Group 1 Automotive (GPI)

Pete DeLongchamps SVP, Manufacturer Relations, Financial Services and Public Affairs
Earl Hesterberg President and CEO
Daryl Kenningham President-U.S. Operations
John Rickel SVP and CFO
Yarden Amsalem BofA Merrill Lynch
Rajat Gupta JPMorgan
Armintas Sinkevicius Morgan Stanley
Rick Nelson Stephens
Call transcript
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Good morning, ladies and gentlemen. Welcome to Group 1 Automotive’s 2019 Fourth Quarter and Full Year Financial Results Conference Call. Please be advised that this call is being recorded.

I’d 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.

Pete DeLongchamps

the and been earnings everyone, morning release presentation for related related Chad, 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 a 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 provisions 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 on 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.

its non-GAAP As required on by measures to financial reconciliations such most applicable company the comparable any the SEC measures website. rules, of directly GAAP provides

Controller. are and in that the and note our comparisons same our Financial Welch, the on Kenningham, Brazilian call, our period Officer; and unless the Rickel, Chief Operations prior and all prepared Vice Senior stated. of President Michael today Participating and otherwise John Hesterberg, Operations; U.S. remarks Corporate our President Executive President to Please President Chief Earl Vice Officer; Daryl

the turn Earl. to like to over call now I'd

Earl Hesterberg

were income Automotive, concentrating share able F&I adjusted our Group and vehicle you, Pete, We $XXX.X year control, a where earnings adjusted record share key both per industry and to by areas in of of service on the parts morning, greater weak X million cost. and business everyone. per net and vehicles, good new exert was a record of markets. despite used of for $XX.XX we XXXX record Thank achieve or

adjusted by represented and performance, by driven U.S. per drove in two the in Along a X.X% a we by number sales On an net same-store was sales this X.X%, Our gross numbers. and gross adjusted performance profit. last operations. income grew increase earnings increase, increase This F&I remarkable our penetration, of year XX.X% overall U.S. a increase XX.X% X% strong share a basis, retail full profit year. same-store X% unit after over our with total

maintained time adjusted point XX SG&A of good a At and we profit. percent gross by the as as decline cost U.S., evidenced basis our discipline the same in same-store

Our powerful uncertainty U.S. market presented to UK performance serious able last Brexit by in was overcome year. challenges the the

in the of New vehicle year excess approximately demand and in of result last margin the were and supply. XX% the weak market used UK declines overall

in models of due biggest from impacting our supply the vehicle We also round OEM new Audi, regulations key latest suffered the supply chain. shortages to of business emissions

will cutting more in mostly benefits the resolved new the many December general our approximately are the we've of XXXX efforts issues quarter. foot election. also in stores to However, We're as chain in market the margin supply declines optimistic and used following XXXX. cost traffic Audi improved optimistic in UK we're XXXX, that The pay X% our and about seen XX fourth

Daryl sales continuing by used some gross currency full performances is will This both and Brazil, of to this in more for after XX% vehicle gross X.X% auto We In by market Brazilian the able and the business. to continued shortly. our detail evidence were profit in local year. same-store provide U.S. XXXX. profit recover on maturation increase of

new also used as margin, approximately further mentioned Looking our total, sold I the we adjusted to and a vehicles overall key billion. in gross XXX,XXX to were per which which able We SG&A year vehicles, while at expand revenues share achieving percent reducing which full profit, earlier. gross was $XX.XX earnings the XXX,XXX of of drove $XX record the record of

to Turning our results. fourth quarter

a average XX,XXX quarter, increase in X% price, X% vehicle over and increased selling sales. Total a revenues driven unit basis, increase a currency we retail vehicles. on the constant retailed new in consolidated During X% new by

which market. Additionally, our outperformed U.S. new vehicle sales overall X.X%, the increased retail unit same-store

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

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

strong During X% performance An Brazil. consolidated gross also and in and increased And X% come our vehicle the U.S. increased, quarter, over volume expanding of retailed we continued new vehicle profit by our U.S. used the another U.S. units. driven mentioned X% on XX,XXX grew expense by Total revenues a constant basis, at unit very per the operating retail used same-store currency margins I the previously, unit as team. performance growth this by impressive is while sales. did not XX%

increase XX% And profit constant growth Gross points, of revenue increases currency our of XX%, X% profit by aftersales X% helped customer was store parts after an on by XX% gross constant warranty expansion basis, XXX sales of after of of company gross driven XX%, collision wholesale in consolidated increased currency our to sales basis. all-time consolidated basis margin X%. and of Total pay a same U.S. total a on record.

as basis. a of as strong growth gross increased currency in well increase U.S. a retail consolidated X% on was constant Finance unit penetration, This driven and growth total profit by insurance X%.

over like results, before to segment cover to geographic I turn call our Daryl quarterly our Regarding Brazil and the Kenningham discuss the I'd U.S. to results UK.

