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Group 1 Automotive (GPI)

Participants
Pete DeLongchamps Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs
Earl Hesterberg President and Chief Executive Officer
John Rickel Senior Vice President and Chief Financial Officer
Daryl Kenningham President-U.S. and Brazilian Operations
Michael Welch Vice President and Corporate Controller
Rajat Gupta JP Morgan
Rick Nelson Stephens
John Murphy Bank of America
Armintas Sinkevicius Morgan Stanley
Michael Ward Benchmark
Call transcript
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Operator

Good morning, ladies and gentlemen. Welcome to Group 1 Automotive 2020 First Quarter Financial Results Conference Call. Please be advised 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.

Pete DeLongchamps

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

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

known risks forecasted from may involve results unknown actual company's statements uncertainties, the future and periods differ Forward-looking in cause both to which results. materially and

risks transportation and Those of and economic available Securities described demand COVID-XX past both its risks the to, for associated are and and on Those these prices, the company. elsewhere such producers the related on and on to in used the and effects with company's the and the Uncertainty as services. and extent services. current U.S. U.S. Copies COVID-XX ease authorities the oil timing, SEC travel, conditions activities and of unknown over and with adverse the and international and and to are uncertainties will various future likely resulting XX which impact have recovery and vehicles Commission Exchange filings volume, economy, health other global economic filings on crisis of well pace in on of pricing, severity and are from adverse oil the and impacts can limited commercial affect include, turn vehicles COVID-XX current new restrictions impacts the months. in from and unknown and but duration future related of regarding regarding an virus in public the for impacts as market, risks the not demand the the developments

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

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

our on Earl Participating Chief President the Welch, and and Senior our Chief Brazilian Officer; Michael and Officer; President Kenningham, call and our Daryl today, John and Hesterberg, Rickel, our Executive President of Vice Controller. Financial U.S. Operations; Corporate President Vice

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

Earl Hesterberg

and everyone. Pete, morning, good you, Thank

of of For X quarter, in and results and $XX.X the earnings U.S. diluted prior the February, on Group generated quarter for year, were we share respectively. record Through million XX% first from pace first share, the and per $X.XX decreases adjusted adjusted U.K. per XX% both net of income

March results, shutdown markets, were U.S. by as orders well however, operations. complete all shelter-in-place our a our Our U.K. devastated of of in as nearly

corporate X,XXX in for and and U.K. and in March, reducing receiving and the compensation members, all executives, employees, support vendor reduced swiftly numerous we addition pricing. reduce of reducing previously support U.S. furloughing advertising announced, by costs As partners to X,XXX from CapEx board to acted personnel significantly

levels furloughed employees we X,XXX an we as further volume. staffing April, early additional During U.S. adjusted sales to

all the personnel cancellation the unable selling to U.K. sell contracted our to unfortunately we state March that's We XX% vehicles. actions of our primary of the month in had event. were biggest capital repurchase were during week Brazil means of first of economic showrooms to U.K. U.S., the have unprecedented leaving necessary quarterly been our were online and also March, a We the the suspension vehicles but course, the year. of After and as mostly especially of selling in announced preserve progressively brought dividend closure, regrettable our about in this of share deliver of the And The program. into of sales

workshops Our work, the not been are material open which only our showrooms since completely U.K. gross does for have mid-March, emergency service and generate closed profit. in

a generally In unlike living shelter-in-place by of strong showrooms, effective the of vehicle U.S., many U.S. have our incentives Without greater. been our and customers have since of OEM our flow Acceleride, been drop workshops reduced remained purchasing XX% used our new service in vehicle because the most since to of XX% closure vehicle The online platform, showrooms mid-March and most similar would orders. have customers expect but sales has under open, even of the sales has our percentage. simply down been mid-March, I

some to see in As sales began market. U.S. we April the in base rebound our week-over-week progressed,

the For and sales sales With the to in employees and being starting employees of to were were the U.S. down at XX%, June. back revenues recover we're service XXX lower beginning final recall approximately our service than experienced some able week, of and unit XX% we about start back from U.S. the pacing lows prior-year approximately add by levels. retail anticipate to April, furloughed

possible to levels might the We over course months. coming levels as quantify staffing continue adjust sales can monitor see of especially what pent-up service, some that it's not of necessary. but the will and in to demand, be yet level We

John to I'll John? now overview. sheet Rickel call our CFO, liquidity turn balance a and for over the

