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Group 1 Automotive (GPI)

Participants
Peter C. DeLongchamps Group 1 Automotive, Inc.
Earl J. Hesterberg Group 1 Automotive, Inc.
Daryl A. Kenningham Group 1 Automotive, Inc.
John C. Rickel Group 1 Automotive, Inc.
Aileen Smith Bank of America Merrill Lynch
Rick Nelson Stephens, Inc.
Derek J. Glynn Consumer Edge Research LLC
David H. Lim Wells Fargo Securities LLC
Call transcript
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Operator

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive's 2018 First Quarter Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Pete DeLongchamps, Group 1's Senior Vice President of Manufacturer Relations, Financial Services and Public Affairs. Mr. ahead, go Please DeLongchamps.

Peter C. DeLongchamps

adjusted Good been release and and we that for to slide Brian. to will call. this to on the to Group The presentation call the related reconciliations earnings issued purposes include results morning, you, we welcome refer have everyone, comparison today's related earnings posted Thank this website. morning X's

information and make mentioned the statements management I'd made begin, statements Harbor remarks Reform brief the Safe we Except call, some for the provisions that the like measures. during Securities to Litigation historical of of conference made use of Act forward-looking Automotive Before non-GAAP Group are financial statements are of to about by pursuant X forward-looking XXXX.

unknown and the may and filings risks risks the the periods limited months. conditions uncertainties, of filings Forward-looking associated in Copies the Commission both Those in forecasted future SEC company. of not the pricing, both are risks last company's and differ results include, and with the over XX the volume statements cause these other materially from risks Exchange to, with described to results. known are from Securities available which markets. actual are and but Those and company's involve

certain discussed financial SEC on In under addition, be non-GAAP measures, this may rules, defined as call.

call Corporate in same stated. to period its Vice prepared Earl. non-GAAP As Rickel, President Parker, required our on and John Kenningham, by with remarks Earl are measures Chief Participating that President to financial the like all otherwise over President reconciliations comparisons such Chief Operations; most Daryl the Lance applicable Financial and company the comparable our note our and any the Officer; Hesterberg, unless SEC now hand measures website. rules, and Vice President me of Please Executive U.S. directly to Controller. GAAP Senior I'd the provides our today, prior-year Officer; of

Earl J. Hesterberg

generally the and typical with of the and recent in sales, less three year impacting but good somewhat everyone. impact Brazil, all UK in and and XXXX. morning, Pete, weak you, U.S. of is in than business our UK The factor vehicle vibrant market on began negative market is was the a more Thank January early This Brexit in the markets conditions February.

actions this. business total of to aftersales the end penetration our important growing by our a historically are sales. used the vehicle portion our It to we This brand for and accounted way commenting presents with to recent the at cyclical acquisitions. a of recently Group of a better X. footprint short We UK. assets. are However, long-term leverage we to to major proprietary will some in model, progress to vehicle already strong address business the in is very and note business historically trade-in. the utilizing Daryl population we roughly dramatically on growth sent have used X% that March area. mileage update the team, generated just stronger higher strengthen performance this adding in prospects our and much also of our retail on strategic which dealership announced in strengthening term, our and of the U.S. both much These as training We in UK year, to specifically expanding contributions our aftersales, XX conditions initiatives, improved March the sales some a opportunity by unit which briefly XX% will I existing first personnel we XX% after plan for to vehicle brick-and-mortar of at our early on that cost Prior will benefiting believe by while our and well market retaining market would our received our first as wholesale gross as our several from accomplishing used to minute we quarter, as least release. like directly in of Related Brazil well quarter results, U.S. the in Val-U-Line, stable and be and grow well than this this business, our segments. controllable in vehicle These more capacity. the existing volume, this appears key businesses our a as older to that being vital are generate the total profit market segment peaked initiatives business, new we used aimed vehicle for and vehicles is frequently you have announced announced To to which press incremental