Daryl Kenningham

able Due generate to in X% a growth strong used sales, and total in third profit U.S. increase very We the for vehicles Earl. the same-store we record were quarter our you, consecutive quarter. fourth F&I Thank pleased with in gross to were performance after

while sales The margins our was to quarter driven and industry same-store the $XX vehicle the in per retail same-store growth, the of vehicles used our been to also our prior the we're of critical, our down retail by unit. used strategies The implemented X% new year XX%, with at able unit During not the shift was X.X%, as did data on along have profit over vehicle new same-store grew basis. driving X.X%. more gross which up channel, sales big a increase by volume, expand come expense used sales grew unit business recently pricing

better forward will lowering sourcing on an further be with discounts growth focus the XXXX, advertised value line alternatives. we to as continued our development and initiative, off look pricing As improvement in of

and after company. record increased quarterly basis, pay X% parts Same-store by the customer all X% for sales increased XX%, gross warranty by Our wholesale was profit same-store gross and grew again both the on gross with XX%, up time revenue X%. collision profit which and up

work over a four-day XX driving better the in thrilled week by our increased in stores XX% and same-store technicians with are and employee headcount increase. XXXX, results. our we've XXX implemented We've retention It is

expand we expect total to by Looking would after digit to forward grades. XXXX, at continue growth least mid-single to sales

$X,XXX, contract $XX quarter to be XXXX income F&I unit unit range. increases. for PRU to year was we the by again per to product and U.S. penetration driven $X,XXX, per $X,XXX Full strong once increased the in income expect retail per F&I and $X,XXX

with our an traffic, we U.S. digital gross and The to initiative in platform, dealerships, efforts. all the our Turning our is pleased remain on update AcceleRide and online now feedback. margins customer retailing of

at in tool to quarter, than from sources. on up over as other pacing XXX XXXX. look vehicle the AcceleRide improvements During X,XXX rates used double lead a closing We the quarter their And are first AcceleRide in in in XXXX. customers the AcceleRide forward more of more purchase,

appointments In Customer sales addition, nearly our grew online. and versus and continuing. service XXXX were XXXX, omnichannel QX, service in after are December of XX% made online XX% our efforts appointments scheduling

on and visits visits SEO and digital track, supported website positive increased initiatives. both by total XX%, trends our a as Our also in continued management reputation XX% very organic increased traffic

to gross was from used basis SG&A to and from down anticipate efforts. leverage team sales after continuing by to points, adjusted our profit Lastly, XX.X%. SG&A our We increase we leverage able XXX XX.X% as

XX%. generated the basis, largely currency by performance. impressive used vehicle on initiative. XX% bottom our centralized vehicle year-over-year from appraisal SG&A used same-store very a a driven strong of Brazil behind by on desk after continued basis, profit gross Same-store in efficiencies sales, headcount we and constant line after XX% technician driven increased Brazil, currency growth an increase gross local In profit increased sales

Brazilian our environment. team further rebounding and XXXX, local points to to continued initiatives new our implement basis by lowered cost XXX in industry and reduction our sales forward We we from as benefit look learnings vehicle XX.X%. U.S. SG&A into growth on Finally, the delivered business,

will Earl. turn over back the now I call to

Earl Hesterberg

Daryl. Thanks

remain quarter, down X% in challenging As able we same-store industry by to previously the total continuing for and by by mentioned, was market vehicle X.X%. conditions increase the sales used new UK very quarter, primarily sales vehicle the fourth X.X% overhang. we roughly were new Brexit The but caused in vehicle

we continued vehicle gross retail on on basis. in X% used vehicles, new profit saw New unit of vehicles market for a vehicle pressure same-store currency declines constant and margins, for resulted X% for downward as also pressure

inquiries have noticed and election mid-December, new noted following we I immediately in earlier, the As outcome in vehicle uptick orders. an

so we optimistic seeing XXXX. are are we Importantly, improvement January, about UK somewhat in in market continue that the

now over to of the some our our I'll financial CFO more go results to John turn call Rickel detail. over in

