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Penske Automotive Group Inc. Reports Operating Results (10-Q)

November 02, 2012 | About:

10qk

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Penske Automotive Group Inc. (PAG) filed Quarterly Report for the period ended 2012-09-30.

Penske Automotive Group Inc has a market cap of $2.68 billion; its shares were traded at around $28.94 with a P/E ratio of 14.3 and P/S ratio of 0.2. The dividend yield of Penske Automotive Group Inc stocks is 1.6%.

Highlight of Business Operations:

We are the second largest automotive retailer headquartered in the U.S. as measured by the $11.6 billion in total revenue we generated in 2011. As of September 30, 2012, we operated 342 retail automotive franchises, of which 169 franchises are located in the U.S. and 173 franchises are located outside of the U.S. The franchises outside the U.S. are located primarily in the U.K. During the nine months ended September 30, 2012, we retailed and wholesaled more than 314,000 vehicles. We are diversified geographically, with 62% of our total revenues during the nine months ended September 30, 2012, generated in the U.S. and Puerto Rico and 38% generated outside the U.S. We offer approximately 40 brands with 96% of our total retail revenue during the nine months ended September 30, 2012, generated from brands of non-U.S. based manufacturers, and 68% generated from premium brands, such as Audi, BMW, Mercedes-Benz and Porsche. Each of our dealerships offers a wide selection of new and used vehicles for sale. In addition to selling new and used vehicles, we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of higher-margin products, such as third-party finance and insurance products, third-party extended service contracts and replacement and aftermarket automotive products.

Vehicle registrations in the U.K were 1.62 million during the nine months ended September 30, 2012, compared to 1.56 million during the same period of 2011, representing an increase of 4.4%. Based on industry forecasts from entities such as the Society of Motor Manufacturers and Traders (www.smmt.co.uk), we believe despite domestic and international economic concerns, U.K. motorists are responding positively to new products and the latest fuel-efficient technology. We also expect continued resiliency in premium brand sales in the U.K. See Forward-Looking Statements.

and vehicle availability, customer demand, consumer confidence, unemployment, general economic conditions, seasonality, weather, credit availability, fuel prices and manufacturers advertising and incentives also impact the mix of our revenues, and therefore influence our gross profit margin. Aggregate gross profit increased $50.2 million, or 10.9%, and $175.4 million, or 13.0%, during the three and nine months ended September 30, 2012, compared to the same periods in prior year. The increase in gross profit is largely attributable to same-store increases in new and used unit sales and finance and insurance revenues. Our retail gross margin percentage declined from 16.8% and 16.9% during the three and nine months ended September 30, 2011 to 15.8% and 16.3% during the three and nine months ended September 30, 2012, respectively, due primarily to lower gross margin on new and used vehicle retail sales primarily during the three months ended September 30, 2012, as well as an increase in the percentage of our revenues generated by vehicle sales, which carry a lower gross margin than other parts of our business. We believe that a significant factor contributing to the reduced new and used gross margin is the increased inventory levels of our Japanese volume foreign brands as compared to the prior year as these manufacturers have returned to normal production levels following the March 2011 earthquake and tsunami.

We record revenue when vehicles are delivered and title has passed to the customer, when vehicle service or repair work is completed and when parts are delivered to our customers. Sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale. Rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales. Reimbursements of qualified advertising expenses are treated as a reduction of selling, general and administrative expenses. The amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives, and such earnings are recognized either upon the sale of the vehicle for which the award was received, or upon attainment of the particular program goals if not associated with individual vehicles. During the nine months ended September 30, 2012 and 2011, we earned $349.9 million and $273.5 million, respectively, of rebates, incentives and reimbursements from manufacturers, of which $341.2 million and $266.4 million was recorded as a reduction of cost of sales.

We account for each of our investments under the equity method, pursuant to which we record our proportionate share of the investees income each period. The net book value of our investments was $304.1 million and $298.6 million as of September 30, 2012 and December 31, 2011, respectively. Investments for which there is not a liquid, actively traded market are reviewed periodically by management for indicators of impairment. If an indicator of impairment is identified, management estimates the fair value of the investment using a discounted cash flow approach, which includes assumptions relating to revenue and profitability growth, profit margins, and our cost of capital. Declines in investment values that are deemed to be other than temporary may result in an impairment charge reducing the investments carrying value to fair value.

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