hours capacity Our our modified plans, Advisor brick-and-mortar thereby employees over state-of-the-art training XX% complete allow without customer us career schedules pay more flexible a need enhanced any service to benefit schedules also expand for operational. The and work by from and University defined paths, is work which time additional expand investment. will and facility, approximately will Service now

by it results. early, we have been initial Although the is encouraged

schedule same have are improvement in hiring retention an U.S. increase XX We Advisor our in Service a in with work our count from period seeing new in of already our installed last head XX% the we dealerships year. and

initiatives excited provide these us. very will are about opportunities We the

gross on $X should of time about over quarter, the While will very a investment. costs incremental our the provide they generate strong they profit did million in add return

a revenue last basis all diluted revenue to to Total quarter million quarter. that the across X to over of our results, record an income net on report quarter billion. earned regions. by year, first per I'm first for quarter share Group constant growth driven record of per a XX% $X.X earnings equates pleased increased to $X.XX $XX.X share, This currency Turning first XX% profit increase and gross of of

increase vehicle new new was during quarter gross X% basis as X% XX% decreased average more XX,XXX vehicle price consolidated the Total X% currency slightly. segments, constant business our selling increased profit retailed on of profit we basis, to new the up with a a vehicle revenues sales. combined currency Turning over gross constant on per Consolidated unit as unit vehicles. new

and mix geographic XX% U.S., was sales unit new X% XX% UK, Our Brazil.

new vehicle by and XX%; Ford, and led represented for which Honda and represented of XX% of VW our represented accounted XX%; our BMW brand and XX% Audi was unit XX%; Acura Our Toyota new Mini mix units; sales. new Lexus

more constant moment. collision insurance unit Total down of This we average currency profit revenue will remained we F&I consolidated driven XX% per an profit in X%, a retailed revenues increased on increased further wholesale parts X% on During units. currency the XX%, and constant by basis, and offset X% XX,XXX vehicle service on XX% increase X%. and of retail Total vehicle currency used customer quarter, in decline flat. a XX% grew of cover used slightly. XX% by XX%, units of pay Used a retail with of units which was gross revenues basis we price gross and currency increases growth over consolidated parts on more basis sold gross per warranty unit the of by driven a constant the was than Finance vehicle constant selling a a profit decreased and used consolidated as unit retail basis. as increase X%, in

the our segment the Daryl? to before geographic of U.S. I over President quarter and cover I'd Daryl results UK results, to to turn first call U.S. Kenningham, like Brazil. Regarding discuss our Operations,

Daryl A. Kenningham

Earl. Thank you,

the grew same-store with driven X% quarter sales X%. U.S. by up industry. were revenues gross same-store revenue new consistent X% Same-store unit Our while which growth the increased for profit vehicle was that was

and X%, up vehicle retail X%, sales parts up XX%. unit used service up were Our and F&I revenue was

recovery their the positive economic on a The Houston New same-store up activity vehicle combined a increased quarter X% continued reconstruction and sales and efforts remains same-store on hurricane. trend in largest level Oklahoma a metro our and as and in U.S., drilling in local post in the promising uptick the X% amid area, data Texas were basis. continued

hold new to inventory vehicle at U.S. a continue reasonable level. We

Our units XXXX. same-store compared of decrease quarter to stood basis a at units inventories March a XX,XXX at on X,XXX end,

same-store of grew to vehicle down on as quarter supply Our used of used XX days end sales retail off. XX inventory was growing at first beginning is X%, business days XXXX. the the car U.S. pay our from focus

our already three double total months after launch. were units, mix Our than retail Val-U-Line X% only products of more previous