John Rickel

you, Good everyone. Thank morning, Earl.

quarter than annual XXXX $XX.X a $X.X exclude record to impairments, fourth These resulting modeling. valuation XXXX more primarily from comparable net adjusted over fourth net explained tax of after of the results, or charges, million of results increased quarterly income adjusted by For of million. XX.X% asset million $XX.X $X.X our XXXX, our franchise non-cash our million quarter

$XX.X continue $X.X year-over-year We increased or a fully the $X.XX, per rates. three earnings prior from lower to expense XX.X% decreased to basis, a in by explained quarter see XXXX. adjusted On of to from a benefit interest U.S. by diluted Floorplan million, quarters million XX% primarily should lower interest first year, record. share fourth rates

Other or prior the by $XXX,XXX $XX line borrowings. interest year million, from to higher X% reflecting acquisition expense primarily increased

effective adjusted be would tax adjusted consolidated to rough quarter for well. Our full fourth as XXXX our year the This XXXX was rate XX%. XX.X%, a rate expectation for bringing

and liquidity structure. consolidated our to Turning capital

cash $XXX and on million was we offset that cash liquidity As invested million hand had XX, $XXX of our another accounts, total of bringing in Floorplan $XX million. December to

line, $XXX there acquisition our on to was million liquidity addition, borrowing U.S. of additional capacity syndicated bringing total immediate In million. $XXX

U.S. facility, at X.XX leaving end to adjusted rent plenty fourth times decreased deployment. flexibility for of quarter, of the credit capital leverage ratio Our the

million of currently an used is which per $X.X the pay yield quarter, During fourth annualized of X.X%. share, to $X.XX we dividends approximately

share during a per our and repurchased XXX,XXX of $XX.X million. common average January of an also for price December $XX.XX shares at We stock of total

our less XXXX $XX.X CapEx authorization have at Total we're and million for We board $XX million of targeting XXXX. remaining. million for or came $XXX in

of our information please the as our the regarding to detail well additional refer financial additional For the news investor condition, attached release, presentation on posted schedules as to website.

call the over back Earl. turn now I'll to

Earl Hesterberg

corporate we announced efforts, to in development New and as Lexus two dealership Related our northwest John. a previously dealerships Rover fourth purchased the Jaguar/Land Thanks, opened quarter in in London. Mexico,

XXXX, acquired year million will For revenues. generate franchises of we in the approximately $XXX that XX full

We the XX that trailing franchises months revenues. million generated also $XXX in disposed XX

turn Finally, questions, market our your call update operator for before outlook the for me XXXX. to the I over let

million XXXX U.S. came see X% to around in million in overall the vehicle in new and a XXXX, in industry. Total new we about XX vehicle the to expect slight again we're XX.X anticipating at units. a decline sales pullback units, For

For million XXXX vehicle X.X new industry to in X% the the UK, units. declined

X.X industry the million the grow the finally Brexit XXXX from in ease. legislation supply the to industry and emissions units, to related around start low we single see expect shortages, to recovers We as as from overhang digits

X.X in almost And the units. million nearly improved for X% market Brazil, by XXXX, to

opportunities remain units. signals all the in expect to this increase vehicles around continue another Given three we see after we further X% economy, we to X.X an in continue we this to that confident grow in used environment, see continue In or We sales grow the million of to earnings. can with to trend markets. positive so,

In believe significant with firm Brexit, available addition improvements from direction our are a UK for we operations.

now will begin turn to This operator the question-and-answer Operator? session. to prepared I concludes over remarks. call the the our


Instructions] [Operator

Bank Please will of Murphy ahead. And John go with come question the first America. from


John. Good for morning, on this guys Yarden

lower the rates on given was this there inventory it First any taking question was in maybe of a Was much lower terms management quarter. this are of interest or you're actions something function Floorplan else? expense, or it specific


of managing of team good basically job Yes, on this flat but has kind is it's John done Rickel. the a a inventory, basis. The year-over-year

So, is rate. lower cut to has the all rates, attributed improvement Fed LIBOR basically U.S. the

into quarters. XXXX will anticipate that three for the first that we at least So, continue


then for talk about Thank vehicle great. can business, you. used Okay, maybe And you the

the extent The to margins? of by key drivers impacted what improvement And line? in the was value that


