Image source: The Motley Fool.

DATE

  • Wednesday, July 30, 2025, at 2:00 p.m. EDT

CALL PARTICIPANTS

  • Chair and Chief Executive Officer — Roger Penske
  • Executive Vice President and Chief Financial Officer — Shelley Hulgrave
  • Executive Vice President, North American Operations — Rich Shearing
  • Executive Vice President, International Operations — Randall Seymore
  • Vice President and Corporate Controller — Tony Facioni
  • Executive Vice President, Investor Relations — Tony Pordon

Need a quote from one of our analysts? Email [email protected]

TAKEAWAYS

  • Total Revenue: $7.7 billion, flat year over year, with a $200 million headwind from divestitures and dealership closures.
  • Net Income: $250 million, up 4%, with EBT up 4% and EPS up 5% to $3.78.
  • Gross Profit: $1.3 billion, with gross profit margin (GAAP) up 50 basis points to 16.9%, marking eight consecutive quarters of margin stability.
  • EBT Margin: Improved 20 basis points to 4.4%.
  • Same-Store Service and Parts Gross Profit: Up 9% in the U.S., with gross margin up 50 basis points; U.S. same-store service and parts revenue up 7%.
  • Fixed Cost Absorption: U.S. up 330 basis points; U.K. up 30 basis points.
  • New Vehicle Gross Profit per Unit: Up $141; used vehicle gross profit per unit up $504; combined variable gross profit per unit up $583, or 11%, to $5,691.
  • SG&A as Percentage of Gross Profit: 69.9%, a 30 basis point improvement.
  • Revenue by Geography: 61% North America, 29% U.K., 10% other international markets.
  • U.S. New Vehicle Units: Up 1%; 34% of new units sold at MSRP.
  • U.S. Used Vehicle Sales: Down 3%, constrained by fewer lease returns and higher prices; lease maturities expected to bottom in 2025.
  • Premier Truck Group: 5,339 new and used units sold; new up 4%, used down 8%; used unit gross profit up over 50% to $7,037.
  • Penske Transportation Solutions Equity Earnings: $53.5 million, up from $52.9 million.
  • PTS Operating Revenue: $2.8 billion; full-service and contract revenue up 4%; logistics revenue flat; rental revenue down 9%.
  • International Revenue: $2.9 billion, about 40% of consolidated revenue.
  • Porsche Australia: 1,136 new and used units sold; $128 million in revenue; used-to-new sales ratio nearly 1:1, doubled since acquisition.
  • Australia Commercial Vehicle and Power Systems Backlog: $350 million for 2025; total orders exceeded $500 million.
  • Cash Flow From Operations: $472 million for the six months ended June 30, 2025; EBITDA $800 million for six months, over $1.5 billion trailing twelve months.
  • Free Cash Flow: $325 million for the six months ended June 30, 2025; trailing twelve-month dividends paid $165 million; Capex $147 million through June 30, 2025.
  • Dividend Increase: Up 4.8% to $1.32 per share, 19th consecutive quarterly increase; dividend yield approximately 3.1% forward, payout ratio 34.7% trailing twelve months.
  • Share Repurchases: 630,000 shares repurchased for $93 million in Q2; 885,000 shares ($133 million) repurchased year-to-date, 1.3% of shares outstanding.
  • Inventory Position: Total inventory $4.8 billion, up $29 million from December 2024; retail automotive inventory up $44 million, driven by $49 million increase in used, $15 million in parts, $20 million decline in new vehicles; commercial vehicle inventory up $166 million.
  • Liquidity: Cash $155 million and liquidity $2.3 billion as of June 30, 2025.
  • Non-Vehicle Long-Term Debt: Debt to capitalization improved to 24% from 26.1%; leverage steady at 1.2x; 77% of non-vehicle long-term debt at fixed rates.
  • Repurchase Authority: $295.7 million remained as of June 30, 2025, under the increased buyback program.
  • July New Vehicle Sales: Sales up approximately 10% month-to-date in July 2025 versus prior year.
  • Benefit From Legislation: Expected annual positive cash flow impact of approximately $150 million from bonus depreciation due to the One Big Beautiful bill for PTS-related capex projected for each of the next three years and beyond.
  • Dividend Policy for PTS: Typically, 50% of PAG's EBT share from PTS is paid annually as dividends, with 2025 benefit projected around $100 million.

SUMMARY

Penske Automotive Group (PAG 1.21%) emphasized the strategic value of its diversified business model, with management noting that "diversification is a key differentiator" as 61% of revenue is generated in North America, 29% in the U.K., and 10% from other international markets. The company reported that structural changes, including dealership divestitures and cost management initiatives in the U.K. and CarShop business, directly affected reported metrics and are expected to normalize in the second half of the year. Management highlighted that the acquisition of three Porsche dealerships in Melbourne, Australia, doubled the used-to-new sales ratio and provided operational synergies through integration with adjacent commercial and power systems activities. The company is leveraging recent favorable legislative changes and an enhanced capital return program to strengthen its financial position and advance targeted M&A activity.