CPO we in vehicles. used A demand our and business, off-lease in $X,XXX. decline to announced in gross the absorb from during the we in decline our significantly of This shift quarter, unit luxury press partners per the relates portion saw primarily consumer cars pressure with continuing and prior loaner which OEM pronounced profit to year more vehicle brands As to March supply our increase from the release, trucks. was to $XXX in and declined our as of work

reduced our of mix significant not increased used margins. was in Val-u-Line vehicles vehicle factor a Our

collision work per Same-store to total increase mid-single-digit unit closing, revenues largely set maintain service our period. increase U.S. penetration, gross and to of to our warranties increased growth another of point part they Motors increased retail in in quarterly stores and F&I tremendous airbags I'd driven largely namely, per by our team X% and was the sales. benefit Brazil and after-sales I'll revenues These margin mostly the business, gross pay the major partially the XXXX. increases increased parts by due Group several Warranty including Earl. thank X%, the driven for of were X.X%, our our members U.S. do This flat recall and customer a discuss of mix revenue parts in now wholesale comparative UK product our decline our profit quarterly $XX guidance increase business to in by service to decline decline every which same-store year-ago back by was X,XXX was X all-time due like delivered another call over business. partially back were In X% XX.X% increases same-store wholesale shops. bringing of OEM We into presence To the U.S. ignition extended Takata record General the turn offset year-over-year increase Our throughout in XX% campaigns, as a XX-basis by day. contracts, X.X%. unit of maintenance $X,XXX. switches This customers in after-sales XX.X%. offset of to

Earl J. Hesterberg

Thanks, Daryl.

Our UK to change. a ahead given occurred that substantial year-over-year pull of to first difficult operations quarter tax due very the vehicle well the performed XXXX due comparison in a

decreased acquisitions a currency increase a of recent basis. team dealer consolidated XX% constant most our market. in revenues an weak over car sales to declined unit us used same-store up new unit volume an An overall revenue up X% constant that XX% vehicle a market profit performance XX%. two a on impressive very same-store with a group of in Furthermore, UK XX% performance keep currency by quarterly This extremely on our total same-store strong supported enabled flat efficient was Our integration and gross basis.

first same-store currency the of increased achieved Brazil, X% market Although always we recover X% profit aftersales, F&I. a on from a XX% constant period an vehicles, in in increase weakest in increase gross and basis. XX% in is significant year selling as quarter to in the deep growth a driven new the was by a beginning increase growth This a quarterly recession

Our sales XX%. the XX% of same-store increase increase vehicle outperformed industry of new unit overall

be to the We continue financial well John? take go are and more call our over in results of of now some turn of proud quarter advantage first very done, positioned our work recovering CFO, our full Rickel has to detail. to John market. to I'll the over local the team

John C. Rickel

morning, Thank and Earl, good you, everyone.

comparable million million. $X our yet first fully XX.X% of our increased the earnings diluted first result. income of For share increased or basis, X.X% a XXXX per $XX.X quarter another over quarter $X.XX, to XXXX, record On adjusted net results

impact $X.X the income and for XXXX, consolidated net in an quarterly of excluded adopted ASC revenue impacted of net company quarter While this summary in revenue first adoption adjustments EPS OEM aftersales quarter there results Also, F&I the the our of first of $XXX,XXX $X.XX. reduction The of recognized approximately Starting non-recurring of XXXX, was XXX and million which legal gross a net with and January results. income recognition X, about the settlement. were for profit. non-GAAP from no on an the XXXX

in the For total generated revenues, was which $X.X increase we billion the prior XX.X% over quarter, year. a

$XXX.X increased million to million. profit ago X.X% gross from Our or quarter the $XX.X first a year

XX.X% interest year year. from mortgage XX% million due to Other a attributed the interest one-time prior initiative As strategic to $XX.X this expense to press and $X by increased higher Two-thirds gross increase basis SG&A last quarterly of to of explained other Floorplan million. in million XX.X%. million $XX.X or interest percent LIBOR first increase million, were quarter rate is increased $X.X mentioned by $X.X the that than to of XXX increased points or profit, increased more versus the costs and of bonus March borrowing. is release. $X The million primarily expense

than Our consolidated XX%. be rate due for our the weighted full-year effective heavily forecast rate first XX.X%, should quarter was towards to We tax lower being which the the our be rate full-year tax between quarter more to XX% and XXXX UK.

