariff for the European Union.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

And Mike, think on on a smaller scale, to to add to Roger's point, in

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

The US, we had Audi, Porsche, and Land Rover kinda suspend wholesales for a period of of forty five days in the second quarter as they were, you know, further looking to understand what the the tariff outcome was gonna be. That probably impacted our Porsche business, the most. If you look at that that brand, our EBT was down 9% in the in the second quarter, whereas year to date, we're up 1%. And that certainly hurt our mix. But that wholesale from those brands now is flowing again. So it was a short term impact.

Michael Ward
Michael Ward
Financial Analyst at Citi

Okay. And so is that partly attributed? You said July was up 10%. Is some of that coming back? Is that what that is?

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Well, think it's resiliency of the consumer. We're seeing traffic counts kind of remain flat year over year, but conversion has ticked up. So there's more serious buyers. I would say in June, our conversion of the traffic was down a little bit because I think there was still uncertainty in what the ultimate tariffs were gonna look like. Now that we've got conclusive positions with Japan, which obviously impacts our our Toyota Honda business, The UK with with Land Rover Mini, and then The EU with, with Audi, Mercedes Benz, BMW, Porsche, the majority of the brand mix we have in The US is has some certainty on what the tariffs are gonna look like going forward.

Michael Ward
Michael Ward
Financial Analyst at Citi

And and Thank you. And, Shelly, the 150,000,000 from the big beautiful bill, that's in addition to any dividend income you get from your equity stake. Correct?

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

That's right, Mike. So we still have the 50% dividend policy that we re receive each year. And then the one big beautiful bill, bonus depreciation in particular was an item in the Tax Cut Jobs Act that was starting to sunset. So we were starting to have to pay more in in income taxes from a cash perspective in '24 and and projected for '25 on that bonus depreciation would was supposed to go away. The one big beautiful bill made it permanent and and retroactive back to purchases to mid January.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

So it's an estimate of of the the deferred cash taxes that we expect to enjoy this year and into the future.

Michael Ward
Michael Ward
Financial Analyst at Citi

So we look So that will benefit this year?

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Oh, yeah.

Michael Ward
Michael Ward
Financial Analyst at Citi

Okay.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Yeah.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Yep.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

And We we look at, about 3 to 3 and a half billion of asset purchases at PTS, each year going forward.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

So, obviously, with 30 roughly 30% of the ownership, it's a partnership. We get we get the benefit on our tax line. So, overall, it it was a terrific benefit to us. And, you know, if you look at this year and say it's the same in in '26 and '27, it could be as much as 450,000,000 that we would would not have to pay due to this in corporate taxes.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

And I wanna highlight, it doesn't impact our rate. It's really just the cash taxes that we have to pay.

Michael Ward
Michael Ward
Financial Analyst at Citi

But Right.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Given that it's a cash benefit, we certainly will look to deploy that cash through our capital allocation strategy. So we certainly see that as a benefit going forward.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

And on PTS, we have a program there that, typically 50% of of our earnings before taxes is paid out to the div to the shareholders based on their, on their ownership piece. So based on, our current projection, this could be roughly another 100,000,000. So you'd look at almost 250,000,000 of benefit, during 2025 in cash. Cash. Yeah.

Michael Ward
Michael Ward
Financial Analyst at Citi

Cash. Fantastic. Thank you very much.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Thanks, Mike.

Operator

Our next question comes from Ron Jusico from Guggenheim Securities. Please go ahead. Your line is open.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Hey, Ron.

Ronald Jewsikow
Director - Equity Research Analyst at Guggenheim Securities, LLC

Hey, Roger. Yeah. Good afternoon and thanks for taking my questions. Yeah. Just before my questions, I wanted to say congratulations, Roger, on the centennial award recognition last month.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Well, thank you. That was a byproduct of the 74,000 people that work for us every day, but I appreciate you mentioning it. Thank you.