  • Management stated, "Our results continue to demonstrate the benefit from our diversification across the retail automotive, commercial truck industries, our cost control, and a disciplined capital allocation strategy and certainly a strong balance sheet and cash flow."
  • OEM production and tariff uncertainties led to temporary disruptions in inventory flow and sales mix, affecting luxury and import brands in both the U.S. and U.K.
  • Premier Truck Group benefited from higher used vehicle gross profit per unit, although the segment reported mixed volume trends between new and used sales.
  • Penske Transportation Solutions equity earnings increased, while rental softness reflected broader freight cycle pressures and a shrinking active fleet.
  • Net debt and leverage ratios improved, and a significant increase in available repurchase authorization enabled greater return of capital to shareholders in a volatile market environment.
  • Ongoing dealership acquisition intent remains strong, prioritized by strategic fit, but full-year M&A targets for incremental annual revenue may not be met in the current environment.

INDUSTRY GLOSSARY

  • EBT (Earnings Before Taxes): Profit earned before taxes are deducted, a key operating metric.
  • Fixed Cost Absorption: The percentage of dealership fixed costs covered by parts and service gross profit, indicating profitability within the service department.
  • CarShop: PAG's branded used-only dealership channel operating in the U.K. and U.S., recently realigned in the U.K. to 'Select and Sit.'
  • One Big Beautiful bill: Legislative package referenced by management, providing extended bonus depreciation for capital expenditures applicable to Penske Transportation Solutions.
  • ZEV Mandates: Regulatory requirements in the U.K. for Zero Emission Vehicle sales, impacting product availability and mix.
  • PTS (Penske Transportation Solutions): Equity method affiliate of Penske Automotive Group focusing on full-service truck leasing, logistics, and commercial vehicle rentals.
  • BEV (Battery Electric Vehicle): Fully electric vehicles powered by batteries, highlighted in sales mix commentary.
  • SAAR (Seasonally Adjusted Annual Rate): Industry-wide metric tracking the annualized pace of vehicle sales, mentioned in the context of vehicle park age trends.

Full Conference Call Transcript

Tony Pordon: Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's second quarter 2025 financial results was issued this morning and is posted on our website along with a presentation designed to assist you in understanding the company's results. As always, I'm available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American operations; Randall Seymore, international operations; and Tony Facioni, our vice president corporate controller.

Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity, and assessment of business conditions. We may also discuss certain non-GAAP financial measures as defined under SEC rules, such as earnings before interest, tax, depreciation, and amortization, or EBITDA, adjusted net income, adjusted earnings per share, adjusted selling, general, and administration expenses, and our leverage ratio. We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures to the most directly comparable GAAP measures in this morning's press release and investor presentation, both of which are available again on our website.

Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release, under forward-looking statements. I also direct you to our SEC filings, including our Form 10-Ks and previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations. I will now turn the call over to Roger Penske.

Roger Penske: Thank you, Tony. Good afternoon, everyone. I'm really pleased with the performance of our diversified international transportation service business in the second quarter. Our revenue was $7.7 billion, which was consistent with Q2 last year. Our Q2 revenue was impacted by strategic divestitures of dealership closures made since quarter two in 2024, representing approximately $200 million in revenue. EBT increased 4%. Our net income increased 4%, and earnings per share increased 5% when compared to 2024. Q2 represented our third consecutive quarter of year-over-year earnings growth, and we generated $337 million of income before taxes, $250 million in net income, and $3.78 per share. Our EBT margin increased 20 basis points to 4.4% when compared to Q2 last year.

The second quarter performance was highlighted by a 9% increase in same-store retail automotive service and parts gross profit and a 50 basis point increase in service and parts gross margin. Also, an increase in fixed cost absorption of 330 basis points in the US and 30 basis points in the UK. Our gross profit increased to $1.3 billion, which compares to $868 million in Q2 in 2019. The company gross profit margin increased 50 basis points to 16.9%, representing the eighth consecutive quarter of strong and stable gross margin. New and used vehicle grosses increased $141 in the quarter for new, and $384 sequentially. Used grosses increased $504 per unit for the quarter and $177 sequentially.

New and used vehicle gross and F&I combined, or what we call variable gross profit, increased $583 per unit or 11% to $5,691. Our focus on controlling costs such as advertising compensation as a percentage of gross profit helped drive selling, general, and administrative expenses as a percentage of gross profit, or SG&A, to 69.9%, a 30 basis point improvement. As we look at the current environment, we are encouraged by the recent trade agreements. In fact, the recent agreement with the EU is expected to provide benefits to two of our largest partners that should benefit from the agreeing exporting US production. We've seen some OEMs increase prices modestly, while others have extended during the current pricing.

The situation remains fluid. We remain in close contact with our OEM partners. I think our diversification is a key differentiator as approximately 61% of our revenue is generated in North America, 29% in the UK, and 10% from other international markets. PAG's premium brand mix is present in the US and international automotive markets, our North American retail commercial truck dealerships, and earnings from Penske Transportation Solutions, coupled with our highly variable cost structure, provide us with opportunities to flex our business to meet the changing automotive and commercial truck landscape. Let me now turn it over to Rich Shearing who handles our North American operations.

