Asbury Automotive Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Asbury operated 206 new-vehicle franchises across 157 dealership locations, 37 collision centers and two reportable segments: Dealerships and TCA.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $4.201 billion | $3.582 billion | +17% |
| Gross profit | $750.0 million | $696.2 million | +8% |
| Income from operations | $262.8 million | $276.5 million | -5% |
| Net income | $147.1 million | $181.4 million | -19% |
| Diluted EPS | $7.21 | $8.37 | -14% |
| Operating cash flow | $177.1 million | $171.7 million | +$5.4 million |
- Gross margin was 17.9%, down from 19.4%; SG&A was 62.5% of gross profit, up from 57.9%.
- Parts and service gross profit increased 18% to $334.1 million; F&I gross profit increased 14% to $181.1 million. New-vehicle gross profit fell 9% and used-vehicle gross profit fell 7%.
- Cash and cash equivalents were $29.0 million at quarter-end, versus $45.7 million at year-end 2023. Total assets were $10.132 billion and shareholders’ equity was $3.347 billion.
- Long-term debt, including current maturities, was $3.193 billion, excluding floor-plan notes payable. Net floor-plan notes payable were $1.690 billion ($205.5 million trade and $1.485 billion non-trade). Total available liquidity was $712.3 million, including $486.0 million of revolving-credit availability and offset-account funds.
- Net cash used in investing activities was $13.6 million; net cash used in financing activities was $180.2 million. Adjusted operating cash flow, a company-defined non-GAAP measure, was $208.7 million versus $243.9 million.
Material changes and management commentary
- Revenue and gross profit growth primarily reflected the December 2023 Koons acquisition. Koons contributed $681.4 million of revenue and $26.5 million of net income in Q1 2024.
- Same-store new-vehicle revenue was down 1%, while same-store new-vehicle gross profit fell 23%; gross profit per vehicle declined 23%. Management attributed margin pressure to easing inventory constraints.
- Same-store used-vehicle revenue fell 2% and gross profit fell 26%; same-store gross profit per retailed vehicle declined 24%. The filing cites lower used-vehicle market prices and constrained availability, particularly of lower-mileage vehicles.
- Same-store parts and service revenue rose 2% and gross profit rose 6%, supported by customer-pay and warranty work and reconditioning. Same-store F&I revenue declined 10%; management cited slightly lower product penetration as customers seek lower monthly payments amid higher interest rates.
- Other expenses rose 76% to $66.9 million, including floor-plan interest expense of $22.8 million versus $0.6 million a year earlier, primarily reflecting higher inventory and lower floor-plan offset balances. Other interest expense increased 18% to $44.1 million.
Outlook, risks and unusual items
- Management expects 2024 capital expenditures of approximately $200 million to $225 million. It estimates a 2024 effective tax rate of approximately 25% and says it expects sufficient liquidity for at least the next 12 months. The filing gives no specific revenue or earnings guidance.
- Asbury expects rollout of TCA products to remaining stores by year-end 2024 and expects the accounting timing of those contracts to reduce F&I revenue and gross profit over the next two to three years, despite higher combined transaction profitability.
- The company had $1.70 billion of variable-rate debt, net of swaps; a 100-basis-point rate change could affect annual interest expense by up to $17.0 million. It had six interest-rate swaps and reported covenant compliance at March 31, 2024.
- The FTC proposed a consent order and draft complaint in February 2024 alleging violations related to sales of add-on products at the company and three dealerships. Asbury disputes the allegations; it cannot reasonably predict the outcome or estimate a possible loss range.
- Other stated risks include vehicle and parts supply disruptions, interest rates and consumer credit conditions, acquisition integration, manufacturer relationships, competition and pricing pressure, regulatory changes, and litigation. The filing reports no material changes to the risk factors in its 2023 Form 10-K.
- Asbury repurchased 239,790 shares for $50.0 million during the quarter; $152.6 million remained under its authorization at March 31, 2024. Reported investing cash flow included $102.0 million of dealership divestiture proceeds and $67.4 million of real-estate capital expenditures.
Important facts for investors to verify
- How much of reported growth and profitability is attributable to Koons versus underlying same-store performance.
- Whether new- and used-vehicle gross-profit pressure and higher SG&A and floor-plan interest persist.
- The FTC investigation’s developments, potential consequences and whether a loss estimate becomes reasonably determinable.
- Liquidity and leverage, including floor-plan financing, variable-rate exposure and the use of remaining share-repurchase authorization.
- Whether 2024 capital spending and the TCA rollout affect cash generation and reported F&I results as management anticipates.