Ronald Jewsikow
Director - Equity Research Analyst at Guggenheim Securities, LLC

Mhmm. And I appreciate the the quarter to date commentary on volumes, but maybe if you could just touch on the GPU trajectory, and the cadence throughout the quarter and then into July, you can talk about that as well.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

Yes, Ron, Rich here. I think when you look at the initial tariff announcement in in March, I think it was, you know, that certainly drove some activity. We saw activity spike probably into into April and and to a lesser extent in May and June. You know? And and, obviously, we knew that our inventory that was non tariff impacted at that point in time became more valuable.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

So there was no need to be giving those cars away, not knowing what the ultimate tariff impact was gonna be and when final resolution was gonna gonna be made between these countries. So, you know, throughout the quarter in The US, our grosses were were very stable. Certainly, they were the highest in in April at 7,250. But then you look over the the the quarter between May and June, you know, the spread between those other months was no more than a $125. So I think our team did a really good job of of balancing the the volume, you know, with the grosses, you know, during that environment.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

I think as we, you know, go forward, you know, as we look to to May and I said, you know, the the sales activity has increased, I think we'll see a little bit of a gross compression and it's going to be different by brand. Certainly, think the other impact when you look at BEVs with the IRA tax credit going away at the September, Our team is keenly focused on making deals with consumers that are interested in the best so that we have the least amount of inventory in that time frame as possible. And I think the OEMs are similarly motivated as well. We've with the announcement of those that tax credit going away increased incentives on various different models as OEMs look to reduce that inventory. I think when you look at the margin that we have on the new vehicles, our margins have remained the same, but the average vehicle selling price continues to increase.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

We've talked about this before, Pre COVID or 2019 and earlier, our average selling price was $41,000 Our average selling one price today is almost $61,000

Ronald Jewsikow
Director - Equity Research Analyst at Guggenheim Securities, LLC

That's super helpful color. And you kind of touched on my next question a bit there. But on the sunsetting of electric vehicle tax credits at the end of the third quarter in The U. S, you do have more bev sales than your peers just given your luxury mix. How should we think about the impacts not just in the third quarter from volume pull forward but also long term?

Ronald Jewsikow
Director - Equity Research Analyst at Guggenheim Securities, LLC

I guess what would the impact of weaker electric vehicle sales mean for your business because they are GPU dilutive. We do know that but just kind of the puts and takes.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

I think, first of all, you got to remember that the overall Bev sales as a percentage of our total sales is in that 6.5% to 7% range. So it's a small portion of our overall sales. Certainly in some markets, it's a much higher percentage when you look at California or some of the Sunbelt states where you don't have the degradation of the range and other operating concerns associated with the BEV. But we've already seen actually some improvement in those markets as the OEMs have adjusted to demand. So if you look at our West Region, is California, Texas, Arizona, that market those markets sell about 70% of that 6.5 to 7% of our sales in BEV.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

And, you know, Mercedes and others started to adjust last year to match the bad wholesale supply to the demand. They they most aggressively, it was Mercedes. And so when you look at our area there, our California businesses, are up 45% or almost $13,000,000 compared to a year ago as result of some of that bev, you know, being adjusted. So if you look at the incentives, it's, you know, even before the tax credits were announced, incentives are almost $7,200 for bevs. It's about twice the average incentive that we see on the ICE vehicles.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

And inventory is down on bevs. A year ago, we were about 12% to 15% of our new car inventory was bevs. It's at 10% today, down 20% on a unit basis year over year. And, you know, so I think bevs are we're gonna continue to have bevs. Obviously, the OEMs have made significant capital investments in the technology and vehicle platform architectures.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

It's a matter of making sure that they balance the bev wholesale supply to us with the actual market demand whether and we've been doing that now with the tax credit and we'll continue to do it after the tax credit. And I think one last point on Bev's, still relatively small percentage overall of our fixed business, 2% to 3%, But we see on a dollars per RO almost two times the benefit from a bev repair as we do to an ICE repair. I think as the vehicles get more mature over time, that could normalize. But right now, you know, bevs are still more advantageous, in the in the fixed area.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Yeah. I think also when we step back and look at supply, when the manufacturers were trying to balance, BEV vehicles versus ICE, we actually lost some of the volume and supply during the time when BEV's were at the top of the list to try to generate this big market share. When that goes away, I think we're gonna see it obviously in some of the key SUVs and areas that we were looking for vehicles will now not be BEVs, and they'll come back in the market as ICE vehicles. And I think they'll adjust, if necessary, some of the content if we have to in order to be have their vehicles affordable under any any tariff impact they might have. So I see it being a benefit. First, this is my own personal opinion.

Ronald Jewsikow
Director - Equity Research Analyst at Guggenheim Securities, LLC

Yeah. I think we we lean in that direction as well, but it's good to hear that from you, Roger. I'll hop back in the queue and, and and, ask question more questions if, if needed. Thank you.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Thanks, Thanks.

Operator

Next question comes from Jeff Lick from Stephens. Please go ahead. Your line is open.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Hey, Jeff.

