Penske Automotive Group, Inc. (PAG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Penske Automotive Group Annual Meeting of Stockholders. I am Anthony Pordon, the company's Executive Vice President of Investor Relations and corporate development. Today's call is being recorded for record-keeping purposes. During the virtual annual meeting today, the company may make forward-looking statements about future events, including our operations, earnings potential and outlook. Our actual results may vary because of risks and uncertainties, which may cause the actual results to differ materially from expectations. I direct you to our SEC filings, including our Form 10-K for additional discussion and factors that could cause results to differ materially. Later in the meeting, there will be an opportunity for our team to address any shareholder questions. If you have a question, we encourage you to submit it electronically at this time. I will now turn the call over to Roger Penske.

Thank you, Tony. Good morning, and welcome to the 2021 Penske Automotive Group Annual Meeting of Stockholders. I'm Roger Penske, Chairman of Penske Automotive Group. I will now call the 2021 Annual Meeting of Stockholders to order. I would like to welcome those in attendance this morning. First, I'd like to welcome our Board of Directors who have joined us virtually. Second, our PAG Officer, Robert Kurnik, President; J.D. Carlson, Executive Vice President and Chief Financial Officer; Bud Denker, Executive Vice President, Human Resources; Shane Spradlin, Executive Vice President, General Counsel and Corporate Secretary; Tracy Cassady, Executive Vice President of Marketing; Shelley Hulgrave, Senior Vice President, PAG Corporate Controller. Finally, we are joined today by representatives from our principal auditing firm, Deloitte & Touche, Julie Warman, Jason Gibb and Carrie Owen. Thank you all for joining us this morning. Let's now review a few of the key highlights of the Penske Automotive Group's performance in 2020. As you know, we're a diversified international transportation service company. We operate in 4 continents in 9 countries. We have 323 retail automotive locations worldwide, 304 franchise automotive dealerships, 19 CarShop used car supercenters, 32 collision centers and 29 North American commercial truck dealerships. We own 28. 9% of Penske Transportation Solutions, also Commercial Truck and Power Systems Distributions in Australia and New Zealand. Despite the COVID pandemic, 2020 was a record year financially for PAG. Our EBT increased 20% to $708 million. Income from continuing operations increased 25% to $543 million, and earnings per share increased 28% and to $6. 74. Our strong cash flow and focus on liquidity generated a $670 million reduction in non-vehicle long-term debt. We also reduced our long-term debt leverage from 2.9x to 1.8x. Our performance helped drive the PAG stock price to a new record high in April of this year, which drove our enterprise value to more than $8.7 billion. At this time, I recognize Shane Spradlin, our General Counsel and Corporate Secretary for the determination of a quorum.

Thank you, Roger. Good morning. The holders of record of our common stock on March 16, 2021, are entitled to vote at this meeting. Each share of stock is entitled to 1 vote, and there were approximately 80.8 million shares outstanding on the record date. Approximately 96% of our outstanding stock is represented here today, either personally or by proxy, and therefore, a quorum is present for the transaction of business. At this time, the polls are now open, if anyone would like to cast a ballot. Roger?

Thank you, Shane. The Board of Directors has appointed Shane to serve as the Inspector of Election, and he will certify the results of today's vote. I'd now like to turn to today's agenda. We have 3 proposals for consideration this morning. The election of our directors, the ratification of our independent auditors, advisory vote on executive compensation, and Shane will introduce the first proposal.

On the recommendation of our Nominating and Corporate Governance Committee, our Board of Directors have nominated 13 individuals for election to serve a 1-year term expiring at next year's annual meeting. I hereby put this matter into nomination. Roger will now introduce each nominee.

