Penske's Q3 2025 Earnings Call: Contradictions in Dividend Policy, Gross Profit Strategy, Used Vehicle Focus, and Truck Leasing Outlook

Date of Call: October 29, 2025

Financials Results

• Revenue: $7.7 billion, up 1% YOY
• EPS: $3.23 per diluted share (Q3)

Guidance:

• Acquisition pipeline of over $1.5 billion of revenue expected to close in Q4; company expects to meet acquired revenue target for the year.
• Used-vehicle supply: lease returns expected to bottom in 2025 and begin improving in 2026, supporting used inventory and sourcing.
• Energy Solutions (Australia) targeted to generate at least $1 billion in revenue by 2030.
• Anticipated fleet purchase cadence for trucks remains in the ~125–150 range over the next years.

Business Commentary:

* Revenue and EBITDA Trends: - Penske Automotive Group reported revenue of $7.7 billion for Q3 2025, up 1% from Q3 2024. - EBITDA for Q3 was $357 million. - The slight revenue increase was despite challenges such as divestitures and a cyber incident affecting new vehicle deliveries.

• Impact of BEV Sales and Discounts:
• BEV sales penetration reached more than 10% of total sales in Q3, up from 6% to 7% in previous quarters.
• The average discount from MSRP on BEVs was $7,100.

• The higher penetration of BEVs reduced total new vehicle gross per unit by approximately $100.

• Premium Luxury Vehicle Performance:

• The premium luxury segment experienced a 5% increase in revenue.

• Growth was driven by strong demand for certain brands like Lexus, contributing to a 9% increase in premium luxury sales.

• U.K. Operations Challenges:

• The U.K. operations faced a $5 million reduction in EBT due to a cyber incident at Land Rover and higher social program costs.
• The U.K. retail automotive business saw a 7% decline in same-store units due to the cyber incident.

Sentiment Analysis:

Overall Tone: Positive

• Management: "I'm pleased with the performance of PAG during Q3" and "remain confident in our diversified model." Reported Q3 revenue of $7.7B (up 1%) and EPS $3.23; CFO emphasized strong cash flow and reduced leverage, and actions to offset macro headwinds (cost reductions, rightsizing).

Q&A:

• Question from Michael Ward (Citigroup Inc.): Randall, I wanted to clarify something. You mentioned 8 locations with Chinese brands tied into Sytner Select — what were you referring to and which Chinese brands are you working with?
  Response: Sytner Select repurposed eight high-quality locations with minimal capex; launched Chery in 3 locations in October and onboarding Geely at 5 locations in November; also adding BYD and MG at existing German locations.

• Question from Michael Ward (Citigroup Inc.): On the 'Big Beautiful Bill' depreciation incentive, will that have any impact on Q4 demand or is that more of a 2026 story?
  Response: DTNA's Q4 production schedule is already full; the bill helped but the observed orders reflect both the tax incentive and customers locking in tariff pricing, so Q4 deliveries should be consistent with year-to-date levels rather than a material incremental surge.

• Question from Michael Ward (Citigroup Inc.): Shelley, from a cash standpoint is the depreciation incentive still positive for you?
  Response: Yes — the accelerated depreciation provides cash tax deferral and we remain comfortably in a ~125–150 truck purchase cadence over the next three years.

• Question from Rajat Gupta (JPMorgan Chase & Co): On Premier Truck Group (PTG), how much visibility do you have on when the business bottoms and when recovery leverages EBT?
  Response: Freight rates appear to have bottomed but capacity remains excessive; enforcement of two DOT/FMCSA orders could remove capacity and tighten rates next year, supporting a gradual recovery.

• Question from Rajat Gupta (JPMorgan Chase & Co): On U.S. parts and service growth, what's driving the strong performance and is it sustainable?
  Response: Growth driven by aging vehicle fleet/higher mileage, warranty and collision increases, higher technician productivity and digital/AI-driven service efficiencies — management expects these structural drivers to persist.

• Question from Rajat Gupta (JPMorgan Chase & Co): Is the Australian data-center/energy solutions opportunity replicable in the U.S.?
  Response: Australia benefits from exclusive MTU distribution giving scale; U.S. market is fragmented with multiple distributors and direct manufacturer relationships, so it's not a straightforward copy/paste but opportunities are evaluated.

• Question from Jeffrey Lick (Stephens Inc.): How are luxury trends shaping into October/December and where are GPU trends heading given a ~ $300 YoY decline?
  Response: Premium luxury performed well in Q3; GPU decline largely reflects higher BEV mix (~$100 impact) and the JLR delivery/cyber impact (~$60); adjusted GPU is roughly just under $5,000 after addbacks, and constrained JLR supply is supporting hold pricing into Q4.

