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Group 1 Automotive (GPI)

Participants
Peter C. DeLongchamps Group 1 Automotive, Inc.
Earl Julius 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
Michael P. Ward Williams Trading, LLC
Rick Nelson Stephens, Inc.
James J. Albertine Consumer Edge Research LLC
Call transcript
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Operator

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive 2018 Second 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

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

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

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

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

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

Earl Julius Hesterberg

due to adjusted profit record report increase diluted $XX.X driven that gross strong net everyone. revenue revenue of expense vehicle constant Brexit. the to quarter per I'm share new and of of Pete, per The record adjusted the Total for good June increased and strong in vehicle pleased income year-over-year over X% quarterly surrounding million control. basis market relatively earned earnings significant quarter weak and in remained to in the Group U.S. a addition new an XX% $X.X by uncertainty currency from on the overall of a sales equates to growth prior year, to some where second you, UK Thank sales benefited morning, share, $X.XX comparisons vehicle X favorable This billion. environment quarter.

used operation. benefited Our company focus business, grow as our well to on vehicle initiatives from as UK our corporate-wide aftersales also our

this initiative in cost early UK major Additionally, the reduction paid a U.S. dividends second both year in our and results. quarter

our consolidated in basis. currency the new a during brand a unit a UK. to vehicles. the in quarter, over gross up our revenues currency by we margins This and X% mix gross profit segments, retailed unit new business X% on X% vehicle new Turning vehicle constant driven increase Consolidated increased sales. basis, XX,XXX Total to acquisitions the per luxury of on constant due was UK X% pressure on decreased both profit effect

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

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

basis profit increased as consolidated profit corporate-wide in customer on we our used the Total revenues units, constant new an the focus of and selling and over collision service used X%. the XX,XXX of Used this a U.S. parts constant X%, good retailed revenue currency grew vehicle vehicle volume consolidated on increased were in extremely and gross average of Val-u-Line more in growth area vehicle wholesale price in combined the margin vehicle warranty as the on strong retail currency quarter, our XX% XX%, we increased used driven as our U.S., sold Total per X%. business parts The by driven performance total X% increase unit UK. the increases initiative XX% constant During basis, increased especially X%, currency unit in used and of X%. of by and unit with gross result the well a pay as per the of a increase used basis units XX%

Finance in next. business This aftersales consolidated offset basis. cover unit growth retail a our remarkable unit used of on dealership increased was in effect profit the gross X.X% Daryl increase UK and reflects that grew by X% Our an an of of by per decline F&I constant XX%, driven currency basis. UK a insurance The a local and partially F&I currency units X%. volume mix the per the will impact U.S. Val-u-Line decline of car on acquisitions

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

Daryl A. Kenningham

quarter. improved performance total second control XX% same-store in sales with unit Thank U.S. X%. adjusted and used Earl. leverage profit We pleased combined the increased income Total and operating X% gross of increased retail adjusted our you, gross in XXX were SG&A cost points, vehicle with Same-store and profit vehicle increased X%. up same-store car used basis were used the

sales of our same-store and quarter increased Our adjusted the used growth. contributing quarterly points margin to during units a factor operating XX in XX% was retail used basis profit vehicle gross improved our Val-u-Line X.X%. to unit

vehicle we wholesale markets declined the volume addition, as reliance used on lowered wholesale sales our unit our In XX%.

more trend. inventory internal reconditioning improved this auction Our drove and more practices new disciplined internal policies, process, transfer management inventory aggressive

$X.X average the our in improvement which, same-store vehicle quarter over generated In F&I nice transactions F&I incremental $XX addition in sale F&I increased of income, a U.S. trend. XX% PRU. by first used The increase, $XXX the gross unit, sales fully to decline Val-u-Line $XX, the Val-u-Line million profit total while we lowered year-over-year our an generated incremental, gross profit. largely our by PRU F&I explaining per

X%, Our quarterly lower profit. Takata increased collision were basis. a negatively increase than results same-store explained customer decline a of anticipated gross X% Both wholesale in be by by increased parts were X% on slightly gross X% gross a campaigns. which impacted aftersales The primarily pay and same-store the profit at in lapping could results airbag while recall warranty profit,

with Manager are it's Advisor continue training we'd We launched to out implemented. support XX% pleased very our growth in the this initiative, our fully roll at workweek University by Group initiative To stores X a and where University. capacity increased aftersales four-day also Service been our XX and Service

