Asbury Automotive (ABG) Q3 Earnings call transcript Oct 29, 2024

Asbury Automotive Group, a leading automotive retailer, recently held its third quarter 2024 earnings call, shedding light on its financial performance and strategic initiatives. The call, led by CEO David Hult, Senior Vice President of Operations Dan Clara, and Senior Vice President and CFO Michael Welch, highlighted the company's resilience in the face of several challenges, including Hurricane Helene and the ongoing stop sale orders for certain models.

Financial Performance

Asbury Automotive reported a $4.2 billion revenue, a 16% year-over-year increase, with a gross profit of $718 million, up 7%, and a gross profit margin of 16.9%. The company's adjusted earnings per share stood at $6.35 for the quarter, but excluding the impact of Hurricane Helene and various stop sales, the adjusted earnings per share would have been between $6.74 and $6.78 per share. The company also reported a 5.6% adjusted operating margin and a 25.4% adjusted tax rate.

Operational Performance

Operationally, Asbury Automotive saw sequential quarterly growth in used vehicle profitability, with the pace of gross profit decline for new vehicles starting to moderate. The company's parts and service business showed healthy growth, with a gross profit margin of 56.8% for the quarter, an expansion of 144 basis points versus the prior year quarter. Dan Clara, Senior Vice President of Operations, highlighted the progress made in the parts and service business, with same-store parts and service gross profit up 4% for the quarter.

Challenges and Initiatives

The call underscored the challenges faced by the company, particularly the impact of Hurricane Helene and the ongoing stop sale orders for certain Toyota, Lexus, and BMW models. David Hult, CEO, acknowledged the 30% year-over-year new volume declines and over 53% decline in gross profit per vehicle for the 20 Stellantis locations. However, he expressed optimism about the recent aggressive stance on incentives taken by Stellantis, which he hopes will help resolve the excess inventory challenges.

Asbury Automotive also launched a pilot with Tekion in four stores in its shared service center, marking a significant step towards digitalizing its operations and enhancing the customer experience. The company continues to optimize its portfolio, divesting one Chevrolet and one Honda store during the quarter.

Investor Interactions

The call featured insightful interactions between management and key investors, providing valuable insights into the company's strategic initiatives and investor sentiment. Investors expressed concerns about the Stellantis impact, the company's approach to managing used vehicle profitability, and the potential impact of Hurricane Milton. Management responded with transparency, detailing their efforts to mitigate the challenges and capitalize on opportunities.

Looking Ahead

Asbury Automotive is poised for the fourth quarter, with expectations of a positive impact from Hurricane Milton and the launch of Tekion. The company remains committed to optimizing its portfolio, enhancing its digital capabilities, and focusing on operational efficiencies. The management team's confidence in the company's performance, coupled with the strategic initiatives underway, signals a promising outlook for Asbury Automotive Group.