John Rickel

Thank you, morning, Earl, and everyone. good

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

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

additional X all million $XXX to bonds and funded previously not redemption any borrowings borrowings, million We funded debt X/X% process redeemed XXXX XXXX. material facility May. This on the the was XXXX. with mortgage extended before our our mortgages before $XXX in was We June of are as maturities and approximately through April due June acquisition our another be in $X.XX we hand. and line funded credit mortgages billion announced, currently of local U.K. million We X% and Brazil. million $XX the in U.S. due in have cash in U.S. of of ample plan $XXX April, have in do in In XXXX, over bonds liquidity through in and liquidity

facility Our was leverage rent-adjusted of at limit. cushion U.S. X.XX under times X.X times leaving credit of ratio quarter, plenty the first end the the

the as and cancellation deferrals feel is recovering capital to as quarterly Finally, suspension comfortable Earl to expected as repurchase the adequate balance the are that expenditure and through the half downturn position until revenues carry to preserve well our start second liquidity. we mentioned, sheet our our of previously the announced liquidity of program, share dividend year. severe in of We us

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

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

Earl Hesterberg

concludes prepared over the call turn now the This to our operator begin I'll John. question-and-answer the remarks. session. Operator? Thanks, to

Operator

[Operator first Our instructions] Rajat, of question Morgan. proceed. comes Gupta Rajat JP please from

Rajat Gupta

Good morning, question here. for everyone, my thanks taking and

The I roughly It XX% like actions. had question as furlough employee on the was of base first XXXX. looks your of you've reduced

number? force furloughed get give XX% sales that actions, based what on of furlough just us more to by about employees, Or be of us that and U.S. get June. in could like that, And that that the side likely technician added to sought of and starting side? lower are sense how be of trying I give a going you then a that, was the sense being nature? to the the demand on is just a the you and have adding follow-up. then on employees Thanks. service XXX talked Can a much all there of some within being back. back is are Just permanent sense to – those kind That's workforce of are or like you You're projections

Daryl Kenningham

was to the Rajat, Daryl very we results mainly April on a based to sales determination made We some Kenningham back through ability strictly were productivity on Internet. the per our When set salesperson, we in metrics add based sales customers and based specific to respond it on responding. on seeing based some sales And a to F&I how expect we moving for do that forecast And seeing and will at we we per those sales back on were the technician use people modest and the we that hours many and bring May. on time per determine we based should forward. manager. metrics people, demand

many the costs. because back it. into that's actions took U.S. And the right Earl question we that. how was to add to many of variables what our there's from cautious And honestly, permanent? in I'll with I trickle let then add would we're being business But your costs We want our second now are some color side. so very our

Earl Hesterberg

how we and idea clarity I have really But possible. bring back. making I hope see anyone The the Yes. point could any able on been the of And until point, what furloughed market be no future develops, is as be can we is what to I've holds. as Earl. speak is responsive at have will we that, and this that Daryl to reactionary to is that provide would employees not the possible all some

to of permanent, So enforced there we'll possible. that. continue reductions that until the clarity, But is as some react would but business are none the hope I dictate will quickly as

Rajat Gupta

Got it. it. Got

what SG&A weeks like percentage of sales through economics Acceleride, platform? for you a what couple are April percentage to that happening toward give like looking both of sales, us of on least the That's or – your the profit from helpful also and are what Okay. know. or last sales sense unit at online in into could like, mean April of a then then And gross of Thanks. May, perspective? And I in the the

Daryl Kenningham

Daryl Kenningham, Rajat.

from was progressed. are that sales. than gross had previous economics sales. averages we X.X% seen What non-digital normally our we month the on numbers we're sales historically different reporting the historically. were what profit were April, to That's seen you've we've The up unit in previous seeing our was of seeing of our Acceleride Acceleride. It is calls versus very our are of accelerated sales as comparable on Acceleride our what X% what been – month For on

up We're seeing our XX% February. and January versus Acceleride leads are

engagement in means app, Our been which the in things highest the signal. COVID some of Acceleride. crisis since engage they're interesting seeing XX% get started, Their usually were customers the buying April. the when that ever grown has customers month the they've credit application the at sales when to in credit We're

So we're home sales the carefully. deliveries. across of XX% that country, watching then about on very average, our are And

Rajat Gupta

in Got for back I'll great answers, Thanks. and Thanks the That's it. jump color. queue.

Earl Hesterberg

Thanks.