Lastly, would controlling efforts the our like I team costs. recognize of to

As from basis adjusted as the percentage gross I mentioned, year SG&A points to XX.X%. improved by a of prior XXX profit

costs must as Our vehicle environment on is volume focus in relentless continue new very competitive margin. the and

addition, volumes warranty plateauing the In to declining. on appear recall large or be

turning back I'd our U.S. thank like over Earl, to work. X,XXX their call the to stores Earl? great Before the for teammates in

Earl Julius Hesterberg

Thanks, Daryl.

XX increased by annual on revenues. UK. We're XX the in very beginning to market of dealer we our count to continue top are to group have the now a generate UK dominated stores a stores environment perform overall operations XX in regarding Since dealership from discussions billion and challenging in pace well Brexit. UK XXXX, Our $X.X

increases to our margin adjusted percent acquisitions, I currency scale, used our decline constant all across X% resulted stores very SG&A new we of improvements from and assimilating our in same-store our earlier. operating major reduction Total the lower basis extremely growth driven Leveraging profit increases also strong in XXX and F&I mentioned were gross resulted and Continued another XX%, partially X% profit of vehicles profit Audi a of year. gross SG&A and as total basis a on profit prior a Ford XX%. by aftersales as by offset due growth. reduced in XX% by These gross of the cost performance decline of of quarter businesses points meaningful by of same-store in initiative the was vehicle recent

as the in base standardize the rationalize continued of this our further expect progress practices business we UK. full We advantage scale in area built to take and cost we've

Brazil, strike, to strike as the and X% generated currency gross disruption on revenue X% were profit a business to impacted growth business capacity. shops despite turning same-store significant due same-store local recover truck to by a Now, most service driver the XX-day from a basis. was unable finite which Aftersales lost stall

points basis would As able declined gross in gross aftersales result, expect this same-store currency on and profit to to in strong should issue a by Despite SG&A significant team profit same-store the increase We return disruption, bottom basis. line be growth. and quarter. leverage to third the the profit one-time a a growth XXX generating local was both X% gross resulting

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

John C. Rickel

Thank you, Earl. Good morning, everyone.

adjusted On quarterly quarter $XX.X $XX to of sale million increased record. consisting impairments partially dealership associated diluted our fully a XX.X% quarterly related million of held of to per income $X.X after-tax XXXX the results and basis, These $XX.X a earnings net second million asset dealership items. dispositions, hailstorms, related income estate by with For our adjusted exclude of offset charges net real increased and multiple over all-time legal or comparable adjusted XXXX, an $X.X $X.XX, for acquisition-related XX% of results operation, million million. XXXX net share to income to

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

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

a Other $X.X prior improvements by percent mortgage to reflecting adjusted points interest basis expense other reflecting three XX%. rates versus or million each million points basis, a decreased borrowings. of the interest higher XX SG&A markets. in to due to $XX.X or On interest XX.X% of quarter second to year. million, increased LIBOR Floorplan XXX XX.X% increased basis XX.X%, $XX.X year strong million SG&A last increased declined gross $X.X adjusted of and to expense As profit, our same-store from

effective rate XX%. XX.X%. and rate consolidated between the and be second Our year-to-date XX.X% for it our is XX.X% was tax to forecast XXXX full-year quarter tax We

liquidity our structure. consolidated to Turning capital and

invested immediately in million hand accounts was floorplan we of As cash funds our million. offset another June of total bringing $XXX.X had $XX.X $XXX.X to available million XX, a on that of and

total an of X.X% totaled float. $XX.XX our have repurchased at total million. Year-to-date share $XX of July, average a of of for $XX.XX second a XXX,XXX of quarter, at repurchased we shares $XX.XX average the price In additional at of During a total an $XX.X average XXX,XXX an These today, beginning shares price price an for year repurchases million. million. of we of repurchased X,XXX,XXX through we $XX.X for shares the

