Asbury Automotive Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Asbury operated 112 new-vehicle franchises, 25 collision centers and one auto auction across nine states. Comparisons are against 2020, when COVID-19 disruptions materially affected results; Q2 2021 also included the Park Place acquisition completed in August 2020.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Revenue | $2,584.0 million | $1,445.1 million | +79% |
| Gross profit | $497.2 million | $242.8 million | +105% |
| Gross margin | 19.2% | 16.8% | +2.4 percentage points |
| Income from operations | $218.4 million | $82.2 million | +166% |
| Net income | $152.1 million | $49.6 million | +207% |
| Diluted EPS | $7.80 | $2.57 | +204% |
| SG&A as % of gross profit | 54.2% | 62.7% | Improved 8.5 percentage points |
First half: Revenue was $4,776.9 million (+56%); gross profit $879.9 million (+71%); operating income $354.7 million (+203%); net income $244.9 million (+254%); diluted EPS $12.56 versus $3.58. Gross margin was 18.4%, compared with 16.9%; SG&A was 57.9% of gross profit versus 67.3%.
Q2 revenue grew across all business lines: new vehicles $1,368.4 million (+80%), used vehicles $816.2 million (+82%), parts and service $292.4 million (+73%), and finance and insurance (F&I) $107.0 million (+61%). New-vehicle gross profit per unit rose 103% to $3,912; used retail gross profit per unit rose 59% to $2,737. Same-store new-vehicle gross margin increased to 8.6% from 5.0%, and same-store used retail margin to 10.0% from 7.7%.
Cash flow, debt and liquidity
- For the six months, GAAP operating cash flow was $587.3 million, versus $554.6 million. Management’s adjusted operating cash flow measure, which includes specified non-trade floor-plan activity, was $179.4 million versus $255.4 million; the filing cautions that this non-GAAP measure has limitations.
- Investing cash outflow was $228.8 million, including $217.1 million to buy previously leased real estate. Financing cash outflow was $257.6 million. Cash ended at $102.3 million, up from $1.4 million at year-end.
- Long-term debt, including current maturities, was $1,378.2 million at June 30, versus $1,201.8 million at December 31, 2020. Separately, net floor-plan notes payable totaled $241.5 million ($13.9 million trade and $227.6 million non-trade).
- Available liquidity was $576.5 million: cash $102.3 million, floor-plan offset funds $75.0 million, convertible new-vehicle facility availability $190.0 million, revolving-credit availability $49.2 million, and used-vehicle facility availability $160.0 million. Management said liquidity should be sufficient for at least the next 12 months.
Material changes, outlook and risks
- Management attributed stronger vehicle margins partly to constrained new-vehicle supply and demand, with semiconductor shortages leaving about 17 days of new-vehicle inventory at quarter-end. Used-vehicle demand also benefited from limited new supply; used inventory was 37 days, above the historical 30–35-day target.
- Parts and service activity recovered toward pre-pandemic levels. The Park Place acquisition contributed $887.6 million of first-half revenue and increased reported scale and expenses.
- Asbury expects a 2021 effective tax rate of about 25% and approximately $55.7 million of 2021 capital expenditures. The filing provides no full-year revenue or earnings guidance.
- Risks include continued semiconductor and other supply disruptions, COVID-19 effects, changes in consumer demand and interest rates, manufacturer relationships and incentives, competition and margin pressure, employee retention, debt and covenant requirements, and litigation or regulatory matters. Management reported compliance with debt covenants at June 30.
- Unusual comparative-period items affected first-half year-over-year results: 2020 included a $23.0 million franchise-rights impairment, a $20.6 million debt-extinguishment loss, and a $33.7 million gain on dealership divestitures. In 2021, other operating income included legal-settlement and real-estate gains. A new $184.4 million real-estate term loan financed the purchase of Park Place-related property.
- Management reported no known claims expected to materially adversely affect results, while noting that outcomes cannot be predicted. It also disclosed $10.8 million of letters of credit and an $11.6 million surety-bond line.
Important facts for investors to verify
- How long vehicle shortages and unusually strong new- and used-vehicle gross profit per unit can persist, and their effect on sales volumes and margins.
- How much reported growth reflects Park Place and the unusually weak 2020 comparison, versus ongoing same-store performance.
- Whether operating cash generation remains adequate after considering floor-plan financing, inventory movements, real-estate spending and debt service.
- Debt, lease-adjusted leverage, covenant headroom and exposure to variable rates; the filing estimates a 100-basis-point rate move could change annual interest expense by up to $2.1 million based on specified variable-rate debt.
- Progress against the stated tax-rate and capital-expenditure outlook, and any developments in disclosed legal, manufacturer or other contingencies.