Operator

our And comes Nelson Nelson, Rick proceed. please from Rick question next Stephens. with

Rick Nelson

Thanks. morning, guys. Good

hung are opened and you in markets seeing parts have up spoke down little got you that to bit but XX%, What late week, down last U.S. I here, So sales I'm a service curious, XX%. up?

Daryl Kenningham

that full-size markets a as biggest has Jersey, sales We're markets are that be markets two of Daryl. on strict there's doing time for be this bigger Rick, seeing. that we're the in or example. New much One whether success things to have heavy is obviously also very shelter-in-place those And impact tend trucks; California pickup The sales. better. seeing two Those seeing is we're seem shelter-in-place, to our that, that it's the progresses. concentration drivers a

Rick Nelson

Okay. demand car for wait your do Daryl, now? expectations you you And there? reduce used values, to inventory strengthen? Or do

Daryl Kenningham

possible. wanted as was in started much but as and to Manheim since ideally, by taking could. the front of XX%; the to we sort possible of – new want I the to A as know we the our inventory started demand much date the And as some in was quickly market that side. at we as much used out almost judiciously of used that falling the we lot you've car March they've as middle as on inventories action And values; Rick, of as XX% get as once also declined March. And looked as it. get we XX saw segments, on of of we

incentives. middle our some possible. So headway headway, levels because we in the aggressively significant in been rental of from of two, half to to out become as OEMs some to inventory forward, used: the try there's auctions vehicles We've the the and inventory it example; a lot values our in pricing the companies, their as through made go get for quick have of one, three, centrally March know we've on because with of dropped; car have very still aggressive

for good are values. those of car none used So

we've possible. So we as with wanted And soon do we We outside some as of far. out April, get where so our in pleased were to channel. acquisition, again, are inventories to our then started modest

Rick Nelson

of maybe the developing finally, prepared this And XXXX? the remainder SAAR covered you your remarks, year you've expectations, into in but the and see over how it

John Rickel

monitor. That's We difficult and see good John. but encouraging, have is started part, far people comments the is back don't depends the what how of it We're Yes. rebound, to That's some to how anybody back for going why has Earl's we're have right, of clearly I ball. on Rick, think real somewhat which outcomes. the to variety to comes, prepared continue that's return this market. adding is on that crystal a a fast

Rick Nelson

Thanks Okay. a and Got good it. luck. lot,

Earl Hesterberg

Thanks.

Operator

John comes John, Murphy please proceed. of of question from next America. Our Bank

John Murphy

some morning, Hi. relatively first question dealerships. I like they're the wanted start strong the maintaining automakers about being supportive just guys. to concern network a are situation. with a and seems in handling Good have how being distribution It your

or any be assistance what's term? from of get going might of sort you're you Just them sort items the scenes then of floor also and pieces the plan in support on providing kind seeing they behind curious done, what of to other help deals on near

Earl Hesterberg

probably this they every is things U.K. in of U.S. sales. done OEM in new of mitigating at are supportive things prepared The in incentives, the almost do. out I incentives right and some level the board the things eliminating do In paying which be should greater probably in John, markets, including been view, both targets, can a should of the I've have decline the OEMs now, both And finance levels have they even been those brand could variety very with the they added and a us, across Earl. have support Yes. pleased powerful and what, very vehicle XXX% my very remarks. virtually the of like

I think, speaking, for up generally OEM have So stepped really our partners us.

Daryl Kenningham

John, the wholesaling OEMs very for their Daryl. with you agree the wholeheartedly have supportive they've be asked us. seen if three U.S. and assistance. planning flexible do seen this OEMs about We've I or is to that them they've been that. or willing to to Since, we've the us. very been floor We've asked in help asked to of four flexible If over vehicles hold in out vehicles months, or two next extremely plan.