Jeff Lick
Managing Director at Stephens Inc

Good afternoon, Roger, Rich, Randall, Shelley, Tony. Thanks for taking the question. Just a quick clarification before you get to my main question. On the 10% units you mentioned, you know, being up in July, is that all units or just new?

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

That's new.

Jeff Lick
Managing Director at Stephens Inc

U Okay.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

U u u u u u u u u u u.

Jeff Lick
Managing Director at Stephens Inc

Perfect. Awesome. Which I was wondering if we can maybe, double click on service and parts. You know, we're starting to get into the, you know, lapping the BMW stop sales and, you know, other, pretty big warranty items. Just curious how you see that playing out? And are the OEMs making any adjustments in terms of how they handle warranty claims? Just any color there would be great.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

No. I don't think we're seeing any adjustment from the OEMs on how they're handling warranty claims. I think they're, you know, frustrated obviously with the number of recalls that continue to occur. You mentioned BMW. Certainly, IVF recall is is still active.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

You know, their their focus last year was on, you know, vehicles at the plant, getting those cleaned, then dealer inventory, and now we're into the the customer, repairs. But we've got Mercedes Benz fuel pump, Honda fuel pumps, Then the big one that, you know, we just had release and direction on is is Toyota and the Tundra long block replacement, which is a fourteen hour repair. You know, we've got close to 400 of those in inventory that have been on on stop sale. So certainly, we've got to balance those repairs with, you know, customers who are looking to bring their existing cars into into, the shops so that we don't end up with long backlogs and and things of that nature. But I think I think there's enough customer demand that even if of these recalls and the warranty as a percent of our total repair orders goes down, when you look at the car park being, you know, 12 to to 13 years of age, average mileage being close to 70,000 miles, we're gonna continue to see the benefit in the fixed ops department.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

And then I think with some of the initiatives that we've undertaken relative to shop load, operating hours, shift schedules, those are all paying benefits as well.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

And I think Roger mentioned that in our fixed absorption increase, our margin improvement up 50 basis points just under 60%. And then our effective labor rate as well at up 6%. And I think it's going to take a while for that car park to adjust. You look at the vehicles we're selling today or servicing today, there's almost six and a quarter years of age on average, and that's up from 5.6 in 2019. And with the SAAR continuing to, you know, struggle to find a new high watermark, I think, I see fixed operations remaining remaining strong.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

And I would say also the complexity, Jeff, of the premium luxury cars when you open the hood and all the things that they have laid out LiDAR and all these things are go with it that the the vehicles are coming back to the dealership, and they're not going anymore to a local guy around the corner. So that's driving the business. And I think that in most cases, as you know, for us on the premium luxury side, which is 71%, a lot of these vehicles are leased and have some maintenance component with them, and that drives them back back to our shops, which I think is key. And the good news is that the cost structure in our service department from a labor perspective is flat rate along with high bonus part of compensation for our service writers. So, you know, we see the ability.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Obviously, we raised labor rates. And by the way, we typically get a bump in labor cost support from the manufacturers on warranty, typically on a twelve to eighteen month basis. So, obviously, we get that benefit. And then on the part side, we get paid our full list price on parts on warranty. So this is something that, is very positive.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

And ironically, in in Europe and in The UK, we only get 10%. So this I look at it as a real bonus here in The US based on the current support of of parts and service.

Jeff Lick
Managing Director at Stephens Inc

Well, thanks for taking my question, and I'll I'll get back in queue. Go ahead.

Anthony Pordon
Anthony Pordon
EVP - IR & Corporate Development at Penske Automotive Group

So, Jeff, the other thing to to think about this is Tony. Is the efficiency that we're creating in the service departments too through use of AI in terms of scheduling appointments, tech videos, online pays, and numerous other things that we're doing to try to drive, not not just more tech efficiency, but just overall efficiency and utilization. So I think all of that plays very well into the margin that we're generating and, and the growth of the parts and service business.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Yeah. When you look at let's just jump to PTS for a minute. We've taken some of the lessons learned on both sides. Every night, Jeff, we unload data from 200,000 vehicles in into from the cloud, and we look at that and it determines predictive maintenance. We might have a truck that's hauling cement and the same truck hauling feathers.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Well, obviously, the maintenance requirements certainly would be different. And with this data, then we can adjust the predictive maintenance. And on top of that, when the truck comes in, the mechanic plugs in to the ECU, and it gives him guided repair, tells him exactly what to do on that truck and how to do it. And this has taken our efficiency way up. So I would say we've been using AI a long time, specifically at PTS, and we're looking how we can get some of that crossover into the automotive side.

