Penske Automotive (NYSE:PAG) this week posted second-quarter earnings results that were hurt by a slowdown in new car sales. The auto retailer still generated higher sales and record profits, though, thanks to contributions from other areas of the business, especially its parts and services division.

Here's how the headline results compared to the prior-year quarter:


Q2 2017

Q2 2016

Year-Over-Year Change


$5.38 billion

$5.25 billion


Net Income

$106 million

$94 million


Earnings per share




Data source: Penske financial filings.

What happened this quarter?

Penske enjoyed several operating wins even as the new car industry contracted in the U.S. These included setting new records on second-quarter retail unit sales, overall revenue, and earnings per share.

A salesman hands over the keys to a new car.

Image source: Getty Images.

A few key highlights of the quarter:

  • Retail auto sales improved by 13% to mark an acceleration over last quarter's 11% jump. The boost was driven by a 25% increase in used car sales while new car sales growth was cut in half to 3%.
  • Same-store retailing revenue dropped 6%, mainly due to pressure from falling average prices on new car sales. Penske's average transaction price fell 5% for new vehicles and by 11% for used sales.
  • Gross profit was mixed across new and used car sales. Gross profit margin ticked up to 7.9% for new vehicles but slipped on the used segment, down to 5.7% from 6.1%.
  • The service and parts segment posted a big profitability improvement as gross margin rose to 59.5% compared to 58.2% a year ago. Penske booked a healthy increase in high-margin warranty sales, which helped drive results higher for this division.

What management had to say

Executives credited the company's broad retailing model with keeping operating results churning higher despite a slowdown in the core U.S. market. "I am pleased to report another quarter of record results," CEO Roger Penske said in a press release, "highlighting the diversity of our transportation services business model, driven by the solid performance of our U.S. and U.K. automotive markets, contribution from our used car super centers, and the benefit from the investment in Penske Truck Leasing."

Management highlighted the profitability boost in the services segment, which accounts for just 10% of sales but has delivered 41% of the company's overall profit this year. "I was particularly pleased to see the 130 basis-point improvements in our automotive retail service and parts gross margin," Penske said.

Looking forward

Penske's new car sales are likely to continue dipping as the industry faces its first down year since 2009. That softness is showing up primarily in two places: declining same-store retailing figures and falling average prices.

In response, the retailer is shifting its focus toward a used car market that's roughly 2.5 times the size of the new vehicle segment. Given the latest spike in sales, this quarter's results suggests there's plenty of room for Penske to gain market share in this growing -- but less profitable -- niche.

At the same time, investors will be looking for the profit-driving portions of the business, including the financing division and the parts services, to pick up the slack and keep Penske's operating results moving higher.

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