So as production you getting know, their is again. biggest going challenge

John Murphy

curious relatively sales held reporting new seeing one the how dealers I actually that, about maybe to guess is would you to like, a think know they've the then this you And current mentioned, right on interesting well. have pretty up pretty question that about of I'm they're just the given demand now short your levels I what now, the on look heavy. right if months what the of two inventory mean just inventory follow-up second we're restart new levels inventory But of Daryl. as other these if like being in we levels, on have could did maybe May units inventory? went really production see vehicle the environment things and depressed GPUs June on kind the another and or you is but we April, month side. we out of of like vehicles, even a depressed into And the beyond XXX,XXX-plus And far going we new aren't take stumbles been that vehicle weird end levels. expecting in as that still door, people so

Yours I'm helping inventory held inventory to up well curious dynamic pretty out just this may be and save as be if on some might well. there. trying

general? of inventory in your thoughts sort Just on

Daryl Kenningham

the you absolute Yes. numbers, we're statement. now, John, your like buried. Right with looks at disagree when I look don't materially it

at not you in areas. a could forward case project worse of then the look some If we give reopening, and plants some with

project see some look be the But later as snapshot not there where forward, the summer. as we concerned. could in shortages we're we So we at today, could

John Murphy

two just oil you're the I to markets exposed mean, and that general. following in that, maybe then Texas on up And uniquely even Okay. have patch you lastly,

there's what's and a think concern about markets those hard talking lot I been prices. large you're with oil those going may being pickups Those of get been strong, markets. on pretty with are if hit

oil-related in but in about curious sounds can how if you're kind well? on not if we Texas should sounds seeing back U.S., the the because grinding and markets. the as just also other the what then maybe So in of like across things U.K., U.K. comment it you And the life are in there, restart case to so can on the naturally comment it pond think like you that's that

Earl Hesterberg

big John, Yes. through of clearly Earl. a going energy isn't is U.S. this there's which industry, some for shock In the the our markets. good

lean three big the ago when headquartered prices turn oil they energy its in Houston; the However, a got industry, very down much years whenever or last shock. that was, of took here

their And are are We require of stabilize. they're those much clearly that's prices but costs prices economic down. whole a shutting responsive the our so yes, And they're going some oil yet, so low; business down. these world anything way to for in But recovery and fact more just can't it's see before rigs life.

economies every strong pretty is Texas U.S. more beauty like The diverse coming parts to the and year other from all of the Texas are companies with and pretty much diversified

an our keep than beauty We bones, So to And the what the bare and easier eye adjust top just the have down. that's on much back, The we to now bring from in marketplace. up that. cost the experienced bottom commensurate from the do. with structure it the can levels we activity took we'll we'll is we'll cost down

U.K. XX. the open predict. of don't the in earliest just oil we is It much like little the a seems to some of as then heavy be bring March back the The could don't So there might if some U.S., difficult markets markets recover other cost. we

John Rickel

May XX.

Earl Hesterberg

a that more and maybe X,XXX. Probably in out to X,XXX or clarity. deliver, latest days will could We that June of cars give be next the something have do come lot probably the we'll X, few

up the from didn't because U.K. bit in shipped the still OEMs the perceive centers been to premises of quite basically, XX have Others service be a Some business holding are to various breakdown There's that service our that only now customers take. on ports for or show days. done also have. just I pent-up there's

inspections their everybody dispensation the been vehicles, there's has regular U.K. on Although in some to have made, government-mandated.

We trying for lot have that. a people of get in to

we'll recovery it how so occurs in is from U.K., see a the And standstill. coming the but

quite than the situation U.S. is that So a different

John Murphy

you Thank much. Great. very

Operator

next from with Armintas And Please Sinkevicius question proceed. our Morgan comes Stanley.

Armintas Sinkevicius

parts question. to XX%. lot being ability roughly you side, technician and taking When were focused that your technicians the on year, the for Thank on and the services, we Great. advisors we up started a hire

think we parts and resilient technicians But As contextualize we think about How has taken maybe have it and going here, vehicle forward? sales. how by around about the services help actions services employee more been many count? you the than should been affected recent could of parts you've

Daryl Kenningham

We that expect nicely. the metrics recover service watch We of that parts see in some will every we and day.

Our center better are day call there inbound and every accounts with better. looking

are better every numbers and better scheduling Our online looking day.

expect So those recover we trends nicely. to

we the And to technicians acquire to did In skilled are the some retain, we lower-skilled terms we've to stores. higher-skilled technician to the want for try ones the we headcount, technicians. retain, technicians with the can I worked that first. furlough technicians. hard hardest toughest of started Obviously, tell to you, preserve very in

Armintas Sinkevicius

any philosophy, delivery? and it's digital and online has with spending regards that And push to Okay. whether had impact your with to emphasis sales, regards then COVID allocation, the Acceleride capital change the to in on

Daryl Kenningham

that on would it. announce things today formal No we

always it, with and quite... our tool we on of customers, [indiscernible] believed that's our for that we've piece with a as we And part faster had it rate. more comfortable and in so customers through you tell why nothing it it as will bigger a store But our more believe We our part in a is forward service stores moving cycle We world lot it getting get long. larger is to seeing a but it, would we're of this comfortable become of business. at

