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Foreign Exchange Headwinds Blunt Growth at Penske Automotive Group, Inc.

By Rich Smith – Oct 27, 2016 at 5:17PM

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Penske would have grown revenues nearly 10% in Q3 -- except for those darned exchange rates.

Image source: Penske.

Doing business in a global economy is hard work -- as Penske Automotive Group (PAG 1.74%) proved on Wednesday. Reporting earnings for the third quarter, Penske showed modest gains in both sales and earnings -- and a pretty significant boost to earnings per share. But the news wasn't nearly as good as it might have been.

Penske results: The raw numbers


Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)


$5.15 billion

$4.96 billion


Income From Continuing Operations

$88.4 million

$87.6 million






Source: Penske Automotive.

What happened with Penske this quarter?

Penske's numbers were unobjectionable for a car dealer in a go-slow global economy. In fact, the 3.9% sales gain that Penske noted actually compares quite favorably with the 2.9% gain in sales that rival CarMax (NYSE: KMX) reported last month. And whereas CarMax saw its net profits decline 5.7% in September, Penske says it's profits were actually up slightly.

However, Penske's news could have been better. The company gets about 60% of its revenue from North America and 33% form the U.K., and management noted:

  • Revenue growth of 3.9% in Q3 would have been 9.7% excluding foreign exchange rates.
  • Same-store sales, which inched up 2% year over year, would have grown 4.1% excluding foreign exchange.
  • Likewise, earnings per share growth of 7.3% would have been twice that -- 14.6% -- excluding foreign exchange, and income from continuing operations would have grown eight times as fast as it actually did -- 8% instead of just 0.9%.

Foreign exchange headwinds notwithstanding, Penske did allay investor concerns on one score. The United Kingdom is the company's second-biggest market for selling new and used cars and trucks, where Penske did $6.6 billion in sales last year, according to data from S&P Global Market Intelligence. The good news here, management said, "The Brexit vote in the U.K. did not impact the company's performance in the third quarter as our business remained strong, generating a 6.9% increase in their same-store unit volume."

What management had to say

More generally, Penske namesake, chairman, and CEO Roger S. Penske was upbeat about the company's business, hailing "record" results despite the translation effects from foreign currency headwinds. And back here in the U.S., Penske said he was "particularly pleased to see new and used gross profit per unit increase in the U.S. by $52 and $179, respectively." 

Looking forward

Penske provided no precise guidance for what to expect in the fourth quarter. The company did, however, note that because its foreign exchange "exposure" is primarily a function of the USD-to-UK pound exchange rate, it's looking to see earnings depressed by "approximately $0.25 to $0.30" relative to 2015 levels, due to the devaluation of the British pound, and revenues roughly $1.2 billion to $1.3 billion lighter than might otherwise be the case.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 324 out of more than 75,000 rated members.

The Motley Fool owns shares of and recommends CarMax. The Motley Fool recommends Penske Automotive Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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