Rich Shearing: Thank you, Roger, and good afternoon, everyone. In our automotive retail business, during the second quarter, we experienced elevated traffic during April and May. We believe the pent-up demand is driving customer resilience, and we have seen stronger traffic and closing ratios so far in July with sales up approximately 10% month to date versus prior year. In the second quarter, our new units in the US were up 1%. Some OEMs held off from shipping product as tariff negotiations took place, limiting inventory of some brands. During the quarter, 34% of new units sold were at MSRP, compared to 35% in the second quarter last year.

Second quarter used vehicle sales declined 3% and were constrained by fewer lease returns and rising prices. We expect the lower level of lease maturities to bottom this year and begin improving in 2026. We expect franchise dealers will benefit from increasing lease returns for used vehicle sourcing in that time period. Our US service and parts operations generated record levels of revenue and gross profit. Same-store service and parts revenue increased 7% and related gross profit increased 9%. Same-store gross margin increased 90 basis points. Customer pay gross was up 6% and warranty was up 24%. We have approximately 6,000 service bays and 5,800 technicians, and our technician count is up 2% from June.

While our service and parts revenue and gross profit is at a record level, we continue to focus on driving higher utilization of our bays and increasing fixed cost absorption. Turning to Premier Truck Group. We operate 45 locations and remain one of the largest commercial truck retailers for Daimler Trucks North America. Daimler Trucks North America continues to have the largest share in the class eight market at 42.5% year to date. Premier Truck Group is one of the core pillars of our diversified model and represents 12% of revenue and 11% of gross profit.

As we look ahead, the US Congress revoked the EPA waiver that allowed California to adopt more stringent emission rules, which means manufacturers and dealers no longer have to navigate different rules across different states. Coupled with the waivers being rescinded for advanced clean truck and advanced clean fleet rules, the ZEP mandates have also been effectively removed. As a result, we believe the potential cost increases for the 2027 model year class A trucks will be more muted than originally expected. During Q2, Premier Truck Group sold 5,339 new and used units. New was up 4% and used units were down 8%.

Although used units declined, used truck grosses increased over 50% to $7,037 from $4,502 as late model, low mileage trucks continue to be in short supply. At the June, the current industry backlog was 90,400 units, or approximately four to five months' worth of sales. We did note some pull-ahead ordering during the quarter as a result of tariffs as some customers looked to lock in lower prices. Same-store service and parts revenue increased 1% as well. Looking out over the next six months, for the first time in approximately five years, Daimler Trucks are no longer being allocated on a distribution level to their dealers. This provides us with an opportunity to conquest new customers.

Now turning to Penske Transportation Solutions. Penske Automotive Group owns 28.9% of PTS and records equity income, receives cash distributions, and cash tax savings. PAG invested $956 million for its ownership and has received nearly $2 billion in cash flow benefits since making that first investment. During Q2, operating revenue was $2.8 billion. Full-service revenue and contract increased 4%. Logistics revenue was flat while rental revenue declined 9%. During the quarter, PTS sold over 11,000 units and ended the quarter with 414,000 units, down from 428,000 units at the March. PTS income increased during Q2 as a result of efforts to optimize costs, improve utilization rates, and hold pricing.

Equity earnings from PTS investment were $53.5 million, up from $52.9 million in the second quarter last year. I would now like to turn the call over to Randall Seymore to discuss our international operations.

Randall Seymore: Thanks, Rich, and good afternoon, everyone. PAG's international operations represent approximately 40% of total consolidated revenue. During Q2, international revenue was $2.9 billion. In the UK, the macro operating environment remains challenging as inflation, interest rates, higher taxes, and consumer affordability impact the overall market. The UK market continues to transition new vehicle sales to BEVs and hybrids. In 2025, the government target for BEV penetration is 28%, many of which are being sold through the corporate fleet channels.

During Q2, the number of new units we delivered declined by 16% and were impacted by several factors resulting from OEM product changes and reduced incentive offerings, also impacts the new car markets from the UK ZEV mandates and the previously discussed disposed or closed dealerships. Turning to used cars, same-store used units declined 23%, which is attributable to the realignment of the company's UK CarShop used-only dealerships to sit and select in 2024. Through this realignment, we have taken out approximately 500 people through attrition, which helped drive a lower cost structure. The realignment began in Q3 2024, so the year-over-year decline is expected to abate in the second half of this year.

We view this as a positive change for our business. And as a result of this strategy and improved management of overall used inventory, gross profit per unit has increased by over $800 or 56% quarter over quarter and $221 sequentially when compared to 2025. Service and parts remained strong as same-store revenue increased 6% and gross profit increased 8%. Pleasingly, customer-paid gross profit increased 10% and warranty declined 5%, largely due to the 20% growth we achieved in Q2 of last year. Turning to Australia. We operate three Porsche dealerships in Melbourne, which we acquired in 2024. During the 1,136 new and used units, and generated $128 million in revenue.

The used-to-new ratio is nearly one to one and has doubled when compared to the ratio prior to the acquisition. We use our existing scale of the commercial vehicle and power systems business in Australia to leverage cost while executing our one ecosystem strategy at the Porsche dealerships, which provides for a superior customer experience. We anticipate generating approximately $450 million in annualized revenue through these automotive dealerships. Turning to Australia's commercial vehicle and power system business. We are diversified with revenue and gross profit, which is split approximately 50/50 between our on and off-highway markets.

