Penske Profits Rise 47%

Penske Automotive Group, Inc

Penske Automotive Group, Inc. (PAG) recorded a 47% increase in profit to $29.2 million in the second quarter of fiscal 2010 from $19.8 million in the same quarter of the prior year, due to an improvement in the retail environment. The profit improved 45% to 32 cents per share from 22 cents per share a year ago as well as from the Zacks Consensus Estimate of 28 cents per share.

Revenues in the quarter jumped 16.6% to $2.7 billion, driven by a 16.2% increase in new and used retail unit sales. Same-store retail revenue went up 13.2% to $2.4 million. Same-store retail sales increased 15.8% in the U.S. and 9% internationally.

New Vehicle revenues moved up 24.4% to $1.4 billion led by a 19.6% rise in sales to 39,676 units. Used Vehicle revenues went up 13.8% to $749.7 million, based on a 12% increase in sales to 29,232 units.

Revenues stayed almost flat at $332.2 million in the Service and Parts segment, increased 40% to $182.6 million in the Fleet and Wholesale Vehicle segment and increased 16% to $63.6 million in the Finance and Insurance segment.

However, revenues in the Distribution segment slashed 62% to $19.9 million. Penske wholesaled 2,040 units of smart USA vehicles, down from 3,659 units in the second quarter of 2009.

Penske has repurchased $84.6 million principal amount of its 3.5% senior subordinated convertible notes due 2026, leaving $150.6 million in principal amount of the securities outstanding as of July 29, 2010.

The company has also repurchased 68,340 shares of its common stock at an average price of $10.97 per share in July. The board of directors has enhanced the company's authority to repurchase its outstanding common stock, debt and convertible debt to $150 million.

Penske had cash and cash equivalents of $17.7 million as of June 30, 2010, an increase from $14 million as of Dec 31, 2009. Long-term debt amounted to $860.8 million as of that date. The long-term debt-to-capitalization ratio stood at 47%.

Penske's product mix, which includes a wide range of imported and luxury brands, helps it to maintain a strong foothold in both the U.S. and overseas markets, including Europe. However, weak sales of smart USA vehicles continue to hamper the company's Distribution segment.

Hence, we are maintaining our Zacks #3 Rank (Hold) recommendation on the stock in the short term (13 months) and Neutral recommendation in the long term (6+ months).

Penske Profits Rise 47%

By: Abhishek

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