Asbury Automotive Group, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods. Figures are in millions of dollars except per-share data and where noted. Asbury operated 106 franchises at 86 dealership locations across 10 states.
Key financial results
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $1,689.6 | $1,503.4 | $3,231.4 | $2,859.1 |
| Gross profit | $271.3 | $247.9 | $527.7 | $478.0 |
| Income from operations | $82.2 | $72.2 | $155.3 | $136.4 |
| Net income | $41.1 | $35.9 | $77.0 | $67.3 |
| Diluted EPS | $1.52 | $1.18 | $2.82 | $2.20 |
| Operating cash flow, GAAP | Not stated for quarter | Not stated for quarter | $89.2 | $80.7 |
- Q2 revenue rose 12%, net income 14%, and diluted EPS 29%. Six-month revenue rose 13%, net income 14%, and diluted EPS 28%.
- Q2 revenue growth came from new vehicles (+11%), used vehicles (+14%), parts and service (+12%), and finance and insurance (F&I) (+16%). Gross profit increased 9%; higher parts-and-service and F&I profit more than offset lower same-store new-vehicle margins.
- Gross margin was 16.1% in Q2, down 40 basis points year over year; for six months it was 16.3%, also down 40 basis points. SG&A was 67.0% of gross profit in Q2 versus 68.3%; for six months, 67.8% versus 68.8%.
- Same-store new-vehicle gross profit per vehicle fell 10% in Q2, and same-store used-vehicle gross profit per retail unit fell 8%. Management cited competition, lower-margin luxury vehicle mix, and efforts to increase used-vehicle volume.
Cash flow, balance sheet and capital allocation
- For the first half, investing cash outflow was $107.5 million, including $69.4 million of dealership acquisitions (two locations), $22.4 million of real estate purchases, and $19.9 million of capital expenditures excluding real estate. Financing cash inflow was $17.3 million; cash decreased $1.0 million to $1.9 million.
- Management’s non-GAAP adjusted operating cash flow was $172.9 million, compared with $86.1 million. This measure adds net non-trade floor-plan borrowings of $83.7 million to GAAP operating cash flow; it is not a substitute for GAAP cash flow and may not be comparable with peers.
- At June 30, total assets were $2,311.8 million and shareholders’ equity was $367.7 million. Inventory was $928.5 million. Floor-plan notes totaled $845.2 million: $121.7 million trade and $723.5 million non-trade.
- Long-term debt was $758.2 million, plus $12.7 million of current maturities. Debt included $400 million of 6.0% senior subordinated notes due 2024 and a fully drawn $100 million Master Loan Facility. The June draw was effectively fixed at 4.8% through an interest-rate swap.
- Available liquidity was $245.9 million: $1.9 million cash, $28.3 million in the floor-plan offset account, and $164.7 million and $51.0 million available under the revolving credit and used-vehicle floor-plan facilities. The company reported compliance with debt covenants and expects liquidity to meet requirements for at least 12 months.
- Asbury repurchased $155.5 million of shares under its program in the first half and spent an additional $7.9 million on employee equity award net settlements. Remaining repurchase authorization was $198.4 million at June 30.
Outlook, commentary and risks
- Management expected 2015 capital expenditures, excluding acquisitions, lease buyouts, and real estate purchases, of approximately $75 million. It expected a 2015 effective tax rate of 38%–40%. The filing provides no full-year revenue or earnings guidance.
- Management described industry conditions as favorable, citing stronger consumer confidence, accessible consumer credit, improving employment, favorable fuel prices, and an aging vehicle fleet. U.S. new-vehicle SAAR was 17.1 million in Q2 2015 versus 16.6 million in Q2 2014.
- Parts-and-service growth included higher warranty work associated in part with manufacturer recall campaigns. Management also cited increased competition and margin pressure in vehicle sales. Results are seasonal and sensitive to economic conditions, consumer credit, fuel prices, vehicle supply, manufacturer incentives, and customer demand.
- Interest-rate exposure is material: the company reported $844.8 million of variable-rate debt, including floor-plan notes; a 1% rate change could alter annual interest expense by as much as $8.4 million. Interest-rate swaps hedge portions of variable-rate exposure.
- Two New Jersey dealership franchises classified as held for sale at June 30 were sold in July 2015. They generated approximately $120 million in 2014 revenue. Known claims and contingencies were not expected by management to materially affect results, though adverse resolutions could do so.
Investor facts to verify
- Whether growth and earnings gains persist as same-store new- and used-vehicle margins remain under pressure.
- How much adjusted operating cash flow reflects floor-plan borrowing changes versus underlying operations; reconcile it to GAAP cash flow.
- Debt, liquidity, and interest-rate sensitivity, including the impact of floor-plan financing and the Master Loan Facility.
- Use and remaining capacity of the share-repurchase authorization, alongside acquisition and real estate spending.
- Post-sale results and proceeds from the two divested dealerships, and whether manufacturer recall-related service revenue is recurring.