Asbury Automotive Group, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Dollar amounts are in millions unless noted. Asbury operated 198 new-vehicle franchises across 148 locations, plus used-vehicle stores, collision centers and related businesses. Results include the Larry H. Miller (LHM) acquisition, completed in December 2021; prior-year comparisons do not include those acquired operations or TCA.
Financial performance
- Q3 revenue: $3,865.9, up 61% year over year. Gross profit was $767.8, with a 19.9% gross margin; operating income was $313.6; net income was $205.0; diluted EPS was $9.23.
- Nine-month revenue: $11,727.9, up 63%. Gross profit was $2,362.5, with a 20.1% margin; operating income was $970.0; net income was $644.1; diluted EPS was $28.72.
- Q3 revenue by category: New vehicles $1,799.2; used vehicles $1,330.7; parts and service $536.1; finance and insurance (F&I), net $200.0.
- Expenses and interest: Q3 SG&A was $438.2, or 57.1% of gross profit, versus 56.0% a year earlier. Other interest expense was $38.6, up 160%, primarily reflecting acquisition-related debt. The nine-month effective tax rate was 24.6%; management expected approximately 25% for 2022.
- Cash flow: Nine-month operating cash flow was $664.4, compared with $958.6 in 2021. Management’s non-GAAP adjusted operating cash flow was $781.6, compared with $421.4. Investing activities provided $233.0, including $379.0 in divestiture proceeds; financing activities used $935.0. Cash declined $37.6 to $141.3.
- Debt and liquidity: Long-term debt, including current maturities, was $3,325.5 at quarter-end. Management reported total available liquidity of $1.17 billion, including cash, floor-plan offset funds and borrowing availability. The company reported compliance with debt covenants.
Changes and operating trends
- Reported Q3 growth reflects the LHM acquisition, which contributed $4.20 billion of revenue in the first nine months of 2022. The acquisition added dealerships and TCA and materially affects comparability with 2021.
- Same-store Q3 new-vehicle revenue fell 7% and units fell 16%; new-vehicle gross profit per unit nevertheless increased 14% to $5,782. New-vehicle inventory remained constrained, at approximately 19 days of supply.
- Same-store used-vehicle retail revenue was roughly flat, but units declined 10%; same-store used retail gross profit per unit fell 23% to $1,901 as used-vehicle market prices declined. Used inventory was 31 days of supply.
- Same-store parts and service revenue rose 12% in Q3, while same-store F&I revenue increased 3%; F&I revenue per retail unit improved 18%.
- Q3 net income increased 39%, slower than revenue growth, in part because of higher SG&A and acquisition-related interest expense. Nine-month other interest expense rose $70.5 versus 2021.
Outlook, risks and unusual items
- Management stated it expected liquidity to be sufficient for at least the next 12 months. It estimated 2022 capital expenditures at approximately $113.0; this is an estimate, not earnings guidance.
- Management cited ongoing vehicle and parts supply constraints, including semiconductor shortages, as limiting inventory and sales. Other identified risks include inflation, rising interest rates, labor availability and costs, consumer demand and credit conditions, and LHM integration.
- The company amended its credit facilities and related swaps to transition benchmark rates from LIBOR to SOFR. Its September 2022 credit amendment changed borrowing-base and facility-conversion limits but did not change total commitments, interest rates or maturity.
- Asbury repurchased 1,069,203 shares for $200.0 under its program in the first nine months; no program repurchases occurred in Q3. A further $200.0 of authorization remained at September 30.
- Seven franchises and one collision center were sold in the first nine months, generating a reported $4.4 pre-tax gain. The filing says gains or losses on six dealership divestitures remained preliminary pending final LHM purchase accounting.
- Known claims and proceedings were not expected by management to materially affect results, but outcomes are uncertain. Manufacturer franchise agreements, required facility investments, imported-vehicle and parts risks, and regulatory or litigation matters are also noted. The filing reported no material change to the risk factors in the 2021 Form 10-K.
Investor verification checklist
- Separate acquisition-driven growth from same-store trends, particularly in vehicle volumes, margins and operating costs.
- Track new-vehicle supply and used-vehicle pricing, including whether used gross profit per unit stabilizes.
- Reconcile reported and adjusted operating cash flow, working-capital movements and floor-plan financing effects.
- Review debt service and interest-rate exposure as SOFR-based borrowing costs change; assess liquidity availability and covenant headroom.
- Monitor final LHM purchase accounting, integration performance, pending divestitures and the effect of share repurchases on capital allocation.