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Penske Provides Business Update as Lockdown Restrictions Ease

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Zacks Equity Research
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Penske Automotive PAG recently updated on the recoveries in its operations from the declines witnessed in March and April, as states continue to ease the shelter-in-place strategies and begin reopening processes, which were imposed due to the coronavirus outbreak.

In the United States, all automotive retail dealership sales and service operations have started to reopen.  As lockdown orders impacted operations in April, new and used unit sales plummeted around 50%, and service and parts gross profit slumped 52% year over year. Significant progress was witnessed in May, with new and used unit sales surging 60%, and service and parts gross profit rising 28%, sequentially. However, new and used unit sales declined roughly 25%, and service and parts gross profit plunged 39%, year over year, in May.

The sales and service operations of the company’s North American commercial truck dealership have also reopened. While new and used unit sales were flat in April, the same decreased 20% in May, year on year, as the Class 8 heavy-duty truck market adjusted from its record level last year. On a same-store basis, new and used units dropped 39% year over year in April and 19% sequentially in May. Service and parts gross profit remains solid with fixed consumption being more than 120% and maintenance orders per day up 7% sequentially in May.

Further, all dealerships in the U.K. had closed in accordance with government order on Mar 24, 2020. Service and part operations resumed in mid-May, with most dealership showrooms reopening on Jun 1, 2020. Despite the lockdown, the company remotely delivered around 2,500 vehicles in May. In addition, the company’s U.K. dealership operations had more than 4,000 vehicles sold through e-commerce efforts, which are scheduled to be delivered this month. Sales have been strong since the resumption of operations and surged about 50% year over year during the first week of June.

All dealerships and service operations in Germany, Italy, Spain and Australia have also begun operations and are increasing from week to week. In Australia, all operations are open and restrictions in the market are being gradually lifted. Mining, transportation, defense and power generation sectors remain resilient, and service revenues were up 8% sequentially in May.

In addition, every component of Penske Transportation Solutions (PTS) delivered positive outcomes in May. New contracts for full-service leases were on par compared with the prior-year period. Contracts for commercial rental utilization improved in May. Further, Penske Logistics continued robust activities in the grocery and home improvement sectors. Revenues from the automotive segment also began to show signs of recovery as OEMs restarted productions. PTS earnings more than tripled sequentially but were down 17% year over year in May.

Zacks Rank & Stocks to Consider

Penske currently carries a Zacks Rank #3 (Hold). Shares of Penske have depreciated 13.7%, year to date, compared with the industry’s decline of 11.2%.

Some better-ranked stocks in the same sector are Tesla, Inc. TSLA, Halfords Group Plc HLFDY and Niu Technologies NIU. While Tesla sports a Zacks Rank of 1 (Strong Buy), Halfords and Niu carry a Zack Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Tesla have soared 124.9%, year to date, as against the industry’s rise of 41.2%.

Shares of Halfords have rallied 14.3%, year to date, as against its industry’s decline of 6.3%.

Shares of Niu have gained 38.2%, year to date, as against the industry’s decline of 6.4%.

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