Kenningham, that that they for us Daryl One And of we significant price are day for from area our is, with the limit sale. to offer, in try concert the that, discounts here. we vehicles focus that. the we market following to available

you you that and offer, the the improvement to your profit discounts market we during price vehicles better your some is, and quarter. So, the the then saw better fewer in gross

in on U.S. efforts focus larger the two of continual as a for improvement sourcing work the gross well. that's in to Those and continue We drivers us were that profit


guys to year, you then quick value it Okay. given other just well? consider for doing regions well a up, follow you would expanding And as how last was


I regions? that. what Expanding other missed


line? Value


it UK, but to course, looking in Brazil. We’re experimenting can Earl the at with speak And we're Brazil. in of

in have that other things wouldn't though be full We on Brazil some rollout. going a


they do with of differently. franchise. we retail the in cars Dealerships, the UK, generally is brand, a of represent used bit Yes, market car the new used a car structured that test UK but

is a into non-franchise So, location. separate cars what used we've putting tested our

put for lot. your if have So, you separate a you example, onto trades and Rover dealership Land Mercedes a BMW

sense, tend luxury Most taking brand used on we're of that used as luxury UK more to if brand. so makes the are franchises cars. a in to focusing franchises, so, be really And our low vehicles see our to look opposed price


from comes Please JPMorgan. question ahead. with the go Gupta next Rajat And


the XXXX Hey, thanks on the morning. my main a questions. know, the I on for on just question taking big bridge. earning parts Good you had moving

You've talked about your expectations for new sales. vehicle

in gross mentioned used for you're GPU on all briefly seem lot services. a side your based on And I to the profit well, to the and perspective. from as vehicle perspective F&I clearly, grow expectation XXXX. a initiatives of you parts think a continue seeing from strength

or interest. and You it have unreasonable in be XXXX growth from tailwind there different earnings to anything should is to expecting, broadly? year-over-year would Floorplan similar expect I we be versus mean, better that just XXXX


market don't Earl. only the at recollection our moment. major assumption belt is month is far My is my under shifts I one any stable. the and so with see occurring quite This And,

did compared year out goes car market we're and of the value business approaching to There's of what way last great a So, than steady a the year. she the relative rising prices is a more a of for kind used to of that we lot new been used do there as to relative car that's has with the cars.

And massive capacity still for and service potential. us there's

change and see our in don't The UK as as lot potential big market today. we overall we more change sit think in ahead. we a have the we'll So, biggest in the the year here a business


headwinds be down performance despite we step XXXX? gross expect the continue further the in we Got pretty this any XXXX, I should perspective, it. that for Should an to And in from good to to XXXX? obviously, mean, SG&A is in range expecting there UK.


leverage John as think in Yes, gross and UK We parts there. Rickel. long can Clearly, the we're We U.S. to to certainly deliver there to continue think used. continue is we're grow the some with for that SG&A being profit, grow Rajat, well. Darryl, we and to in as the be outlook to anticipate our that definitely opportunities able able leverage profit gross service we able outlined this if as

in fourth to the get you least and the at you good Brazilian think we really be working XXXX back would team that levels. able cost And that the I on, the quarter market saw, progress then if there. that get to cutting we're rebound ought to

add be I to show of when think together, leverage that gross. in percent continue to a do all So, you on able as we'll XXXX SG&A


Got it.

and question Just a to one some to earnings. this the lot are last in vehicle one next for unrelated electric year set OEMs me, year. products an But, launch new the of

training? we stores. you to choosing with for experience Thanks. CapEx for prepared any in a investments the surge the significantly had to that the SG&A Audi be this already at or you or perspective, might just expect That's like How CapEx it. required technician the from of needle You surge? Would move our capacity terms e-tron or preparing get are


more a steady any years ago. required been it's year we I Daryl. see stations, are or We Leaf move underway a slow some and manufacturers for there good than is to technicians, they auto with but, CapEx tools as of don't kind the shift can electric material charging toward This back vehicle offerings. investment in this the And we and go number trained more put is to and such, Nissan migration.

we obstacle in our an as don't that see business. So,


Armintas The next ahead. with from our question Please go Sinkevicius will come Morgan Stanley.


taking you Great, thank the for question.

