Penske Automotive Group (NYSE:PAG) stock trailed the market in 2019, pressured by mixed operating results. While the used and new car retailer notched a few key wins last year, including strong contributions from its parts and services division and its booming commercial truck segment, those successes were offset by a big demand slump in the U.K., where Penske has a significant sales presence.

Investors will be watching closely for any change in the global selling environment when the company reports its fiscal fourth-quarter earnings results on Wednesday, Feb. 5. Let's take a look at the main metrics to watch.

A customer shakes hands with a car salesman.

Image source: Getty Images.

Meeting the challenges

Penske has been enduring a few big challenges. The first has been sluggish demand for new cars, which are on pace to have their first down year in the U.S. since 2009. New auto sales for the company fell 2% last quarter, for example.

The consumer discretionary company is also dealing with unusually soft demand in the U.K. due to the economic upheaval around Brexit. Poor results in that division pressured sales volumes and profits in the third quarter.

CEO Roger Penske and his team have plans in place to counter both issues, including a shift toward targeting the used car business in the U.S. and lowering inventory to better sync with current demand in the U.K. Investors will find out whether these strategies are working by following the retailer's global comparable-store sales and overall sales, which are projected to rise 6% to $5.75 billion in Q4.

Profitability wins

Penske generates significantly higher gross profit than rival CarMax, thanks to its premium new car brands and the high proportion of earnings it generates from parts and services. Its gross profit per vehicle in the U.S. edged up to $3,600 last quarter compared to roughly $2,400 for CarMax. The services division, meanwhile, accounted for a whopping 64% of earnings in the third quarter.

That figure should drop down closer to the standard 45% to 50% over time, but success here is an easy path toward higher earnings for Penske. That segment is a key reason why annual operating income has jumped to nearly $500 million from $120 million in 2010. Look for strength in these profit metrics to support earnings growth of about 10% in the quarter being reported.

The online problem

Penske hasn't made as big a push toward digital automobile selling as CarMax has, but the management team is clear about the massive potential there. Over one-third of its sales last quarter in the U.S. can be tied to its online presence, executives said back in October. That's one reason why Penske is directing more cash toward improving the online shopping experience and putting more of the buying process online.

The company's global sales base and diversification into areas like commercial trucking mean it is less vulnerable to disruption in the digital space, even if CarMax succeeds in its goal of making the used car purchase process a breeze to complete online. Yet 2020 will likely still include major efforts by Penske to avoid falling behind in this key growth avenue.

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