In the on-highway markets, the brands we represented picked up 30 basis points in market share as the products we continue to sell gain customer preference. In the off-highway sector, revenue and margin were driven by strong energy solutions demand. We have a $350 million backlog for 2025 delivery and a total order bank of over $500 million predominantly related to the large growth in data center and battery energy storage solution businesses. We see a potential for the total energy solutions business to generate over $1 billion in revenue by 2030. Our defense business continues its strong momentum too with projects for infantry fighting vehicles and several Navy applications for frigates and submarines.

I'd now like to return the call over to Shelley Hulgrave to review our cash flow, balance sheet, and capital allocation.

Shelley Hulgrave: Thank you, Randall. Good afternoon, everyone. Our strategy has been to focus on the strength of our balance sheet, cash flow, disciplined approach to capital allocation, and our diversification. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize effective and opportunistic capital allocation. For the six months ended 06/30/2025, we generated $472 million in cash flow from operations and EBITDA was $800 million. On a trailing twelve-month basis, EBITDA was over $1.5 billion. Our free cash flow, which is cash flow from operations at deducting capital expenditures, was $325 million. Through June 30, we paid $165 million in dividends and invested $147 million in capital expenditures.

We increased our dividend by 4.8% to $1.32 per share last week, representing the nineteenth consecutive quarterly increase. Since 2023, we have increased the dividend by 67%. On a forward basis, our current dividend yield is approximately 3.1% with a payout ratio of 34.7% over the last twelve months. During the quarter, we repurchased 630,000 shares of stock for $93 million, and year to date through June 30, we have repurchased 885,000 shares for $133 million, representing approximately 1.3% of our outstanding shares. Over the last four plus years, we have returned over $2.5 billion to shareholders through dividends and share repurchases. In May, our Board authorized an increase in the repurchase authority of $250 million.

As of June 30, we have $295.7 million remaining under the existing securities repurchase authorization. As part of our strategic capital allocation, in July we acquired a Ferrari dealership in Modena, Italy. As many of you know, Modena is the home of the Ferrari brand. While we continue to evaluate the impact of the One Big Beautiful bill on our financial statements, we do expect to recognize positive cash flow impacts related to our 28.9% ownership in the PTF partnership. Bonus depreciation in particular will provide an estimated benefit of approximately $150 million on $3 billion worth of capital expenditures and trucks that PTS expects to purchase in each of the next three years and beyond.

At the June, our non-vehicle long-term debt was $101.78 billion, down $69 million from the December. Debt to total capitalization improved to 24% from 26.1% at the December and leverage remained at 1.2 times. 77% of the non-vehicle long-term debt is at fixed rates. When including floor plan, we have $4.6 billion of variable debt. 54% of our variable rate debt is in the United States. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $12 million. At the June, we had $155 million of cash, and liquidity of $2.3 billion. In September, our $550 million of 3.5% senior subordinated notes will mature.

We currently expect to repay those notes from cash flow from operations or borrowings under our US credit agreement. Total inventory was $4.8 billion, up $29 million from the December 2024. Retail automotive inventory was up $44 million. New vehicles declined $20 million. Used vehicles increased $49 million. And parts increased $15 million. Commercial vehicle inventory was up $166 million. Floor plan debt was $4.2 billion. New and used inventory remains in good shape. New vehicle inventory is at a fifty-seven day supply, including fifty-nine days for premium, and thirty-eight days for volume foreign. Used vehicle inventory is at a forty-four day supply. At this time, I will turn the call back to Roger for some final remarks.

Roger Penske: Yeah. Thank you, Shelly. As I mentioned earlier, I continue to be pleased with our performance and the resilience of our business. I would like to thank each of our 28,000 team members that work in our business each day for their efforts to exceed expectations. Our results continue to demonstrate the benefit from our diversification across the retail automotive, commercial truck industries, our cost control, and a disciplined capital allocation strategy and certainly a strong balance sheet and cash flow. I remain confident in our diversified model and its ability to flex with market conditions, and remain very pleased with the performance of our business.

I wanna thank all of you for joining the call today, and we'll open it up for questions with the operator. Thank you.

Operator: Thank you. To withdraw any questions, press 1 again. Our first question comes from Mike Ward from Citi Research. Please go ahead. Your line is open.

Mike Ward: Hi, Mike. I wonder if you can quantify a few of the moving pieces that affected your unit sales in the US and the UK.

Shelley Hulgrave: Sure, Mike. It's Shelly. I'm happy to take that. As we mentioned, we had approximately $200 million of revenue in the quarter in 2024 that we did not have in 2025. We sold and divested a few stores. We also closed some stores, some of which related to the Sytner Select business in the UK, as mentioned. So when you look at new and used vehicle units, that had an impact as well. New units related to those divested stores were approximately 2,000 units, and we also had the Mini brand transfer over to agencies. So that impacted the new units by approximately 1,300.