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

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

Earl Julius Hesterberg

and in new to pleased to Brazil, $XXX the about XX the allow relocation the scale be company Brazil with also July quarter Thank year-to-date aftersales generate Brazilian corporate the development additional Paulo franchise we million provide facility, generating us was revenues. which in This presence owned excited of announce the is by acquisition at million $XX Toyota annual approximately have further of franchise. the in in our will The Toyota second the a will you, our activity announced of further John. company continue opportunity São a is for future Also previously of a uplift franchises total brought expand will purchase expansion to significant our to used grow market. to Related XXXX with new, and Honda operations pleased as revenues a open date. We're efforts, points the company, business. to acquisition annual our in announced to that

a over quarter, the that continue our off valuation. strategy XX $XX We'll assets capital generated and beneficial are of revenue. underperforming $XX million prepared terminated disposed ways the to the disposing the with market trailing shareholder. capital franchise in to redeploying our consistent During our that remarks. and begin allocation of acquisition dispositions call million question-and-answer by comparing in Both to operator our This our now we these concludes a Mercedes-Benz the in assess in month the UK of also to session. I'll common are to trailing turn priorities stock that Operator? franchise in XX California revenue BMW months generated

Operator

Thank you.

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

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

Aileen Smith

Aileen Thanks Smith for Good question. morning is the John. on guys. This for taking

thumb You muted drove some Should new quarter and rule in of of your where the able same-store we performance despite what on particularly and and about growth, terms SG&A sustainable, is was assuming we sales notable typically still parts type be in of SG&A pretty of thinking be same-store that the back off them? leverage this there business. service your SG&A in is you're leverage to a somewhat should sales

John C. Rickel

would of normally, the we would gross the is we think expect this do is this XX% XX% growth sustainable. a flow-through John profit And have improvements that that deliver. that on Yeah, are Rickel. somewhere We any team made to

Aileen Smith

has commentary very how the material or you helpful. another just bottom but quarter, the so how earlier their on and the on for look of aggressive that past dispositions it this aggressive into possibly to been And yesterday appreciate made asset rationalize hard one and the That's obviously dispositions at peers one you get you the look you could and some your they're I some on be to underperformers. fairly taking in front line a made assets Okay. guys? year of of could you over SG&A indicated And leverage the may

Earl Julius Hesterberg

would it to I see I Yeah, strategy, a and lever given current as than as you'll have we work things take more some This I have effort. frankly. SG&A, consistent acquisitions capital disposition wouldn't for These work more And think is and we to Earl. it more time, see quite but major disposition allocation dispositions a more see approach do. our do.

Aileen Smith

than acquisitions dispositions? More

Earl Julius Hesterberg

more disposition than acquisitions. some No,

Aileen Smith

particular. one a pressure that's last vehicle obviously, cited weeks of question, ago is two in on pre-announced few very new related Great, to growth peers And your and helpful. automakers

from to have Honda, you've offset one maybe in both your able commentary amount As pressure provide seeing, assume. on down exposure OEMs? if it's can And but these of fair if growth the not been as how a with some might is you that coming BMW what as so, quarter, you're you to similar and substantially

Earl Julius Hesterberg

Yeah, Earl. and the on a We this is BMW margin we same situation believe and on automakers BMW. did experience that a the Honda. were had I less two Honda. Yeah, significant pressure And, yes, bit

and BMW had We the able in better margin if pressure domestic U.S. that. in to don't Daryl But know quite bit with the UK. to offset we're to on also a I some has brands add that in margin Toyota. performance both anything

Daryl A. Kenningham

exactly That's right. No.

Aileen Smith

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

Operator

Ward ahead. comes question go Williams next Please from Trading. Our Michael of

Michael P. Ward

Good Thanks morning, very much. everyone.

Earl Julius Hesterberg

Good morning.