to our accounts, invested hand liquidity $XX.X and Turning that XX, March available in capital as our immediately bringing cash structure, had floorplan million million on million. to total a of was consolidated and $XXX.X of offset another $XX.X funds of we

of During shares of for XXX,XXX $X.X a the million. an quarter, total repurchased $XX.XX we average price at

an to remaining program. an share, and a dividends we the first As shares Also approximately yield of common of of authorized the per we and $X.X over $X.XX have quarter, million $XX.X of our outstanding million during $XX.X increase per first annualized share today, diluted repurchase share ago quarter X.X%. X% year million over pay on board used

please additional over to schedules regarding detail Earl. as call website. investor to our additional For presentation on attached back financial the our release, information I'll now refer as the the to turn news condition, posted the of well

Earl J. Hesterberg

UK and our our to revenues. corporate March across the Mercedes-Benz the $XXX total million company the XX announced the to was first are pleased that approximately Related John. UK, Mercedes-Benz our annual in Mercedes-Benz franchises U.S., of edition efforts, in previously to expand have generate five will Thanks, franchises exposure UK and dealerships Brazil. the These development in

dealerships generate April approximately Toyota with to bring XX in opportunity over open million now total us in acquisition begin that These further call a points annual presence, the will the revenues announced concludes I will annual at Operator? prepared to generating our session. This our the and $XX franchise also $XXX operator previously million activity Brazil our provide of to also will year-to-date be Toyota a the We to with expand purchase future to six additional revenues. XXXX turn date. question-and-answer the announced remarks. of franchises,

Unknown Speaker

Operator Thanks.

We will now the session. question-and-answer begin

of ahead. today Our comes Bank with America. first question Please Murphy from John go

Aileen Smith

morning, Good on Aileen John. guys. for This is Smith

First question...

Earl J. Hesterberg

morning. Good

Aileen Smith

Good morning.

that pressure ago, through on $XXX following question should March of button the hot other some the about A in still lately, what quarter, few February. First GPUs and has initiatives expect drove tightness in cited and part Did year-over-year GPUs. you market used year? or this or least we been any used this weeks ease January in down way some at

Earl J. Hesterberg

March. March, And did call we're quite in too it's to improve it obviously, result. April March saw We and with early but see we an in the improvement pleased

John C. Rickel

This John. Yeah. is

Aileen Smith

Great.

John C. Rickel

ended that I January, gross total for only would $XXX. $XXX noticed, add the that And we per we if to used unit. about communicated February that that profit up down you was kind of

So we saw of definitely, in bit improvement some March.

Aileen Smith

to bonuses you'd initiatives. that same costs, assume you on performance have the in press the I appreciate onetime And would fair the Okay. costs the SG&A with the in SG&A the these it store on those growth? quarter sales employee and commentary release what quarter, in stronger strategic with leveraged Is and before noted associated the excluding

John C. Rickel

Yes. Absolutely.

you flow If actually out, we would two have items had through. XX% take about those a

with actually we're So happy overall the cost base pretty control.

Aileen Smith

how so attractive did of a allocation valuations bit in what markets hand, but a the maybe would And wondering two just to characterize of more hand deals? private the bracket, pipeline by little aggressive be trigger as how Understood. on last your activity pull year much go I'm than Okay. ago? or I the in we versus know robust could strategy the acquisition they willingness of rather being question, you capital in the more indicative kind more your or quarter driven its looking a

Earl J. Hesterberg

would is I this any Earl. year we've more than is the kind of say circumstantial market activity environment. to had related This

We've fit been just and acquisitions other period that that example, found also franchises were it to network for hurdles at to mean year. For just allocation to acquisitions. the will shares. is say our we markets and the happened our And the continue allocation geographies in our for strategic things the return that some two we UK quarter It in to It the so UK, for Mercedes value in doesn't we At couple time, long-term We'll to look to happened stop and come have on months, we've terms Mercedes capital us of that (XX:XX:XX) in entering working shareholders. those are of three the this years the first for and been most capital math are opportunistic. years. of for important some looking of and good would that the compelling repurchase in that us moment, believe past desires. terms I pieces

Aileen Smith

helpful. the questions. taking that's for Great, Thanks very

Earl J. Hesterberg

you. Thank

Operator

Next Stephens. Nelson Please question with is today go from Rick ahead.