When you take that against the units that we reported, we actually were only down about 17 new units quarter over quarter. From a used perspective, those divested or closed stores attributed to about 4,400 used units.

Mike Ward: Okay. And what about that's the UK, right? The divested in the Mini?

Shelley Hulgrave: It's all well, it's all of it. We had some stores that we divested in the US as well. But 82 Okay. And is just the UK. We also had my mobility in the UK as a product that people that qualify for mobility credits. That was really slowed way down by Audi, BMW, and Mercedes during the quarter. Really, we're not in that business. Which obviously was an impact to us from the premium sector. We see that coming back this quarter. I think this was all part of a strategy. They were waiting to see what the tariff structure was gonna be and didn't wanna pour a lot of their incentive money into mobility. Now that's changed now.

We'll have to see how that rolls out here based on the current information we have. Regarding the 15% tariff for the European Union. And, Mike, I think on a smaller scale, to add to Roger's point, in the US, we had Audi, Porsche, and Land Rover kinda suspend wholesales for a period of forty-five days in the second quarter as they were, you know, further looking to understand what the tariff outcome was gonna be. That probably impacted our Porsche business the most. If you look at that brand, our EBT was down 9% in the second quarter, whereas year to date, we're up 1%, and that certainly hurt our mix.

But that wholesale from those brands now is flowing again, so it's a short-term impact.

Mike Ward: Okay. And so is that partly attributed? You said July was up 10%? Is some of that coming back? Is that what that is?

Shelley Hulgrave: Well, I think it's resiliency of the consumer. We're seeing traffic counts kinda remain flat year over year. But conversion is ticked up. So there's more serious buyers. I would say in June, you know, our conversion of the traffic was down a little bit because I think there was still uncertainty in what the ultimate tariffs were gonna look like now that we've got you know, conclusive positions with Japan, which obviously impacts our Toyota Honda business, the UK, with Land Rover Mini, and then the EU. With Audi, Mercedes Benz, BMW, Porsche. The majority of the brand mix we have in the US has some certainty on what the tariffs are gonna look like going forward.

Mike Ward: And thank you. And, Shelley, the $150 million from the big beautiful bill, that's in addition to any dividend income you get from your equity stake. Correct?

Shelley Hulgrave: That's right, Mike. So we still have the 50% dividend policy that we reach each year. And then the one big beautiful bill depreciation in particular, was an item in the Tax Cut Jobs Act that was starting to sunset. So we were starting to have to pay more in income taxes from a cash perspective in '24 and projected for '25 on that. Bonus depreciation was supposed to go away. The one big beautiful bill made it permanent, and retroactive back to purchases to mid-January. So it's an estimate of the deferred cash taxes that we expect to enjoy this year and into the future.

Roger Penske: So they'll benefit this year? Yes. Yeah. Yeah. And we look at about 3 to 3 and a half billion of asset purchases at PTS each year going forward. So obviously, with roughly 30% of the ownership, it's a partnership we get the benefit on our tax line. So overall, it was a terrific benefit to us. And know, if you look at this year and say it's the same in '26 and '27, it could be as much as $450 million that we would not have to pay due to this in corporate taxes.

Shelley Hulgrave: And I wanna highlight, it doesn't impact our rate. It's really just the cash taxes that we have to pay. But given that it's a cash benefit, we certainly will look to deploy that cash through our capital allocation strategy. So we certainly see that as a benefit going forward.

Roger Penske: And on PTS, we have a program there that typically 50% of our earnings before taxes is paid out to the dividend to the shareholders based on their ownership piece. So based on our current projection, this could be roughly another $100 million. So you'd look at almost $250 million of benefit during 2025.

Shelley Hulgrave: In cash. Cash. Yeah.

Roger Penske: Cash. Fantastic. Thank you very much.

Operator: Thanks, Mike. Next question comes from Ron Jewsikow from Guggenheim Securities. Please go ahead. Your line is open.

Ron Jewsikow: Hey, Ron. Hey, Roger. Yeah. Good afternoon, and thanks for taking my questions. Just before my questions, I wanted to say congratulations, Roger, on the centennial award recognition last month.

Roger Penske: Well, thank you. That was a byproduct of the 74,000 people that work for us every day, but I appreciate you mentioning it. Thank you.

Ron Jewsikow: Mhmm. And I appreciate the quarter-to-date commentary on volumes, but maybe if we could just touch on the GPU trajectory and the cadence throughout the quarter and then into July, if you can talk about that as well?

Rich Shearing: Yeah. Ron, Rich here. I think when you look at the initial tariff announcement in March, I think it was, you know, that certainly drove some activity. We saw activity spike probably into April and to a lesser extent in May and June. You know? And, obviously, we knew that our inventory that was non-tariff impact at that point in time became more valuable. So there was no need to be giving those cars away not knowing what the ultimate tariff impact was gonna be and when final resolution was gonna be made between these countries. So you know, throughout the quarter in the US, our grosses were very stable. Certainly, they were highest in April at $7,250.

Then you look over the quarter, between May and June, you know, the spread between those other months was no more than $125. So I think our team did a really good job of balancing the volume you know, with the grosses during that environment. I think as we go forward, you know, as we look to May, and I said, you know, the sales activity has increased, I think we'll see a little bit of a gross compression, and it's gonna be different by brand. You know?