• Question from Jeffrey Lick (Stephens Inc.): Shelley, where will the ~$150M tax benefit from accelerated depreciation show up and when?
  Response: It's a cash tax deferral that appears in cash flow from operations (change in deferred income taxes positive); it does not affect GAAP income or the tax rate.

• Question from Jeffrey Lick (Stephens Inc.): Is the depreciation benefit retroactive and when did cash effects begin?
  Response: Yes — retroactive to purchases from January 19, 2025; the cash benefit became more visible in the second half of the year after the July 4 effective date.

• Question from David Whiston (Morningstar Inc.): The used GPU rose ~12% to just over $2,100 — how much of that is Sytner versus other factors?
  Response: Management: largely Sytner-driven — Sytner Select and sourcing/aging improvements drove the used GPU gains (Sytner saw ~37% uplift and better margins; franchise used gross also up similarly), with reduced aging and better reconditioning key factors.

Contradiction Point 1

Dividend Policy and Tax Benefits

It involves the company's dividend policy and the impact of the "One Big Beautiful Bill" on cash taxes paid, which are crucial for understanding the company's financial strategy and future distributions to shareholders.

Where will the $150 million tax benefit from the Big Beautiful Bill appear in the P&L? - Jeffrey Lick (Stephens Inc., Research Division)

2025Q3: The benefit will show up in cash flow from operations, reducing cash taxes paid. It is retroactive to January 19 and will impact Q3 and Q4. It does not affect income or tax rates. - Michelle Hulgrave(CFO)

Is the $150 million from the Big Beautiful Bill in addition to dividend income from your equity stake? - Michael Patrick Ward (Citigroup Inc., Research Division)

2025Q2: So we still have the 50% dividend policy that we receive each year. And then the One Big Beautiful Bill, bonus depreciation, in particular, was an item in the Tax Cuts and Jobs Act that was starting to sunset. So we were starting to have to pay more in income taxes from a cash perspective in '24 and projected for '25 when that bonus depreciation was supposed to go away. - Michelle Hulgrave(CFO)

Contradiction Point 2

Gross Profit and Pricing Strategy

It involves the company's gross profit strategy and pricing adjustments, which directly impact financial performance and market positioning.

Can you identify the Chinese brands and explain your collaboration with them at Sytner Select locations? - Michael Ward (Citigroup Inc., Research Division)

2025Q3: We reduced the Sytner Select big box stores to 8 locations, improving inventory and gross profit. We're launching Chinese brands Chery in 3 locations and Geely in 5 others this November. - Randall Seymore(COO of International Operations)

Can you quantify the factors affecting your unit sales in the U.S. and the U.K.? - Michael Patrick Ward (Citigroup Inc., Research Division)

2025Q2: Certainly, we had approximately $200 million of revenue in the quarter in 2024 that we did not have in 2025. We sold and divested of a few stores. We also closed some stores, some of which related to the Sytner Select business in the U.K., as mentioned. - Michelle Hulgrave(CFO)

Contradiction Point 3

Shift in Focus for Used Vehicle Strategy

It highlights changes in the company's strategic focus on the types of used vehicles it aims to sell, which could impact profitability and market positioning.

Can you identify the eight Chinese brands mentioned and clarify the nature of the collaboration at Sytner Select locations? - Michael Ward (Citigroup Inc., Research Division)

2025Q3: We reduced the Sytner Select big box stores to 8 locations, improving inventory and gross profit. We're launching Chinese brands Chery in 3 locations and Geely in 5 others this November. - Randall Seymore(COO)

How does the shift from used to newer vehicles impact GPUs and business strategy? - Daniela Haigian (Morgan Stanley)

2025Q1: Focusing on zero to four-year-old vehicles is profitable. Leasing programs provide a steady source of certified pre-owned vehicles. - Roger Penske(CEO)

Contradiction Point 4

Outlook for the Truck Leasing Business

It involves the company's expectations for its truck leasing business, which is a significant part of its operations and affects financial performance.

What visibility do you have on the recovery at PPG? - Rajat Gupta (JPMorgan Chase & Co, Research Division)

2025Q3: We expect headwinds from gain on sale and interest costs. Lease sales are up, but we're cognizant of potential headwinds. - Roger Penske(CEO)

What is your outlook for the truck leasing business in 2025? - Rajat Gupta (JPMorgan)

2024Q4: We're optimistic about sales in lease, contract maintenance, and logistics. - Roger Penske(CEO)