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Penske Automotive Group (PAG 0.01%) has seen its diverse selling model tested in recent quarters, as new-car sales volumes drifted lower to overwhelm gains in the services segment and a booming commercial truck business. The auto retailer recently revealed continued strength in those growing division for the second quarter. However, these improvements were more than offset by struggles elsewhere in Penske's portfolio.
Here's how the headline results compare with the prior-year period:
Metric |
Q2 2019 |
Q2 2018 |
Change |
---|---|---|---|
Revenue |
$5.8 billion |
$5.9 billion |
(3%) |
Net income |
$119 million |
$135 million |
(12%) |
EPS |
$1.42 |
$1.58 |
(10%) |
Data source: Penske Automotive Group.
Sales declines spanned both the used and new segments of the business. Demand challenges were limited to the U.K. market, though, which is shrinking as a consequence of Brexit disruptions.
A few highlights of the quarter:
"Our U.S. retail automotive, North American commercial truck dealership business, and investment in Penske Truck Leasing each performed very well," board Chairman Roger Penske said in a press release. "However, weak market conditions in the U.K. from Brexit ... impacted second-quarter results." Management estimated that the wider new-car market in the U.K. dropped 7%, which "significantly impacted our results."
Given the weak outlook for the U.K., Penske appears on track to post at least a slight sales decline this year versus the 3% increase it logged in 2018. Cost cuts are helping protect profits, but not by much. After all, operating earnings are down 9% over the first half of the year, compared with a 3% decrease in reported sales.
The chain's recent acquisitions demonstrate that management is determined to continue investing in attractive areas like truck leasing and sales, services and support, and used-car sales. These initiatives likely won't be enough to offset tough selling conditions in places like the U.K. and Australia this year. Penske is hoping the moves set the company up for a strong 2020, though, and investors will get a better idea of that prospect by following overall revenue and profit results over the next few quarters.