Michael P. Ward

Two things.

have mentioned the your in of March vehicle largely costs you? back you you still the when First I and the announced strategy think used behind you continue service strategy, those into quarter. Did would and some some are all, of costs second

Daryl A. Kenningham

costs. some did have We

staffing, schedule to limiters as thing enabled a the to which forward. growth. moderate able our – positive was has of the change we and we in worse because it's But will to we in related one look those are quarter, that goes some staff of the that been which aftersales second expect did but it our as us have Some at grow

Michael P. Ward

service the similar-type certainly quickly like the Okay. looks it car has in side. off pretty paid benefits? seeing you used focus And Are

Daryl A. Kenningham

is seeing We're similar in benefits Daryl in by We're seeing service. benefits This similar service. the way.

the little our we sync new advisors are schedule. our and bit have We in to ensure adjusting rollout that technicians our a on

some in So, pay satisfaction and customer retention cases, improvements improvement. customer in we're seeing and,

Michael P. Ward

where From X% do also color Texas in you happening hope what's was in two Oklahoma? there on those is, the that just tell, can on? provide and what's in And were in can I you so. provide markets combined color can regions market any or but particular particular, up what thing, went Second – happening anything you the any

Earl Julius Hesterberg

think Yes, that had our Hesterberg. meaningful this Yeah. from that surprisingly, I quite low benefit batch. is Earl people – some no Mike, quarter

generally recovered not there So, sales have yet. speaking,

quarter. X.X% in for were our example, For by market, biggest the far sales Houston, down our is which

Coast, Basin Texas, They're that drilling I the that they The exception Lubbock, Amarillo, somewhat activity. down to X%. the in there's a where area. think along to West Permian more lot is were only close Gulf

a jobs comps. you and think out some when patch So, on that's But there. fairly still been a weak and there, look lot we're I there's San the lot sales people more new oil core Beaumont, Houston, vehicle again year-over-year more at like Antonio, backwards

Although, it the lot. weak are at have for quarter. point I from and new hiring that will has tend in the down some support you in patch of get lap heart really and really not follow not that frequently the did several be significant. that consumer Houston some increasing think and an tell in fairly The benefit some consumer patch. material been oil sales jobs, confidence and strength to but sentiment, will we will percentage the the Oklahoma points jobs also We yet headquarters comps, is to was we'll back sales any oil vehicle awful

Michael P. Ward

Okay.

that a go as as? – could tailwind into be XXXX region half as far both So we and second

Earl Julius Hesterberg

the would We indeed. eventually that not This become tailwind. to was Yes second in quarter. a expect

think I people. clarify for important to that it's

Michael P. Ward

Beautiful. Thank you.

Operator

of from Rick Please comes ahead. Nelson Stephens. go question next Our

Rick Nelson

results is were morning, and Is ask thanks. quite there going the you both outlook, it about and UK. see you congratulations. Good Hey, to strong Like the as Earl, Same-store used. new over forward?

Earl Julius Hesterberg

Yeah. is this Earl. Rick,

late peak point, to vehicle numbers because has It's to a at Brexit all a is we're early that will somewhat who amazing life year this and it's UK It's EU as moment the of going car respond able a and some will Brexit. when related this at new even presumed be market still think little next that get the it. point, to follow think to well normal as some to weak clarified. uncertainty everyone, people the may do and can. UK bit At leave to I market it's back subject year, sales But have the we the the we some in and confusing around happens. positively to

The April for they year, are probably for lot quarter the industry business of change look little dealer comps tax because better pulled a March. and on second of last than a everybody, X groups that into really

a some bit and our leverage being even we strong to to So, sales improvements environment. businesses, Audi were really in new the lot acquisitions and in recent well perform the are extremely brands May integrate some But year. weak performance very comps in easier just this benefited able from Ford the April and they mature a continue and plus UK those vehicle

Rick Nelson

Parts and in see not the growth you warranty there. the challenges the that strong U.S.? over very UK, in seeing service here Are you

Earl Julius Hesterberg

same Not UK seeing yet. or strong had growth yet. still yet, as They more and strong, recalls Not had so. a a we'll Rick. that of But the We're too. for years period of much necessarily in there's sales five didn't the the UK. I that lap very some have diesel guess activity again, not eventually

So, there's a favorable units more weak year. for than in operation profile even sales after a

Rick Nelson

about you're if I I new strategies the about initiatives. that And departments, ask you're seeing. XX those talk those lift the stores, rolled service you've into with finally, you the in capacity know if adding could could that

Daryl A. Kenningham

fully higher pay customer stores in stores customer rolled our is we've out. pay We've is XX in in this than those seen growth Daryl. Rick, our growth not Sorry, the

with see the out the our year. pleased that remainder of we're and so as for the stores rest validation that, And through of rolling

Rick Nelson

lot, good a thanks Hey, you. luck. Got and

Daryl A. Kenningham

you. Thank

Operator

of Edge. Albertine comes question Consumer next from Please ahead. go Our James

James J. Albertine

you, everybody. Great. and morning, good Thank

Earl Julius Hesterberg

Good morning, Jamie.