Jeff Lick
Managing Director at Stephens Inc

Awesome. Thanks. Well, I I can't imagine a, a Penske truck with a bunch of feathers in it, Roger. That doesn't seem right to me.

Richard Shearing
Richard Shearing
Chief Operating Officer of North American Operations at Penske Automotive Group

I'm a little bit Listen.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

As long as it's red, I'm happy.

Jeff Lick
Managing Director at Stephens Inc

That's that's true. As long as it's painful, Absolutely. Thanks very much. Let someone else ask a question.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Thanks, Jeff.

Operator

Our next question comes from Rajat Gupta from JPMorgan. Please go ahead. Your line is open.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Hi, Rajat.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

Hey, Roger, and congrats as well. And thanks, everyone, for taking the questions. Just wanted to follow-up on PTL. Looks like if we exclude the gain on sale, you know, PTL income was up year over year overall. Should should we expect that kind of cadence to continue here in the second half?

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

And just maybe, you know, if you could give us some broader outlook around, you know, where we are in the freight cycle and when you could expect that to reinflag. I have a quick follow-up.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Well, from from the operating side, when when you look at the quarter, we our gain on sale was 44,000,000 last year, and the quarter was 16. So obviously, down $28,000,000 So our guys did a great job from an operating standpoint. And as I look out, into Q3 and Q4, basically gain on sale will be a real trigger up or down based on what the market pricing is. And we have some disposals that we'll look at. We dropped 14,000 units out of our fleet, during the quarter.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

So I think that, it's important, or through the year, I'm sorry. I think it's important that we look at gain on sale or loss or what have it might be. At the end of the day, freight is still flat and that that freight obviously and will drive excess rental from our existing lease customers and also from a just a casual renter. And I think that that will be the driver. If I look at the numbers in the quarter, our lease revenue, I think we talked about it before, 5% to 6% and logistics was up 1% and rental was down 9%.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

So you can see overall cost controls, and the gain on sale really gave us a return of over 50,000,000 And if you went if you looked at that for the rest of the year, it would be about $200,000,000 But again, that can be affected by gain on sale.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

Understood. Understood. That that that's clear. And just, you know, a broader question on capital allocation. You know, if if you take into account, you know, the extra 150,000,000 you're gonna be getting, you know, from the taxable changes, I mean, that's a pretty that's that's a pretty step change, in your cash flow profile.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

I'm curious. Does that, in any way, change how you're thinking about capital allocation, you know, maybe being more aggressive on share buyback, versus, you know or just like other forms of use of cash. And if you could just tell us if you're looking to reprioritize that. Thank you.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Hey, Rashad. It's Shelly. It certainly provides us with more opportunity. And as you as we said before, we're gonna continue to weigh current market conditions. Know, the 2025 certainly had a bit of tariff uncertainty, and so you saw us as well as some of our peers really look to take advantage of, you know, a down market and and focus on buybacks.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

We are always gonna remain focused on our dividend. And, so year to date, about $300,000,000 of return to shareholders. We've started to see folks come out and and make some purchases and acquisitions, and and we're still focused on growing that side of the business as well. So I think it'll be a tale of two halves, and we will certainly look at different market conditions, but the additional 150,000,000 of benefit that we're estimating certainly helps to provide us with more opportunity.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Yeah.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

I would say, from an m and a perspective, you know, obviously, our doors are open, and, you know, we're looking at a decent pipeline right now. How those will, mature, I can't say, but, certainly, we'll look to do m and a, more m and a, obviously, in the last six months than we did in the first six, Kelly. That would be probably fair.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Right.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Yep.

Rajat Gupta
Executive Director - Autos at JP Morgan Chase & Co

Understood. Thanks for all the color, and good luck.

Shelley Hulgrave
Shelley Hulgrave
EVP & CFO at Penske Automotive Group

Thanks.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

All right. Thanks, Rajat.

Operator

Our last question comes from David Whiston from Morningstar. Please go ahead. Your line is open.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Hey, David.

David Whiston
David Whiston
Senior Analyst - U.S. Autos at Morningstar

Hey, everyone. Thanks for taking my question. I wanted stick on the M and A topic actually because if I remember correctly, you've talked in the past about wanting to acquire $1,500,000,000 in annual revenue, and you've just done the priority deal so far. So even if you do end up closing some of these deals in your pipeline, do you think the 1,500,000,000 acquired number for '25 is still on the table? Or is it going be lower?

