Asbury Automotive Group, Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures are included as supplemental information. Asbury operated 97 franchises across 83 dealership locations, 29 brands, and 25 collision centers in nine states.
Key financial results
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $6.874 billion | $6.457 billion | +6% |
| Gross profit | $1.103 billion | $1.056 billion | +4% |
| Gross margin | 16.0% | 16.4% | -0.4 percentage points |
| Operating income | $310.9 million | $287.7 million | +8% |
| Net income | $168.0 million | $139.1 million | +21% |
| Diluted EPS | $8.28 | $6.62 | +25% |
| Cash from operating activities, GAAP | $10.1 million | $266.3 million | Down $256.2 million |
| Cash from operating activities, adjusted for non-trade floor-plan changes | $181.6 million | $195.6 million | Down $14.0 million |
- Revenue increased across new vehicles (+6%), used vehicles (+8%), parts and service (+4%), and finance and insurance (+6%). New-vehicle retail volume rose 5%; used-vehicle retail volume rose 7%.
- New-vehicle gross profit fell 2%, with gross profit per new vehicle down 7% to $1,569. Used-vehicle retail margin declined 0.2 percentage points to 7.2%. Parts and service supplied 46.8% of total gross profit; F&I supplied 26.5%.
- SG&A increased 4% to $755.8 million, but declined as a share of gross profit to 68.5% from 69.1%.
- Income tax expense fell to $56.8 million from $70.0 million; the effective tax rate decreased to 25.3% from 33.5%, primarily reflecting the lower federal corporate tax rate under the Tax Act.
Balance sheet, debt, and liquidity
- At year-end, cash was $8.3 million, working capital was $249.7 million, total assets were $2.695 billion, and shareholders’ equity was $473.2 million.
- Long-term debt principal was $910.1 million, excluding floor-plan notes; floor-plan notes payable were $966.1 million. The debt balance included $600 million of 6.0% notes due 2024 and mortgage and real-estate borrowings.
- Reported available liquidity was $356.1 million, including cash, floor-plan offset funds and borrowing availability. Management said liquidity should be sufficient for at least the next 12 months. The company was in compliance with its debt covenants at year-end.
- Variable-rate debt exposure was approximately $999.3 million; management estimated a 1 percentage-point rate increase would raise annual interest expense by about $10 million. Floor-plan interest expense rose 43% to $32.5 million.
Material changes, outlook, and notable items
- Operating cash flow on a GAAP basis was unusually low at $10.1 million. Management’s adjusted measure was $181.6 million; it excludes certain non-trade floor-plan financing movements. Investing cash use was $149.6 million, including $91.3 million for three dealership acquisitions. Financing activities provided $143.1 million.
- Share repurchases totaled $105.4 million under the program, plus $4.8 million of employee share-settlement repurchases. No dividends were paid. Remaining repurchase authorization was $81.5 million at year-end.
- Management expected 2019 capital expenditures of approximately $55 million and an effective tax rate of 25%–26%. The filing does not provide earnings or revenue guidance.
- In February 2019, Asbury closed on the acquisition of four stores in Indianapolis. Three franchises acquired in 2018 contributed $166.8 million of consolidated revenue after acquisition; their controls were excluded from the company’s 2018 internal-control assessment.
- Asbury recorded $3.7 million of non-cash franchise-rights impairment in 2018, versus $5.1 million in 2017. Adoption of ASC 606 reduced 2018 net income by $0.1 million; prior-year comparisons were not restated.
- Management highlighted margin pressure and competition, including internet-enabled price transparency; exposure to economic and consumer-credit conditions, interest rates, manufacturer and franchise relationships, recalls, regulation, cyber incidents, and potential tariffs; and longer-term uncertainty from electric, autonomous, and shared-mobility vehicles.
- The company reported no known material environmental liabilities and did not expect known legal claims to materially affect results, while noting litigation and regulatory outcomes remain uncertain. Ernst & Young gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile the sharp fall in GAAP operating cash flow with the $181.6 million adjusted figure and review the working-capital and floor-plan classification effects.
- Track new- and used-vehicle gross profit per unit and margins, and whether higher parts-and-service and F&I contributions can offset vehicle-margin pressure.
- Assess floor-plan and other debt costs, refinancing needs, covenant headroom, liquidity availability, and sensitivity to higher interest rates.
- Evaluate acquisition integration and returns, including the four Indianapolis stores acquired after year-end, alongside planned capital spending and share repurchases.
- Monitor manufacturer concentration and franchise requirements, consumer financing availability, tariffs, recalls, regulatory developments, and the material balance of goodwill and franchise rights subject to impairment testing.