Penske Automotive (PAG) Tops Q3 Earnings And Revenues

Share price of Penske Automotive Group, Inc. (NYSE:PAG) increased almost 2% to $44.52 on Oct 26 after the company reported record third-quarter 2016 earnings. Penske Automotive’s earnings per share improved 7.3% to $1.03 from 96 cents recorded a year ago. Moreover, earnings per share surpassed the Zacks Consensus Estimate of $1.01.

Net income rose 1.1% to $88.5 million in the reported quarter from $87.5 million a year ago. Income from continuing operations improved 0.9% to $88.4 million from $87.6 million in the year-ago quarter.

Revenues grew 3.9% year over year to $5.2 billion, surpassing the Zacks Consensus Estimate of $5.04 billion. Excluding foreign exchange, total revenue increased 9.7%, driven by a 5.8% rise in total retail automotive sales to 118,522 units.

Same-store retail revenues declined 2%. Same-store retail automotive revenues dipped 1.5% to $4.46 billion.

Gross profit went up 2.1% to $744.2 million from $729.2 million in the third quarter of 2015. Operating income fell 3.1% to $141.5 million from $146 million a year ago.

Segment Performance

The company operates under three reportable segments – Retail Automotive, Retail Commercial Trucks, and Commercial Vehicles Australia/Power Systems and Other.

Revenues from Retail Automotive rose 3.9% to $4.77 billion in the reported quarter.

Revenues from Retail Commercial Trucks decreased 0.9% to $266.1 million from $268.5 million recorded in the year-ago quarter.

Revenues from Commercial Vehicles Australia/Power Systems and Other increased 7.6% to $113.8 million in the reported quarter.

Financial Position

Penske Automotive had cash and cash equivalents of $89.4 million as of Sep 30, 2016, up from $62.4 million as of Dec 31, 2015. Long-term debt was $1.83 billion as of Sep 30, 2016, up from $1.28 billion as of Dec 31, 2015.

Acquisition Update

On Oct 3, 2016, Penske Automotive expanded its presence in Northern Italy with the acquisition of six franchises. The expansion is expected to generate roughly $200 million revenue on an annualized basis.

In Jul 2016, the company acquired 12 franchises in the U.K., which are expected to generate $250 million in revenues per annum.

On Jul 27, 2016, Penske Automotive acquired an additional 14.4% interest in Penske Truck Leasing Co., L.P. (“PTL”), from subsidiaries of GE Capital Global Holdings, LLC, for $498.7 million. The acquisition was supported by the company's existing liquidity including the U.S. credit agreement. After the acquisition, Penske Automotive holds a 23.4% ownership interest in PTL. The company expects that this acquisition will help boost earnings per share by 25 cents annually and lead to additional cash flow as well. The acquisition will also result in significant cash tax savings.

Zacks Rank

Currently, Penske Automotive carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the auto space include The Goodyear Tire & Rubber Company (NASDAQ:GT) , Horizon Global Corporation (NYSE:HZN) and Standard Motor Products Inc. (NYSE:SMP) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Goodyear has seen its earnings estimates move north over the last 60 days.

Horizon Global has a long-term expected growth rate of 10%.

Standard Motor has a long-term expected growth rate of 15%.

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