Penske Automotive Group Inc. ( PAG - Analyst Report ) reported adjusted earnings per share of 60 cents for the third quarter of 2012 (excluding after-tax costs of 14 cents and debt redemption costs related to the redemption of $375 million of 7.75% senior subordinated notes due 2016), surpassing the Zacks Consensus Estimate by 3 cents.

The third quarter EPS rose 20% from 50 cents (excluding net income tax benefits of 12 cents per share, resolution of certain tax items in the U.K. of 19 cents and deferred tax assets of 7 cents per share) in the prior-year quarter. Net income went up 19.1% to $54.3 million from $45.6 million in the year-ago quarter.

Revenues in the quarter rose 17.4% to $3.40 billion, beating the Zacks Consensus Estimate of $3.26 billion. The revenue growth was attributable to a 23.6% increase in retail sales to 88,151 units.

Revenues from new vehicle sales grew 21.5 % to $1.76 billion driven by a 26.3% increase in retail sales to 48,307 units, partially offset by a 3.8% decline in average transaction price to $36,497. Revenues from used vehicle sales climbed 14.7% to $995.4 million owing to a 20.4% hike in retail sales to 39,844 units, partially offset by a 4.8% decline in average transaction price to $24,982.

Revenues from fleet and wholesale rose 16.9% to $185.5 million and revenues from finance and insurance business improved 16.7% to $85.4 million. Meanwhile, the company’s parts and service business witnessed a 7.1% growth in revenues to $372.0 million.

On a same-store basis, revenues improved 11.7% to $2.9 billion. Same-store retail sales increased 16.6% to 81,109 units in the quarter.

Gross profit improved 10.9% to $511.0 million from $460.8 million in the year-ago quarter. Selling, general and administrative expenses increased 10.7% to $409.4 million from $369.8 million in the third quarter of 2011. The company reported an 11.4% increase in operating income to $87.5 million from $78.6 million in the year-ago quarter.

Financial Position

Penske had cash and cash equivalents of $25.9 million as of September 30, 2012, declining from $28.7 million as of December 31, 2011. Long-term debt was almost flat at $830.8 million as of September 30, 2012 compared with $850.2 million as of December 31, 2011. Debt-to-capitalization ratio improved to 39.6% as of September 30, 2012 from 42.7% as of December 31, 2011.

In the third quarter of 2012, Penske redeemed the remaining $25.5 million of 3.5% outstanding senior subordinated convertible notes. The company also redeemed $375 million of 7.75% senior subordinated notes using the proceeds from the issue of $550 million of 5.75% senior subordinated notes.

Our Take

Penske Automotive Group sells new and previously owned vehicles along with finance and insurance products. It operates 341 retail automotive franchises, offering 40 different brands and 30 collision repair centers. Apart from its franchises in the U.S. and Europe, the company offers repair and maintenance services.

The company’s product mix, including a wide range of imported and luxury brands, helps it maintain a strong foothold in both the U.S. and international markets. It competes with Lithia Motors Inc. ( LAD - Snapshot Report ) , AutoNation Inc. ( AN - Analyst Report ) and Sonic Automotive Inc. ( SAH - Snapshot Report ) .

Currently, the company has a Zacks #3 Rank, which translates into a Hold rating for the short term (1 to 3 months) and we reiterate our Neutral recommendation on its shares for the long term (more than 6 months).