Key Highlights

  • Consensus EPS of 9.50 compares with first-quarter adjusted diluted EPS of 8.66 from continuing operations, against 10.17.
  • Consensus revenue of USD 5.58 billion compares with first-quarter total revenues of USD 5.4 billion, which management said declined 1.8%.
  • Management cited a USD 50 million annual cost reduction in U.S. operations from cutting nearly 700 full-time employees.
  • A USD 1,250.0 million senior notes offering, in two USD 625.0 million tranches, would fund the Hennessy acquisition.

Group 1 Automotive (NYSE:GPI) reports third-quarter results on Wednesday, Oct. 28, before the market opens. Consensus stands at EPS of 9.50 on revenue of USD 5.58 billion, and the company has a market capitalization of USD 2.91 billion.

Group 1 Automotive describes itself as a Fortune 250 automotive retailer with 249 dealerships in the U.S. and U.K. Its latest filings include no second-quarter statements, so the comparisons below draw on the April 30 first-quarter call and the six-month figures in a September offering excerpt.

Estimates Against First-Quarter and Six-Month Results

The EPS estimate of 9.50 is above the first-quarter adjusted diluted EPS of 8.66 from continuing operations and below the 10.17 reported a year earlier. The estimates table does not state its EPS basis. The revenue estimate of USD 5.58 billion is above the USD 5.4 billion of first-quarter total revenues.

For the six months ended June 30, total revenues were USD 10,792.2 million against USD 11,208.8 million, and income from operations was USD 445.7 million against USD 486.9 million. Net income from continuing operations was USD 232.9 million against USD 267.6 million, and adjusted EBITDA from continuing operations was USD 447.2 million against USD 511.6 million.

What Management Guided and What It Left Open

Management put numbers on its U.S. cost program, saying the headcount reduction carries a total cost of about USD 35 million and contract eliminations about USD 15 million, or about USD 12.5 million a quarter. It said U.S. SG&A was circa 70.5% of gross profit in the first quarter and would have been about 68.5% had the savings applied from January 1.

Management said the first-quarter U.S. SG&A did not meet its expectations, and it left open how fast margins recover, saying that it hopes the March improvement continues into the second and third quarters. It also gave no numeric EPS or revenue outlook on the call.

On used vehicles, management said sourcing was a challenge because the seasonally adjusted sales rate was depressed in the first quarter, and it gave no timetable for used profitability to return to historical levels.

First-Quarter Operating Detail

U.S. new vehicle gross profit per unit was USD 3,313, up from USD 3,260 sequentially, and adjusted F&I per retail unit was USD 2,535. U.S. new vehicle days' supply was 51 days against 38 days a year earlier, and used vehicle days' supply was 26 days.

In the U.K., same-store used volumes rose nearly 5% and parts and service gross profit rose 20%. Management cited a USD 7 million weather headwind to gross profit and USD 3 million of incremental U.K. regulatory costs.

Total liquidity was USD 714.3 million, free cash flow was USD 95 million after USD 53 million of capital expenditures, and the company repurchased 205,190 shares for USD 72.4 million.

Hennessy Acquisition and the Notes Offering

In a Sept. 8 filing, the company announced an offering of USD 625.0 million of senior unsecured notes due 2032 and USD 625.0 million due 2035. Proceeds, with cash on hand, would fund the purchase of 10 dealerships and one collision center in the greater Atlanta market, along with related real estate, from Hennessy Automobile Companies.

The excerpt shows pro forma adjusted EBITDA from continuing operations of USD 1,038.8 million for the twelve months ended June 30, a net secured leverage ratio of 1.8x and a net leverage ratio of 4.2x. Long-term debt, including current maturities, was USD 3,363.0 million at June 30 and USD 3,334.4 million at Aug. 31. The estimates table lists a market capitalization of USD 2.91 billion.

Markers for the Release

Reported EPS against 9.50 and revenue against USD 5.58 billion are the headline comparisons. Other markers are U.S. SG&A against the 70.5% first-quarter level, new vehicle gross profit per unit and the Hennessy acquisition timetable.