James J. Albertine

beat. on We've the a these there about for managers won't the sector dealer mean, all, or at a I how shed some congratulations right. with of bit run that to though, first Can there's over That's to sort that stores to that a forefront the to force is, have time the Want on changed? time. all, to kind know for Texan of your little is of light market this market? strong divesting relative the We heard just driving that. dog big is really hadn't right Listen, talked what of pivot there maybe strategy Great there all I you perfume I versus one talk being grow lack lower divesting really hunt. about first acquisitions. fragmented before. that slang. trying up to, perception out what's that of quality the Wanted behind nice, pig, some and and and you consolidation consolidate of optimizing like

Earl Julius Hesterberg

and map, very quite of Yeah. and between Sure, geographies works, going so more and this Earl. can the approach our the companies nine strategic has company trading right, But frankly What's now, and months. our acquisitions quality the is valuation right are paying to terms that and the you forth. than is trading in we're brand one that arbitrage of for do what in in six Jamie, multiple we'll cost acquisitions brands sector at the has still our changed I best all find shares, the own the math UK. doesn't some of interested that than well over in less the we and more U.S. with clear at would last is have that we we and when the types repurchase of math thing math probably the and to are But acquisitions the something relative days and it buy become work that says so right acquisitions and our consistency more do forward. these what is the just tell we're to to can seem work

James J. Albertine

and on the thank I detail. used. And question then, you for if a Okay. may, fair, That's

captured think the used to about model comes half during strong something late Thanks. volume if also Mike's market, of not, the unit if wanted some like I where there, It or the sense is stuff part had but how You like basis. that back as modeling GPU like gave GPU can a was a kind growth as just that? question back in that? of earlier further we growth looks COGS margin sure quarter. on wasn't do to supply for up some very going from well on in get we expect here If and cost;

Daryl A. Kenningham

Kenningham. this is Daryl Jamie,

expect to feel we growth. margin in try growth we'll second to as you tell XX% retain can't it on see half like We the the see we're we'll and working much as be same-store, year. will but we of And some the I can. hard

think I might to have John something that. to add

John C. Rickel

Yeah. quite one is The would the we deliberate John out well, strategy, on have moving team wholesale Jamie, this thing Rickel. of executed point I which is, a to retail.

So, what to I margin by would units from allowed we X,XXX us used up encourage And you moved basis, margin grow what at margin a really into not to our total do basically is $XX. total total used is look wholesale that margin because retail low on retail.

we this levels and those we the sustainable. for is quarter, the look actually modeling, we got levels run the if to think up it for to good I rest about ran the team for were the way that the you've think but are ways of is quarter continuing to I So, in And think probably improve, year.

James J. Albertine

perspective decide from be vehicle you am retail awfully you that vehicle then, negative clarification, I a would may, margin I there it. mix think about of you Well, if volume, used apologize talked this is and anything missed guys within if to mix about retail I and a If thinking your it? that slate loaner point we or decide over I about an or a to John, model on that

Earl Julius Hesterberg

more correct. less these and in our Earl. at on more service absolutely of push optimal mileage time brands is you're team from to certain There's so something pressure No, loan an increasing than forth. and This vehicles

a put does some that ago margin, let's years compared for pressure brands. downward same our So, couple on to those say,

is that the factor. in somewhere that So, a mix,

James J. Albertine

luck. Well, thank best you again, of and

Earl Julius Hesterberg

you. Thank

Operator

like the conference turn our over closing would for to back concludes remarks. This any management session. question-and-answer to I

Earl Julius Hesterberg

everyone in today. to look Thanks quarter updating Okay. you for We our October. call joining third earnings to on us forward

Operator

is you presentation. The for today's attending Thank conference concluded. now

You now may disconnect.