Asbury Automotive Group, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with Q1 2015 unless noted. Asbury operated 99 new-vehicle franchises, 82 dealership locations, 25 collision centers and two stand-alone used-vehicle stores across nine states. Results are unaudited. Management notes that the first quarter is typically seasonally weaker.
Financial results
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $1,550.8 million | $1,541.8 million | +1% |
| Gross profit | $260.8 million | $256.4 million | +2% |
| Gross margin | 16.8% | 16.6% | +20 bps |
| Income from operations | $68.9 million | $73.1 million | -6% |
| Net income | $31.0 million | $35.9 million | -14% |
| Diluted EPS | $1.27 | $1.30 | -2% |
| Cash from operating activities | $45.0 million | $80.1 million | Down $35.1 million |
- Parts and service revenue rose 7% to $189.2 million, with gross profit up 7% to $118.0 million. Finance and insurance revenue increased 2% to $62.3 million.
- New-vehicle revenue increased 1%, but new-vehicle gross profit fell 10% to $44.7 million. Gross profit per new vehicle declined 10% to $1,860; management cited higher inventories, aggressive manufacturer sales targets and competition.
- Used-vehicle revenue declined 3% to $460.9 million, while gross profit edged up 1% to $35.8 million. F&I per vehicle increased 4% to $1,424.
- SG&A rose 3% to $181.2 million and increased from 68.5% to 69.5% of gross profit, primarily due to personnel costs. Other expenses rose 27% to $18.6 million, including higher interest costs.
Balance sheet, liquidity and capital allocation
- At March 31, cash was $4.4 million. Total available liquidity was $363.1 million: cash of $4.4 million, $93.1 million in the floor-plan offset account, and availability of $165.6 million on the revolving credit facility and $100.0 million on the used-vehicle floor-plan facility. No revolving-credit borrowings were outstanding.
- Long-term debt, including current maturities, was $946.2 million; floor-plan notes payable were $813.7 million ($158.7 million trade and $655.0 million non-trade, net). Total assets were $2,335.5 million and shareholders’ equity was $241.8 million.
- Operating cash flow was $45.0 million. Management’s non-GAAP “cash provided by operating activities, as adjusted” was $126.6 million, versus $109.9 million in Q1 2015; the measure adds net non-trade new-vehicle floor-plan borrowings and is not a substitute for GAAP cash flow.
- Investing activities used $17.0 million, including $17.0 million of capital expenditures. Financing activities used $26.4 million, including $101.9 million of program share repurchases. During April, the company repurchased another 1,045,195 shares for $60.0 million; $138.1 million of authorization remained afterward.
- The company reported compliance with debt covenants and stated it expected sufficient liquidity for at least the next 12 months. Debt includes $600 million of 6.0% senior subordinated notes due 2024. A 100-basis-point rate change could affect annual other interest expense by up to $8.1 million, based on $807.9 million of variable-rate debt.
Outlook, management commentary and notable items
- No earnings or revenue guidance was provided. The company expects approximately $80 million of 2016 capital expenditures for facility upgrades, new facilities, service capacity, technology and equipment.
- U.S. new-vehicle SAAR was 17.2 million in Q1 2016 versus 16.7 million in Q1 2015. Management said the March rate softened to 16.6 million; new-vehicle inventory was about 81 days of supply and used-vehicle inventory about 33 days.
- Management highlighted growth in parts and service, stable used-vehicle margins and improved F&I results, while noting pressure on new-vehicle margins. It cited consumer credit availability, low unemployment, fuel prices and interest rates as supportive conditions, but emphasized economic, manufacturer, competition and financing uncertainties.
- Q1 included a $1.5 million non-cash impairment on a vacant property reclassified as held for sale and a $1.9 million non-cash accelerated rental charge for an abandoned rental property. A $0.1 million after-tax loss was recorded in discontinued operations.
- Key risks include manufacturer franchise agreements and requirements for costly facility improvements; litigation and regulatory matters; vehicle supply disruptions and recalls; consumer credit and demand; competition and margin pressure; and variable interest rates. The filing says no known claim was expected to materially affect results, but outcomes remain uncertain.
Important facts for investors to verify
- Whether parts-and-service and F&I growth can offset continued new-vehicle gross-profit and margin pressure.
- How personnel and insurance costs affect SG&A leverage and whether productivity initiatives improve the expense ratio.
- Cash generation and liquidity after substantial share repurchases, planned 2016 capital spending and ongoing debt service.
- Exposure to variable interest rates, floor-plan financing availability, debt covenants and the sensitivity estimate disclosed by management.
- Progress on property held for sale, the April repurchases and remaining buyback authorization; the filing provides no clear expected timing or price for future repurchases.