Certainly, I think the other impact when you look at BEVs with the IRA tax credit going away at the end of September, you know, our team is keenly focused on making deals with consumers that are interested in the BEVs so that we have the least amount of inventory in that time frame as possible. And I think the OEMs are similarly motivated as well. We've seen, you know, with the announcement of those that tax credit going away, increased incentives on various different models, you know, as OEMs look to reduce that inventory.

I think when you look at, you know, the margin that we have on the new vehicles, our margins have remained the same, you know, but the average vehicle selling price continues to increase. You know, I think we've talked about this before. You know, pre-COVID or 2019 and earlier, our average selling price was $41,000. Our average selling price today is almost $61,000.

Ron Jewsikow: That's super helpful color. And you kind of touched on my next question a bit there, but on the sunsetting of electric vehicle tax credits at the end of the third quarter in the US, you do have more BEV sales than your peers just given your luxury mix. How should we think about the impacts, not just in the third quarter volume pull forward, but also long term? I guess, what would the impact of weaker electric vehicle sales mean for your business? Because they are GPU dilutive. We do know that. Just kind of the puts and takes.

Rich Shearing: I think, you know, first of all, you gotta remember that the overall BEV sales as a percentage of our total sales is in that six and a half to 7% range. It's a small portion of our overall sales. You know, certainly, in some markets, it's a much higher percentage when you look at California or some of the Sunbelt states where you don't have the degradation of the range and other operating concerns associated with a BEV. But we've already seen actually some improvement in those markets as the OEMs have adjusted, you know, to demand.

So if you look at our West Region, which is California, Texas, Arizona, that market those markets sell about 70% of that six and a half to 7% of our sales in BEV. And, you know, Mercedes and others started to adjust last year to match the BEV wholesale supply to the demand. They most aggressively, it was Mercedes. And so when you look at our area, there, our California businesses, you know, are up 45% or almost $13 million compared to a year ago. As a result of some of that BEVs, you know, being adjusted. So look at the incentives, it's, you know, even before the tax credits were announced, incentives are almost $7,200 for BEVs.

It's about twice the average incentive that we see on the ICE vehicles. And our inventory is down on that. A year ago, we were about 12 to 15% of our new car inventory was BEVs. It's at 10% today, down 20% on a unit basis year over year. And, you know, so I think that's we're gonna continue to have that. Obviously, the OEMs have made significant capital investments in the technology and vehicle platform architectures. It's a matter of making sure that they balance the BEV wholesale supply to us with the actual market demand, whether and we've been doing that now with the tax credit, and we'll continue to do it, you know, after the tax credit.

And one last point on BEVs, you know, still relatively small percentage overall of our fixed business, 2% to 3%. But we see on a dollars per RO almost two times the benefit from a BEV repair as we do to a, you know, an ICE repair. I think as the vehicles, you know, get more mature over time, that could normalize. But right now, you know, BEVs are still more advantageous in the fixed area.

Roger Penske: Yeah. I think also when we step back and look at supply, when the manufacturers were trying to balance BEV vehicles versus ICE, we actually lost some of the volume and supply during the time when BEVs were at the top of the list to try to generate this big market share. When that goes away, I think we're gonna see it obviously some of the key SUVs and areas that we were looking for vehicles. Will now not be BEV, and they'll come back in the market as ICE vehicles. And I think they'll adjust if necessary, some of the content if we have to in order to have their vehicles affordable under any tariff impact they might have.

So I see it being a benefit. First, this is my own personal opinion.

Ron Jewsikow: Yeah. I think we lean in that direction as well, but it's good to hear that from you, Roger. I'll hop back in the queue and ask more questions if needed. Thank you.

Operator: Our next question comes from Jeff Lick from Stephens. Please go ahead. Your line is open.

Jeff Lick: Hey, Jeff. Good afternoon. Rodney, Rich, Randall, Shelley, Tony. Thanks for taking the question. Just a quick clarification before you get my main question. On the 10% units you mentioned, you know, being up in July, is that all units or just new?

Rich Shearing: That's new.

Jeff Lick: Perfect. Awesome. Rich, I was wondering if we can maybe double click on service and parts. You know, we're starting to get into the, you know, into BMW stop sales and, you know, other, you know, pretty big warranty items. Just curious how you see that playing out and, you know, are the OEMs making any adjustments in terms of how they handle warranty claims? Just any color there would be great.

Rich Shearing: No. I don't think we're seeing any adjustment from the OEMs on how they're handling warranty claims. I think they're, you know, frustrated, obviously, with the number of recalls that continue to occur. You mentioned BMW, certainly the IVF recall is still active. You know, their focus last year was on, you know, vehicles at the plant, getting those cleaned, then dealer inventory, and we're into the customer repairs. But we've got Mercedes fuel pump, Honda fuel pumps, and then the big one that, you know, we just had release and direction on is Toyota. And the Tundra long block replacement, which is a fourteen-hour repair.