As growth look revenue relative U.S., in the what of the third I color in growth, there cost just more gives on sales to the same-store the was quarter similar, that. then, you XXXX? detail bit hoping services and the at for roughly a parts quarter, into And fourth confidence a the


Some of than work warranty fourth the in last the lighter detail was seen quarter, in of a the three we've quarters. little

that adding see we four-day customer there, we So, the we're that. driver our from capacity happy pay was and see and continue upside main work with the week continue We're there. the to to in benefits behind growth


various project to growth And do How components grow Okay. about components? how you various XXXX? or in business think the the they


for spot we're think the as with lot certainly XXXX the go We opportunities so, hours, continue expansion you're that. there. us continue grow Collision pay. think bright to parts a there look more also to capacity Armintas, there's drive a with about in had to added, there's be we talking customer we've to of we it, think, going at I service. Clearly, you and to success of

as can to of announced seems the is needle. the pay. is there primary our where be focus recalls at but, to we always up. I'd But, say And somewhat manufacturers continue move then wholesale the mercy those coming were Warranty, another customer on some


when mix then, that to services mentioned any other be growth and can't mindful you it of pay And the to relative parts Is the just grow business in pay rest of moving the the up the pieces count, what's that Okay. XX% customer makes -- proportion reason technician of? XX%? customer or


Yes, it, productive. there's also I fully the up ramp of mean, some with getting that's technicians


to pay the here. cost there's benefits And regards and XXXX. in Okay. then will that, mentioned one last UK, you opportunity cutting the With here

there take think with certainty them? trying we sort are are had that you around any initiatives through, of forward and move Just been to that have hold put that looking able more on to now you're to the now environment


say, been we are seller's on last the a dispositions trim make, probably or years there large a need three biggest would hasn't should we There bit. up I based in much UK some and environment have of the year we portfolio to previous acquisitions to the changes, better our some market in the two. made a

still we're a portfolio to in need our size a mode. we So, bit. right In UK, consolidating the

true it's too optimistic key crazy But, the this, the order it March it's taken our at moment. last simply major and is in on as what us fairly early see, weeks and how much UK will we're the for encouraged U.S. growth be the to we're go but market, the six so. the is there to in by for probably brands or the


Rick Nelson with ahead. go comes question And Please the from Stephens. next


environment. Earl, good Thanks, about I ask morning. you the acquisition want to

XX in like of well? consolidating maybe acquiring stores your in multiples, the in you kind appetite sounds UK as Brazil you're two versus the environment, commentary see the in U.S., stores UK December, How XXXX. acquired the You and


of Earl. in U.S. supply Hi There acquisitions Rick, it's the good a is

some year years very in needs a been very the has and are our Clearly, in U.S. settling market last can down that as it's vehicle acquisitions new the But plus. in we we you meet found or possible capital However, the last destroy U.S. market three that’s so. the cautious that hurdles in about

capital interested So, make of We the and good U.S. on aggressive. be in that pricing, sure see get our deals these the going and possible. to not too growing return we in we're, make wouldn't we're most But, I opportunistic, in want to we're a

The few right UK, partners ago, acquisitions. mentioned more some we I we need But, we're a our right to need there that expand we because; wouldn't couple to OEM do to than expand. We now. as minutes wouldn't sizing mode I a dispositions do have want probably say more in of a us

Brazil, And acquisitions flow willing generating cash there market, more grow we in relative we from don't unusual, frequently inherit and liabilities in and to because But, Brazil, we're difficult the seller the we purchases which to that that. with are are do generate there. asset you cash are

want but, we days yes, clearly the to and cautious these we to financial wherewithal that. So, grow it, very do we company the are have on


U.S., I Daryl, earlier. where year-over-year Thanks for color. for used you the side, started in car the you've the And then addressed GPUs better improvement think new the side on

know that technically You color any be side the specific is that would brand a that helpful. or of around performance here slower drove the


lot people Good the lot traffic was was really efforts some I the worked more We that us drive. dealerships. of quoted traffic helping on our to team It traffic, website across and in a of and and morning digital has board attributed believe, organic that's our Rick. what geography. the counts to And drive brands on on I

to. attributed I what that’s So,


be any Texas would And on within then the U.S. interesting. comments


sorry, I'm on Texas?


How the trend? that of the performed versus rest


the some Rickel. pretty our results. idea, line you our John kind and we the Texas did. of operations footprint clearly know, with U.S. rest the with are market was with it's that heavy Rick, of But, you gives since outperformed we in basically Texas

End of Q&A


concludes over Ladies question-and-answer turn I Earl to our for back Hesterberg, this would and like remarks. any closing conference session. the to gentlemen,

Earl Hesterberg

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


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

disconnect. now may You