Rick Nelson

Thanks, and good morning.

that ramping and talked capacity capacity? parts in see about, do here ultimate interesting. service opportunity to So, that was of well you what's the How and you additions pretty terms

Daryl A. Kenningham

We'll, work is But we too XX the of business. rolled third small. up certainly our are are with – We're comes because them stores – won't that schedule to capacity roll of have all Saturday the Rick, in the schedule work new ends And fully we of of Much to that XXX. good out we indicated. morning, that by the We capacity out quarter. expect just that sourced Daryl. through some new

capacity. by we'll this And so, able realize be would expect I late year, to that

Rick Nelson

do money at you And these EPS? to point what you. become strategies new Got upfront. initiatives? new At Obviously, accretive do see what point you're the spending your

John C. Rickel

John. is This Rick. Yeah,

you're and (XX:XX:XX). still certainly, in the think second quarter, first comp I space into quarter the

into the start and get and to then offset second It able a as little to next the start But get think, half, this late things early to while cost year they probably trained. I be become Daryl year, probably them we people you should into and As these indicated, we're to in rolling still takes the certainly accretive. get out.

Daryl A. Kenningham

one seeing growth mentioned Rick, saw we we of our some add. decent in of things a to believe, our businesses sales are his advisors And increased in a service as we're we better schedules – used retention that thing same-store seeing couple result, Earl and this work our with training comments efforts. new car quarter.

So starting we're – as to we with. (XX:XX:XX) see we're indications pleased well believe

Rick Nelson

peers one hail about I related they'll some ask; that damage in XQ. incur finally, had your if And, costs to of Okay. could talked

helpful. are would lot a got along those markets. also Any stores of that be in You've commentary those lines

Earl J. Hesterberg

some Louisiana. looks that Rick. Hi, had it the in $X will our Earl. and Yeah. And to North like cost company Shreveport, We Yeah. also It's Texas in hail about serious be damage damage of million.

Rick Nelson

Thanks Okay. and luck. good

Earl J. Hesterberg

Yeah. Thanks, Rick.

John C. Rickel

you. Thank

Operator

Next comes Glynn Research. with Derek from Edge Please Consumer question ahead. go

Derek J. Glynn

believe Yeah. Thanks be to also for you more is should a we calls on there range what's Derek for taking Could And F&I range strength. mid-$X,XXX question. my driving mentioned a a a Jamie. PVR. continues of perspective, year? for this? modeling I source is PVR speak just from you in the rest be the prior if of This to expecting from

Just that's at wondering changed if all. Thanks.

Peter C. DeLongchamps

number number got I I think interest car business, F&I good for This you good is the of terrific I'd stated And with is of Yes, its at mid-$X,XXX much the used and products. countries three rising quarter. all probably to the We a selling that's are better a thank our we continue end modeling Peter DeLongchamps. plan modeling like job in PVR working dividends, doing towards. doing paid day, teams the and think this past and all And job underperforming we're on the a Derek. And rates moving increase stores to to forward. keep a

John C. Rickel

Obviously, for they improving not clarify – and a – Brazil, that this number gave Rickel only. U.S. is but the UK have results you John the is U.S. in To Pete is are those number. we –

Derek J. Glynn

what economies energy secondly, seeing That's just Thanks. What in local more given can of helpful. to Okay. are you terms in prices? Thank And in in then you Oklahoma Texas, you've same-store trends, rally the you. you're speak had seeing there?

