Penske Surges to 4-yr High on Profit Gain
DETROIT - Penske Automotive Group shares surged to a four-year high on Thursday after the auto dealership group posted better-than-expected first-quarter results and said it expected the disruption from the shortfall in output by Japanese automakers to be limited.
Penske, the No. 2 U.S. auto dealership group, also said it expected to see profit margins rise as discounts on new cars wane over the summer because of the limited supply of vehicles from Japanese manufacturers led by Toyota Motor Co, reported Reuters.
Shares of the Bloomfield Hills, Michigan-based auto retail group closed up 12.3 percent at $23.06. That represented the highest level for the stock since 2007, the last strong year for U.S. car sales.
In 2007, industry-wide U.S. vehicle sales were just over 16 million. Sales dropped to a low of 10.4 million in 2009 and have been in a slow recovery since.
For Penske, sales from Toyota, Honda Motor Co and Nissan Motor Co brands represent about a third of revenue. The uncertainty around the performance of the Japanese automakers has been a concern for investors in related U.S. retailers.
Parts shortages in the wake of the March 11 earthquake have caused all three Japanese automakers to curtail production, and Toyota has said it does not expect to be back to normal output levels until the end of the year.
But Penske Chairman Roger Penske said the dealership group had begun the second quarter with about 60 days of inventory of new cars and trucks from the Japanese manufacturers, about the same level as a year earlier.
In addition, Penske told analysts on a conference call that the company had told its sales managers early on to throttle back on sales incentives, a move that will push margins up.
"We've instructed our stores to be vigilant about their new vehicle inventories and to avoid discounting simply to sell units," Penske said. "We also sought to increase our used vehicle inventories to ensure that we have an outstanding supply of vehicles for our customers to consider."
Penske posted a 66-percent gain in first-quarter net income, boosted by higher sales of more profitable used cars and increased revenue from the service bays at its dealerships and repair centers.
Net income rose to $33.9 million, or 37 cents per share, compared with $20.3 million, or 22 cents per share a year earlier. Revenue rose 15 percent to $1.44 billion.
Profit per share from continuing operations was 39 cents in the first quarter, topping the average analyst expectation of 31 cents, as compiled by Thomson Reuters I/B/E/S.
Penske said it expected to see a steady suppy of repair parts at its dealerships from Japanese manufacturers. The profit margin on repairs was 57 percent in the first quarter, compared to the roughly 8 percent margin on new vehicle sales.
Penske said Toyota's financing arm had extended some concessional financing to its dealers in recent days, including offering to allow Lexus dealers to pay interest only on any real estate loans due to the reduced supply of luxury vehicles from Japan.
"This is a good program for us and I think as this trickles down we'll see more of this from the other manufacturers," Penske said.
Penske operates 326 car dealerships, mostly in the United States and Britain.
The dealer operator said it was on track to close a deal to transfer ownership of its failed experiment as a distributor of the Smart car line to the brand's owner Daimler AG during the current quarter.
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