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

I would say it's not realistic to think we're going to on an annualized basis, maybe we could look at it. But I guess if I had the perfect storm, I'd like to grow 5% organically and 5% through through acquisition. Now we're not meeting those targets right now, but certainly in the capital position we're in from a from certainly from a acquisition standpoint, you know, we really should be in in really in good shape. And when you look at the capital allocation, you know, we had a strong cash flow of 472,000,000 from operations. And certainly, with the uncertainly that followed the tariffs, I think that we have to we pause, and I think that certainly made made a difference.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

We've talked about a 1.3%, you know, the outstanding shares we purchased already about 900,000, and, we paid out a 165,000,000 in dividends. So I think the shareholder themselves is getting a benefit, from dividends. I think the yield at 3.1% is strong. We're certainly paying out at over 35% roughly, in payout. So we're gonna hit all those levers, but trust me, we are definitely looking at at acquisitions.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

But what I don't wanna do, I think Ferrari was kind of a special one when you think about that brand. We're their largest dealer in the world, and we had the ability to have the house dealership next door was was key. But as we look at these, we wanna be sure that we can tuck things in where we have scale, look at markets, and, you know, we're gonna be prudent as as our peers have been. But I think with the size of The US auto market, when we look at internationally, these businesses have an opportunity to grow through acquisition for many years to come.

David Whiston
David Whiston
Senior Analyst - U.S. Autos at Morningstar

Thanks for that. And just one other question on, Porsche Australia. You mentioned the use to new ratio has already doubled, in about a year's time. And I'm just curious, was that mostly due to a lot more advertising or just changing internal operations at those stores?

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Look, let me ask let Randall Seymour. He's calling in from The UK. Hopefully, connect you around. Do you wanna make a comment on what you've been able to accomplish in Australia in just less than a year?

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

Sure. No problem. Good question. So this was mostly internal. In fact, was virtually all internal processes relative to just taking advantage, focusing on getting more trades, whether it be on selling a new or used, the efficiency of reconditioning the marketing them properly.

Randall Seymore
Randall Seymore
COO - International Operations at Penske Automotive Group

But the big opportunity a lot of the independent used car providers were getting a lot of these cars. So we're just organically keeping them. And then we're opportunistically out there buying them as well. So it's a big focus and the team did a great job.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

And that business, really has turned out to be, really amazing when you think about it. We have the three stores in in the big city of Melbourne. Randall and the team were really looking at is one dealership with three three locations in the city. We can combine customer service, one inventory for all three dealerships, and the marketing, I think it's really key. And then we have the benefit of our commercial businesses taking place in Australia, you know, our financing, our legal, our insurance, our HR, all of those functions are we can take the advantage of those in our auto business and will give us a runway, hopefully, to continue to grow the auto business in Australia as we go forward.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

I think we need to get the Porsche dealerships solid and have a year or so under our belt, but we certainly would look is that a place that we could grow some of our business with our expertise.

David Whiston
David Whiston
Senior Analyst - U.S. Autos at Morningstar

Great. Thanks, everyone.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

Thank you. Alright, everyone. Thanks for joining us today. I think it was a great quarter. As we said earlier, lots of moving parts.

Roger Penske
Roger Penske
Chairman & CEO at Penske Automotive Group

But I think the management team we have across all aspects of the business has really been great. I think our turnover is the lowest in the industry, and I think that provides us the best management. So look forward to talking to you next quarter. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Executives
    • Anthony Pordon
      Anthony Pordon
      EVP - IR & Corporate Development
    • Roger Penske
      Roger Penske
      Chairman & CEO
    • Richard Shearing
      Richard Shearing
      Chief Operating Officer of North American Operations
    • Randall Seymore
      Randall Seymore
      COO - International Operations
    • Shelley Hulgrave
      Shelley Hulgrave
      EVP & CFO
Analysts
    • Michael Ward
      Financial Analyst at Citi
    • Ronald Jewsikow
      Director - Equity Research Analyst at Guggenheim Securities, LLC
    • Jeff Lick
      Managing Director at Stephens Inc
    • Rajat Gupta
      Executive Director - Autos at JP Morgan Chase & Co
    • David Whiston
      Senior Analyst - U.S. Autos at Morningstar
Powered by Quartr