Asbury Automotive Group Inc. - Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010. Asbury Automotive Group, Inc. is a major U.S. automotive retailer operating 107 franchises across 80 dealership locations in 11 states. The company's portfolio is weighted 85% toward luxury and mid-line import brands. The filing includes unaudited condensed consolidated financial statements and management's discussion and analysis.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $960.0 million | $820.1 million |
| Gross Profit | $162.9 million | $145.4 million |
| Income from Operations | $28.5 million | $19.2 million |
| Net Income | $7.4 million | $0.3 million |
| Diluted EPS (Net Income) | $0.22 | $0.01 |
| Cash and Cash Equivalents | $29.4 million | $84.7 million (Dec 31, 2009) |
| Total Available Liquidity | $203.7 million | N/A |
| Long-Term Debt | $527.3 million | $528.8 million (Dec 31, 2009) |
| Net Cash Used in Operating Activities | ($41.7 million) | $42.1 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 17% ($139.9 million) year-over-year, driven by a 22% increase in new vehicle revenue and a 21% increase in used vehicle revenue.
- Profitability: Net income surged to $7.4 million from $0.3 million in Q1 2009. Income from continuing operations rose 242% to $8.9 million.
- Margin Dynamics: Total gross profit margin decreased 70 basis points to 17.0% due to a mix shift toward lower-margin new and used vehicle sales. However, SG&A expenses as a percentage of gross profit improved significantly, dropping 370 basis points to 79.3%.
- Cash Flow: Operating cash flow turned negative ($41.7 million used) compared to positive ($42.1 million provided) in the prior year, primarily due to timing differences in accounts receivable collections and inventory sales relative to floor plan repayments.
- Discontinued Operations: The loss from discontinued operations improved to $1.5 million from $2.3 million in the prior year.
Guidance, Outlook, and Risks
- Outlook: Management expects a modest recovery in the U.S. automotive retail market for 2010. They anticipate mid-line import brands will continue to gain market share while luxury brands maintain stability.
- Liquidity: The company maintains strong liquidity with $203.7 million available, including $174.3 million in borrowing capacity. There are no material long-term debt maturities until September 2012.
- Capital Expenditures: Expected to total approximately $25.0 million for 2010.
- Risks: Key risks include general economic conditions, consumer credit availability, manufacturer incentive programs, and the ability to renew dealer agreements. The company notes that parts and service revenue may remain adversely impacted for several years due to the decline in vehicle sales over the past two years.
- Unusual Items: The company utilizes a non-GAAP measure, "cash provided by operating activities, as adjusted," to better reflect floor plan financing activities. Adjusted operating cash flow was ($52.6 million) for the quarter.
Investor Verification Checklist
- Verify the sustainability of the 17% revenue growth given the seasonal nature of the automotive industry and the weak comparison to Q1 2009.
- Monitor the trend in "Parts and Service" revenue, which declined 4% year-over-year, as this segment typically provides stable cash flow.
- Review the company's ability to maintain liquidity given the $55.3 million decrease in cash and cash equivalents during the quarter.
- Assess the impact of the 70 basis point decline in gross profit margin on future profitability if the sales mix continues to shift toward new vehicles.
- Confirm compliance with financial covenants, specifically the Fixed Charge Coverage Ratio (1.65 vs 1.10 required) and Current Ratio (1.71 vs 1.20 required).