You know, we've got close to 400 of those in inventory that have been on stop sale. So certainly, we've gotta balance those repairs with, you know, customers who are looking to bring their existing cars into the shops so that we don't end up with long backlogs and things of that nature. But I think there's enough customer demand that even if these recalls and the warranty as a percent of our total repair orders goes down, when you look at the car park being, you know, twelve to thirteen years of age, average mileage, being close to 70,000 miles, we're gonna continue to see the benefit in the fixed ops department.

And then I think it would of the initiatives, you know, that we've undertaken relative to shop load, operating hours, shift schedules, you know, those are all paying benefits as well. And I think, you know, Roger mentioned that in our fixed absorption increase. Our margin improvement up 50 basis points, just under 60%. And then our effective labor rate as well, you know, at up 6%. And I think it's gonna take a while for that car park to adjust. You look at the vehicle we're selling today, or servicing today, there's almost six and a quarter years of age on average. And that's up from 5.6 in 2019.

And with the SAAR continuing to, you know, struggle to find a new high watermark, I think I see fixed operations remaining strong.

Roger Penske: And I would say all of those the complexity, Jeff, of the premium luxury cars when you open the hood and all the things that they have laid out, LiDAR, and all these things are go with it. That the vehicles are coming back to the dealership, and they're not going anymore to a local guy around the corner. So that's driving the business. And I think that in most cases, as you know, for us on the premium luxury side, which is 71% A lot of these vehicles are leased and have some maintenance component with them, and that drives them back to our shops, which I think is key.

And the good news is that the cost structure in our service department from a labor perspective is flat rate along with high bonus part of compensation for our service riders. So you know, we see the ability, obviously, we raised labor rates. And by the way, we typically get a bump in labor cost support from the manufacturers on warranty typically on a twelve to eighteen-month basis. So obviously, we get that benefit. And then on the parts side, we get paid our full list price on parts on warranty. So this is something that is very positive. And ironically, in Europe, and in the UK, we only get 10%.

So this I look at it as a real bonus here in the US based on the current support of parts and service.

Jeff Lick: Well, thanks for taking my question, and I'll get back to you. Oh, go ahead.

Tony Facioni: So, Jeff, the other thing to think about, this is Tony. Is the efficiency that we're creating in the service departments too. Through use of AI in terms of scheduling appointments, tech videos, online pays, and numerous other things that we're doing to try to drive not just more tech efficiency, but just overall efficiency and utilization. So I think all of that plays very well into the margin that we're generating and the growth of the parts and service business.

Roger Penske: Yeah. When you look at let's just jump to PTS for a minute. We've taken some of the lessons learned on both sides. Every night, Jeff, we unload data from 200,000 vehicles into from the cloud. And we look at that, and it determines predictive maintenance. We might have a truck that's hauling cement and the same truck hauling feathers. Well, obviously, the maintenance requirements certainly would be different. And with this data, then we can adjust the predictive maintenance. And on top of that, when the truck comes in, the mechanic plugs into the ECU, and it gives him guided repair, tells him exactly what to do on that truck.

And how to do it, and this has taken our efficiency way up. So I would say we've been using AI a long time, specifically at PTS, and we're looking how we can get some of that crossover into the automotive side.

Jeff Lick: Awesome. Thanks a lot.

Roger Penske: I can't imagine a Penske truck with a bunch of feathers in it, Roger. That doesn't seem right to me. I'm a little done.

Rich Shearing: Listen. As long as thread is crappy, that's as long as it's paying full price.

Roger Penske: Absolutely. Thanks very much. Let someone else ask you a question.

Operator: Thanks, Jeff. Our next question comes from Rajat Gupta from JPMorgan. Please go ahead. Your line is open.

Rajat Gupta: Hey, Roger, and congrats as well. And thanks, everyone, for taking the questions. Just wanted to on PTL. Looks like if we exclude the gain on sale, you know, PTL income was up year over year overall. Should we expect that kind of cadence to continue here in the second half? And just maybe, you know, if you could give us some broader outlook around, you know, where we are in the freight cycle and when you could expect that to re-inflate. I have a quick follow-up.

Roger Penske: Well, from the operating side, when you look at the quarter, our gain on sale was $44 million last year and the quarter was $16 million. So, obviously, down $28 million. So our guys did a great job from an operating standpoint. And as I look out, into Q3 and Q4, basically, gain on sale will be a real trigger up or down based on what the market pricing is, and we have some disposals that we'll look at. We dropped 14,000 units out of our fleet during the quarter. So I think that it's important, or through the year. I'm sorry.

I think it's important that we look at gain on sale or loss or what have it might be. At the end of the day, freight is still flat, and that freight obviously and will drive excess rental from our existing lease customers and also from just a casual renter. And I think that will be the driver. If I look at the numbers in the quarter, our lease revenue, I think we talked about it before, five to 6%, and logistics was up 1%. And rental was down 9%. So you can see overall cost controls, and the gain on sale really gave us the of over $50 million.

And if you went if you looked at that for the rest of the year, it would be about $200 million. But, again, that can be by gain on sale.