Thank you, Shane. The nominees are John Barr, retired Chairman of Papa Murphy's Holdings; Lisa Davis, former CEO of Gas and Power Managing and Board member Siemens AG; Wolfgang Dürheimer, Retired Chairman and CEO, Bentley Motors Limited; Michael Eisenson, Founding Partner, Co Chairman, Charlesbank Capital Partners; Robert Kurnik, Jr., President Penske Automotive Group; Kimberly McWaters, President and CEO of Fresh Start Women's Foundation; Greg Penske, Chairman and CEO of Penske Motor Group; Roger Penske, Chairman and CEO of Penske Automotive Group; Sandra Pierce, Senior Executive Vice President and Chair of Huntington Bank, Michigan; Greg Smith, Principal, Greg Smith, LLC and former Vice Chairman of Ford Motor Company; Ronald Steinhart, Retired Chairman and CEO Commercial Banking Group, Bank One Corporation; Brian Thompson, Executive Chairman GTT Communications and our Lead Director; Mick Yamanaka, Executive Vice President, Strategic Relationship Management, Penske Automotive Group. Each of these director nominees has been formally presented. Shane will now introduce our next proposal.

Our second proposal on today's agenda is the ratification of our independent auditing firm. Our Audit Committee has selected Deloitte & Touche to serve as our principal independent auditing firm for 2021, and we have determined to submit the selection of Deloitte & Touche for stockholder ratification today. I hereby put this matter into nominations. Roger?

Thank you, Shane. Our next proposal will be introduced by Bud Denker, Executive Vice President, Human Resources.

Thank you, Roger. The Board of Directors has approved the compensation of executive officers. Today, we are seeking a nonbinding advisory vote to provide shareholders with an opportunity to express their views on our executive compensation. We believe our executive compensation is aligned with increasing the value of our common stock on promoting key strategies, values and long-term financial and operational objectives. I hereby put this matter in the nomination. Roger?

Thank you, Bud. At this time, all 3 proposals have been formally presented the polls. We'll be closing soon. Please cast your ballot, if you've not already done so.

Roger, we have a question from a shareholder. The first question is what permanent changes to Penske Automotive Group operations do you see the pandemic causing?

The answer for that question would be during the pandemic, obviously, starting in April of last year, we moved into furloughing a big portion of our operations. Obviously, many cases were essential. So those people continued to work. We followed the guidelines of the CDC from a standpoint of mass, social distancing throughout all of our operations. We've brought back most of the people back into our workforce today and are operating across 4 continents in 9 countries, still with certain areas such as the U.K., some of our showrooms have been shut down. But obviously, with the turn early in the second quarter, we were able to run our business without any real impact financially. And we have been utilizing CDC rules and local rules and communities to meet the health requirements.

Thank you, Roger. We have one further question. Could you briefly discuss how significant the ship shortage impact may affect Penske Automotive group over the next year?

It's hard to say what will be over the next 12 months. What I can say is that today, our day supply has dropped significantly if you look at it versus the beginning of 2021. Since our mix is primarily in the premium luxury side, we don't have the impact of some of the U.S. auto manufacturers have had and we've been able to deal with the volumes required to meet our customer expectations at least through, we see it through the month of May. We'll probably have some more impact as we look into the third quarter. But on the truck side, we seem to be in good shape from the standpoint of our freight liner businesses. And it's really OEM by OEM, and some of them are reducing certain technical capabilities within the units, so they don't need to use the chips at this point. So I think that we're going to deal with it. It's driven our Used Car business significantly, and also our margins have been impacted due to the ship shortage.

Thank you, Roger. We have no further questions at this time. Thank you.

Before announcing the election results, I'd like to review the company's first quarter results in 2021. We reported an all-time record pretax income, net income and earnings per share for the first quarter of '21 revenue increased 15% to $5.8 billion. Earnings-before-taxes increased 246% and to $248 million. Income from continuing operations increased 254% to $183 million, and earnings per share increased 253% to $2. 26. We further reduced our long-term debt, non-vehicle debt by $109 million, driving our total debt-to-capital to 31.2%. At this time, I'd like to recognize Shane, who will read his report. [Voting]

The votes have been counted. On proposal 1 to elect 13 directors, I'm pleased to report that the nominees received an average of 94% of the total votes cast and each has been elected for a 1 year term. On Proposal 2, ratification of Deloitte & Touche, over 95% of our shareholders voted in favor. And with respect to proposal 3, an advisory vote on executive compensation, over 91% of our stockholders voted for approval, and therefore, each of the measures has been approved. Roger?

Thank you, Shane. Since there's no further business to come before meeting, thank you for your participation and support. The meeting is adjourned.