A month has gone by since the last earnings report for Penske Automotive (PAG). Shares have added about 14.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Penske due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Penske Automotive’s Q1 Sales and Earnings Drop Y/Y
Penske Automotive reported first-quarter 2020 adjusted earnings per share of 64 cents, in line with the Zacks Consensus Estimate. However, the bottom line declined from $1.25 per share recorded in the year-ago quarter. The auto retailer posted revenues of $5,009.1 million, surpassing the consensus mark of $4,868 million. However, the top line declined from the year-ago level of $5,564 million. Heightened coronavirus woes, especially in March, resulted in weaker year-over-year earnings and revenues.
The company’s gross profit decreased to $776.7 million from $851.5 million in the prior-year quarter. During the quarter under review, operating income fell 33% from the prior-year period to $106.4 million.
Same-store retail unit sales tanked 14.5% year over year to 104,870. Within the retail automotive segment, new-vehicle revenues fell 14.3% year over year to $1,863.5 million and used-vehicle revenues declined 11.3% to $1,597.6 million.
Segmental Details
Revenues in Retail Automotive slipped to $4,416.6 million from $5,091.2 million in the year-ago quarter. Gross profit of $678.1 million compared unfavorably with $761.5 million in first-quarter 2019. However, the metric topped the Zacks Consensus Estimate of $617 million.
In the quarter, revenues in the Retail Commercial Trucks segment increased to $491.4 million from $332.3 million in the year-ago period. Gross profit for the segment was $68.8 million, which beat the Zacks Consensus Estimate of $68 million. Further, it increased from the year-ago figure of $54.4 million in the quarter.
Revenues in the Commercial Vehicles Australia/Power Systems and Other declined to $101.1 million from $140.9 million in the prior-year quarter. Gross profit was $29.8 million compared with $35.6 million in the first quarter of 2019. The reported figure also missed the Zacks Consensus Estimate of $34.20 million.
Financial Position
Penske Automotive had cash and cash equivalents of $431.9 million as of Mar 31, 2020, up from $28.1 million on Dec 31, 2019. As of Mar 31, 2020, long-term debt amounted to $2,516.1 million, up from $2,257 million on Dec 31, 2019.
Share Repurchase
During the quarter under review, the company repurchased 890,195 shares for $29.4 million or an average of $33.06 per share. As of Mar 31, 2020, Penske Automotive had a share repurchase authorization of $170.6 million.
Actions Amid COVID-19
To counter the pandemic-led crisis, the company has enforced a variety of measures including company-wide hiring freeze, substantial cost cuts, staffing-level adjustments, postponement of $150 million in capex and negotiated rent deferrals at different locations for up to 90 days.
Additionally, executive and management compensation has been drastically slashed, including a 100% pay cut for the CEO and president during the crisis. The board of directors has also suspended cash compensation through September-end of this year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted -233.33% due to these changes.
VGM Scores
Currently, Penske has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Penske has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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