Rajat Gupta: Understood. Understood. That's clear. And just you know, a broader question on capital allocation. You know, if we take into account, you know, the extra $150 million, you're gonna be getting, you know, from the taxable changes I mean, that's a pretty that's a pretty step change in your cash flow profile. I'm curious, does that in any way change how you're thinking about capital allocation, you know, maybe being more on share buyback versus, you know or just like other forms of use of cash. And if you could just tell us if you're looking to reprioritize that. Thank you.

Shelley Hulgrave: Hey, Rajat. It's Shelley. It certainly provides us with more opportunity. And as you as we said before, we're gonna continue to weigh current market conditions. You know, the 2025 certainly had a bit of tariff uncertainty. And so you saw us as well as some of our peers really look to take advantage of, you know, a down market and focus on buybacks. We are always going to remain focused on our dividend. And so year to date, $300 million of return to shareholders. We've started to see folks come out and make some purchases and acquisitions, we're still focused on growing that side of the business as well.

So I think it'll be a tale of two halves, and we will certainly look at different market conditions. But additional $150 million of benefit that we're estimating certainly helps to provide us with more opportunity.

Roger Penske: Yeah. I would say from an M&A perspective, you know, obviously, our doors are open. And you know, we're looking at a decent pipeline right now. How those will mature, I can't say, but certainly, we'll look to do M&A, more M&A, obviously, in the last six months than we did in the first six. Kelly, that would be probably fair.

Shelley Hulgrave: Right. Understood. Thanks for all the color, and good luck.

Roger Penske: Thanks. Alright. Thanks, Rajat.

Operator: Our last question comes from David Whiston from Morningstar. Please go ahead. Your line is open.

David Whiston: Hey, everyone, and thanks for taking my question. I wanted to stick on the M&A topic actually because I remember correctly, you've talked in the past about wanting to acquire $1.5 billion in annual revenue, and you've just done the priority deal so far. So even if you do end up closing some of these deals in your pipeline, do you think the $1.5 billion acquired number for 'twenty-five is still on the table? Or is it going to be lower?

Roger Penske: I would say it's not realistic to think we're gonna on it on an annualized basis, maybe we could look at it. But, you know, I guess if I had the perfect storm, I'd like to grow 5% organically and 5% through acquisition. Now we're not meeting those targets right now, but certainly, in the capital position we're in from a certainly, an acquisition standpoint, you know, we really should be in really in good shape. And when you look at the cap allocation, Noah had a strong cash flow of $472 million from operations. And certainly, with the uncertainty that followed the tariffs, I think that we have to we pause, and I guess certainly made a difference.

We've talked about a 1.3% you know, of the outstanding shares we purchased already, about 900,000. And, we paid out $165 million in dividends. So I think the shareholder themselves is getting a benefit, from dividends. I think the yield at 3.1% is strong. We're certainly paying out at over 35% roughly in payout. So we're gonna hit all those levers, but trust me, we are definitely looking at acquisitions. But what I don't wanna do, I think Ferrari was kind of a special one when you think about that brand where they're largest. Dealer in the world, and we had the ability to have the house dealership next door was key.

But as we look at these, we wanna be sure that we can tuck things in where we have scale look at markets, and you know, we're gonna be prudent as our peers have been. But I think with the size of the US auto market, when we look at internationally, these businesses have an opportunity to grow through acquisition for many years to come.

David Whiston: Thanks for that. And just one other question on Porsche Australia. You mentioned the used-to-new ratio is already doubled in about a year's time. And I'm just curious, was that mostly due to a lot more advertising or just changing internal operations at those stores?

Roger Penske: Oh, look. Let me ask let Randall Seymore. He's calling in from the UK. Hopefully, connect you around. Do you wanna make a comment on what you've been able to accomplish in Australia in just less than a year?

Randall Seymore: Sure. No problem. Yeah. Good question. So this was mostly internal. In fact, it was virtually all internal processes relative to just taking advantage, focusing on getting more trades whether it be on selling a new or a used the efficiency of reconditioning them, marketing them properly. But the big opportunity, a lot of the independent, used car providers were getting a lot of these cars. So we're just organically keeping them and then we're opportunistically out there buying them as well. So, you know, it's a big focus, and the team did a great job. And that business really has turned out to be really amazing when you think about it.

We have the three stores in the big city of Melbourne, Randall and the team were really looking at is one dealership with three locations in the city. We can combine customer service one inventory for all three dealerships, and the marketing, I think it's really key. And then we have the benefit of our commercial businesses taking place in Australia, you know, our financing. Our legal, our insurance, our HR, all of those functions are we can take the advantage of those in our auto business and will give us a runway hopefully, to continue to grow the auto business and Australia as we go forward.

I think we need to get the Porsche dealerships solid and have a year or under our belt, but we certainly would look. Is that a place that we could grow some of our business with our expertise.

David Whiston: Great. Thanks, everyone.

Roger Penske: Thank you.

Roger Penske: Everyone. Thanks for joining us today. I think it was a great quarter. As we said earlier, lots of moving parts, but I think the management team we have across all aspects of the business has really been great. I think our turnover is the lowest in the industry. And I think that provides us the best management. So look forward to talking to you next quarter. Thank you.

Operator: This concludes our today's conference call. You may now disconnect.