Armintas Sinkevicius

would – do of enhanced spend down feel further Okay. the envision this sort made that the on? line? would capability What you still like And any be decision you spend to the initiative, needs to areas that you emphasize if what have you you to

Daryl Kenningham

it is in store matched and itself, is. the And customers Ensuring The it to that can show to is there. in there's do is, is important. messaging important we how store process easy good. we pretty certainly how tools feel the certainly technology like is Well, some simple things

John Rickel

The key started you there the that great spend would existing Yes. kind there's dollars ago. I so this. would putting of with of of a CapEx bill about go redeploying CapEx with What advertising large is did say kind we team XX that when spend enhancements big anyway, going months there's job is that not a point you're goes where this additional it. Daryl in would talking not is kind your a spend to to build of

Armintas Sinkevicius

ride-sharing that shelter-in-place last Can to And question then the you're to instead cars to demographics of the it us that April. to noted avoiding have Is in customers the talk this sales you are environment? responders? seeing be cars effect would extent the coming through that been my people you've sales, Is on improvement interesting. buy you Okay. driving people visibility is emergency in through just trying the buy or of rules have week-over-week what's vehicle That today? given the it it characteristics that in Is flying?

Daryl Kenningham

the available far. have what's by incentives many to been there, driving OEMs. of it that's that glean zero including the are out so financing able lot what percent we A are That's

Armintas Sinkevicius

percent of? or any continue Okay. Presumably financing that given true where are. other that we be Is variables zero rates mindful could should

Daryl Kenningham

Yes, think. would I

Armintas Sinkevicius

questions. the Great. you taking Okay. for Thank

Operator

from next proceed. of comes our question And Ward Benchmark. Michael, please Michael

Michael Ward

Thank you. Good morning.

Just on U.K. the a follow-up

had You but said X,XXX were ordered to that weren't basically correct? Is that delivered. X,XXX you units

Daryl Kenningham

Michael. correct, That's

Michael Ward

that March April? and And so is

Daryl Kenningham

any. deliver March Well, units. sold But were basically April. course, several in phone we We've of online and hundred they couldn't via

those not April. to say and the we several there in throughout contracted March, get majority pile that we've the could were but delivered, So others added I were would of hundred

Michael Ward

Okay.

it are the so as your Now available, they'll are those will work? how in under so fleet see they're businesses that quarter? of contracts, second those come vehicles back? the and Or... is you most Or Will

Daryl Kenningham

U.K. sales Technically, are are few chooser. individual very No, some call they the what in user fleet.

in money, is kind and retail which business, units are some chooser a that's there user So like normal with individuals bought of their but of kind there, delivery. company's the delivery

So there, we the in U.S. there that no is define fleet of would is some there but in as it

Michael Ward

No, not private no. no, understand that, I buyers. No, it's but

So they're business-related.

Daryl Kenningham

are. of Most them private are of Yes. them buyers, most

Michael Ward

They interesting. are,

Okay.

Daryl Kenningham

sure. are, for they Yes,

Michael Ward

Okay.

like of are noticed, Or pull now if the XX%, I record XX%. didn't things your go loss you where volumes the enough the can off guys were quarterly So pulled is levers on XXXX you period, that back they Have one you disruption? track you down today U.K. in one XXXX have and down of in quarter? a the second much too and

John Rickel

Yes. is was in service lot and parts John We see resilient. Mike, was XXXX tell XXXX The this XX%. XX%, Rickel. and and more that I down parts would didn't service difference, a you

that XX makes certainly do, it's U.K. able to and the your don't to other know be bigger operate the going point all one we're to difference, we're June not when whether at that's fact of and that May So or yes, able is a in the first we wildcard.

Now aggressive very cost job against done we've have guys fabulous on that. a on the reductions. that, The been

not here difficult impossible, or it's predict it's but So it tonight to today.

Michael Ward

be sure. I appreciate it. you the what's going Well, the for certainly much. the on – of will accomplishment of marketplace. given hell That an really in a That's scenario thank very

Earl Hesterberg

you. Thank

Operator

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

Earl Hesterberg

at end to our you July. on progress forward updating Thanks on Okay. call today. of We business second-quarter for everyone to the us look our joining

Operator

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

may now You disconnect.