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Why Is Penske (PAG) Down 4.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Penske Automotive (PAG - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Penske due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Penske Automotive Misses Earnings Estimates in Q4

Penske Automotive recorded adjusted earnings of $1.11 per share, which missed the Zacks Consensus Estimate of $1.16. It recorded adjusted earnings of $1.01 per share in the year-ago quarter.

Adjusted income from continuing operations increased 9.6% year over year to $94.9 million in the reported quarter from $86.6 million a year ago.

Total revenues rose 0.8% year over year to $5.44 billion, which missed the Zacks Consensus Estimate of $5.46 billion. The decline is due to a shortage in the availability of products and delay in Worldwide Harmonized Light Vehicle Testing ("WLTP") certification for the company’s businesses in western Europe.

Same-store retail unit sales decreased 2.3% year over year to 113,547 units. Within the retail automotive segment, new-vehicle revenues declined 5.9% year over year to $2.3 billion while used-vehicle revenues gained 8.3% to $1.7 billion.

The company’s gross profit increased to $852.6 million from $808.1 million in the prior-year quarter. During the quarter under review, operating income grew 0.3% to $136.6 million.

2018 Results

In 2018, Penske Automotive’s adjusted income from continuing operations increased 22.9% to $454.9 million while adjusted earnings per share increased 23.9% to $5.34.

Net sales for the year went up 6.5% year over year to $22.8 billion.

Segmental Performance

The company operates under three segments namely — Retail Automotive, Retail Commercial Trucks, and Commercial Vehicles Australia/Power Systems and Other.

Revenues from Retail Automotive was $4.95 billion, almost similar to the year-ago quarter.

Revenues from Retail Commercial Trucks increased to $358 million from $308 million in the year-ago quarter.

In the reported quarter, revenues from Commercial Vehicles Australia/Power Systems and Other declined to $132 million from $148 million a year ago.

Financial Position

Penske Automotive had cash and cash equivalents of $39.4 million as of Dec 31, 2018, marking a decline from $45.7 million recorded as of Dec 31, 2017. Long-term debt was $2.1 billion at the end of 2018, which was almost in line with the year-ago figure.

Share Repurchase

In 2018, Penske Automotive repurchased 1,587,494 shares for $68.9 million. At the end of the year, it had roughly $136.9 million available under the existing share repurchase authorization.

Further, the company paid $190.1 million to shareholders through dividends and share repurchases in 2019. The figure represents roughly 40% of the company’s net income.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a flat path over the past two months.

VGM Scores

Currently, Penske has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Penske has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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