Asbury (NYSE:ABG) Automotive Group, in its Q3 2023 earnings call, reported $3.7 billion in revenue and a gross profit margin of 18.4%. The company faced challenges in new vehicle brand mix and sourcing used vehicles due to rising interest rates, but noted growth in their Parts and Service business and record sales through their Clicklane platform. Asbury also expressed optimism about the upcoming acquisition of Jim Koons Automotive Group, which they plan to fund using existing liquidity.
Key takeaways from the call include:
- The company reported an adjusted operating margin of 7.2%, adjusted EBITDA of $280 million, and adjusted EPS of $8.12, which is in line with the InvestingPro data showing a basic EPS (Cont. Ops) LTM2023.Q2 of $43.13.
- Despite challenges in the new and used vehicle markets, the Parts and Service business showed year-over-year growth. This aligns with InvestingPro Tips suggesting that the company has been consistently increasing its earnings per share.
- The company plans to invest $155 million in capital expenditure (CapEx) in 2023 for the rollout of planned CapEx related to acquisitions made in 2021. This investment strategy is reflected in the InvestingPro Tips, which note that the company operates with a high return on assets.
- Asbury's Total Care Auto (TCA) made a pretax income of $71 million year-to-date, with plans to have all current stores enabled with TCA by the end of Q1 2024.
- The company's adjusted operating cash flow for the year was $514 million, and its liquidity at the end of the quarter was approximately $1.7 billion. This is consistent with the InvestingPro data showing a market capitalization of $3.740 billion.
- Asbury renewed and upsized its credit facility to $2.8 billion, providing financial flexibility. This corresponds with the InvestingPro Tips indicating that the company operates with a moderate level of debt.
- The company's pro forma adjusted net leverage was 1.7x as of September, with expectations of it being in the mid-2s pending the Jim Koons acquisition.
- The company aims to reduce leverage to 2x or lower by the end of 2024, which aligns with the InvestingPro Tips suggesting that the company has been aggressively buying back shares.
Asbury executives also discussed future growth and market trends, highlighting the potential return of leasing and the adoption of electric vehicles as beneficial factors. They expressed optimism about deepening client relationships and expanding service retention, but acknowledged potential challenges due to economic and global uncertainties. The company also addressed its leverage, prioritizing cash flow for debt reduction.
The impact of the recent parts plant strike was also discussed, with potential shortages and disruptions expected. The company mentioned a slight decrease in product sales penetration, but they don't consider it significant. They believe that a healthy balance is 70% product sales and 30% reserve.
The company generally prefers using manufacturer parts for post-warranty work but sometimes uses aftermarket parts to keep cars running. They expect the market average GPU to be higher than 2019 levels due to their brand mix. The call concluded with the announcement of discussing fourth-quarter earnings in the future.
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