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Why Is Penske (PAG) Down 7.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Penske Automotive (PAG). Shares have lost about 7.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Penske due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Penske Automotive Lags Q2 Earnings & Revenue Estimates

Penske Automotive Group, Inc. reported second-quarter 2019 adjusted earnings per share of $1.42 compared with $1.58 recorded in the year-ago quarter. Also, the bottom line missed the Zacks Consensus Estimate of $1.59.

During the reported quarter, income from continuing operations attributable to common shares was $117.7 million compared with $134.6 million in the prior-year quarter.

Penske Automotive, which belongs to the Retail and Whole Sales industry, posted revenues of $5.76 billion for the quarter ended June 2019. The figure declined from the year-ago quarter’s level of $5.94 billion. Further, it missed the Zacks Consensus Estimate of $5.93 billion. The company has not been able to beat the consensus mark for revenues in the last four quarters.

Same-store retail unit sale fell 4.4% year over year to 125,951. Within the retail automotive segment, new-vehicle revenues declined 8.6% year over year to $2.3 billion while used-vehicle revenues fell 2.3% to $1.8 billion.

The company’s gross profit declined to $867.8 million from $889.8 million in the prior-year quarter. During the quarter under review, operating income fell 9% to $171.8 million.

The company operates under three segments — Retail Automotive, Retail Commercial Trucks and Commercial Vehicles Australia/Power Systems and Other.

Revenues in the Retail Automotive fell to $5.2 billion from $5.5 billion in the year-ago quarter.

Revenues in the Retail Commercial Trucks increased to $426.8 million from $338.8 million in the year-ago quarter.

Revenues in the Commercial Vehicles Australia/Power Systems and Other declined to $132.7 million from $146 million in the prior-year quarter.

Financial Position

Penske Automotive had cash and cash equivalents of $43.8 million as of Jun 30, 2019, up from $39.4 million recorded as of Dec 31, 2018. As of Jun 30, long-term debt was $2.1 million, in line with the figure as of Dec 31, 2018.

Dividend and Share Repurchase

On Jul 17, the company announced that its Board of Directors increased the dividend to its common stock shareholders to 40 cents per share. This marked the 33rd consecutive increase in quarterly dividend.

In second-quarter 2019, the company repurchased 1,706,866 shares for $76.2 million or an average of $43.66 per share. As of Jun 30, it had roughly $74.4 million available under the existing share repurchase authorization.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, Penske has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Penske has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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