Penske Automotive Group, Inc. (PAG) recorded a 47% increase in profit to $29.2 million in the second quarter of fiscal 2010 from $19.8 million in the same quarter of the prior year, due to an improvement in the retail environment. The profit improved 45% to 32 cents per share from 22 cents per share a year ago as well as from the Zacks Consensus Estimate of 28 cents per share.
Revenues in the quarter rose 16.6% to $2.7 billion, driven by a 16.2% increase in new and used retail unit sales. Same-store retail revenue went up 13.2% to $2.4 million. Same-store retail sales increased 15.8% in the U.S. and 9% internationally.
New Vehicle revenues escalated 24.4% to $1.4 billion led by a 19.6% rise in sales to 39,676 units. Used Vehicle revenues went up 13.8% to $749.7 million, based on a 12% increase in sales to 29,232 units.
Revenues remained almost flat at $332.2 million in the Service and Parts segment, rose 40% to $182.6 million in the Fleet and Wholesale Vehicle segment and increased 16% to $63.6 million in the Finance and Insurance segment.
However, revenues in the Distribution segment slashed 62% to $19.9 million. Penske wholesaled 2,040 units of smart USA vehicles, down from 3,659 units in the second quarter of 2009.
Penske has repurchased $84.6 million principal amount of its 3.5% senior subordinated convertible notes due 2026, leaving $150.6 million in principal amount of the securities outstanding as of July 29, 2010.
The company has also repurchased 68,340 shares of its common stock at an average price of $10.97 per share in July. The board of directors has enhanced the company’s authority to repurchase its outstanding common stock, debt and convertible debt to $150 million.
Penske had cash and cash equivalents of $17.7 million as of June 30, 2010, an increase from $14 million as of December 31, 2009. Long-term debt amounted to $860.8 million as of that date. The long-term debt-to-capitalization ratio stood at 47%.
Penske’s product mix, which includes a wide range of imported and luxury brands, helps it to maintain a strong foothold in both the U.S. and overseas markets, including Europe. However, poor sales of smart USA vehicles continue to hamper the company’s Distribution segment.
As a result, we are maintaining our Zacks #3 Rank (Hold) recommendation on the stock in the short term (1–3 months) and Neutral recommendation in the long term (6+ months).
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