Earl J. Hesterberg

picture finally in Earl. a to Yeah. is the starting energy-related This markets. We see brighter are

performance of that hiring I that so of the higher occurred and be stages little QX, there's other we where our they'll in that in confidence are consumer amount Houston, bit our more yet, couple jobs. is of core in in the a the improving been are Houston in would course, than X% that's energy of markets and heavy headquartered. oil-related adding I these markets. think definitely improved these in paid sales a the many Of of about sentiment definitely – start believe that's early to a wouldn't oil-related energy just back say I but some companies

much really years. brighter brightest now, patch been in So, probably things oil they've the three in the are and

Daryl A. Kenningham

Probably little in Texas. is bit a pressure. under still Oklahoma

Earl J. Hesterberg

That's good point more to Texas make. Oklahoma. in so Yeah, a than

Derek J. Glynn

Got you. it. All Thank right.

Operator

comes question next Securities. Lim Wells from ahead. Our David Fargo with go Please

David H. Lim

morning. Hi. Good

that to strategic. does a a in then refurbishment one With CarMax? used something make consolidate something you like center? a follow-up. amount of refurbishing you then, like dealerships like I – your non-negotiable little zone, the centralized one And have Just guys the roof, more bit have a And model, to ever activities sense under Texas consider similar like it pricing vehicle

Earl J. Hesterberg

of those. market cars Yeah. ready all you bit. regional I Earl. Yeah, Hey, little very hours taken do considered we're within of get ready to or if and we've both toyed these time-critical XX say David. wouldn't It's photos around that the it and with recon can. front-line a We've yet. to It's

area at that improvement that the pulled for but was point, a certainly thought. valid it's trigger second... food for potential some So on yet the And we what is but haven't

Daryl A. Kenningham

One used. price on

Earl J. Hesterberg

well couple dynamic supply is, we our the of daily XX keep inventory cars that price market's maybe even these to of and working. stories every very we've job One of than manage place the now, more And or it. not But the days don't price just used the to done many clearly, and used. of with even inventory CarMax for years work know XX is clean. watched we has haven't on had cars so success seen price but with because need And – days ways dynamic. I've quite Yeah, of one seems we I well, the good think that market days one it because XX we only a

something for we'll clearly market it, still the So, is think we never on But one is eye in to difficult say price implement never. an you us. others keep that effectively and do it;

David H. Lim

And – was fleet guess it guess two-part in definitely like I on One It stronger U.S. some sales was then seems QX, of follow-up. that Understood. And was secondly, on follow your first area? also would involved. to given then your Texas in model, question, you. up developing very like density level own I outlook. about think your a SAAR auction the Thank is again and guys my you

Daryl A. Kenningham

David, is did Daryl, you say you did this – auction model?

David H. Lim

Yes, yes.

Daryl A. Kenningham

have auction something weekly, and we doing I do We mean, you would assume consider question from internal that an we your external?

David H. Lim

Yes, correct.

Daryl A. Kenningham

safe mentioned, look all But regular at year so. wouldn't to SAAR leverage we next sticking Earl as I on those our we're we'd we're strong say or the but at with I be probably for basis, auction ourselves. March, the think original with never, – a much We And we're as the relatively can trying of looking something SAAR, as forecast never say and in things on then that's just internal think even I the now.

John C. Rickel

March, first David, as Obviously a it's year choppy. We'll we that, XX.X ran (XX:XX:XX). certainly than a watch but saw very progress. bit and are better Yeah. the the a we on bit quarter strong

play is into were is, tax weak. two this rest to The how the pretty year. The first months going piece the of much unknown

Daryl A. Kenningham

inventories, mentioned, are And also, as David, from down we ago. a the considerably year

well general. production adjusted in And OEMs the have so

chase not ago so as was as much pressure inventory to a there's volume. year And there

David H. Lim

you Thank so much. Understood.

Operator

to today. session our I'd closing conclude turn like will for any back remarks. to Hesterberg for the Earl question-and-answer This over conference

Earl J. Hesterberg

for July. everyone, good updating our day. us We forward quarter on you look Have to a Thanks, Okay. call second joining in today. earnings

Operator

for Thank today's very now The presentation. attending conference you has much concluded.

You disconnect. may now