My Market Wizard

PENSKE AUTOMOTIVE GROUP, INC. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

PENSKE AUTOMOTIVE GROUP, INC.

Filing date:

02/21/2025

TLDR:

Penske Automotive Group’s 2024 revenue increased by 3.1%, but profitability metrics declined. The company faces macroeconomic and competitive risks, but has opportunities in service, commercial vehicle distribution, and acquisitions.

ELI5:

Penske Automotive Group, a car and truck dealer, made slightly more money in sales this year, but their profits were down. They face challenges like the economy and competition, but also have chances to grow by selling more services and buying other companies.

Accession #:

0001019849-25-000022

Published on

Analyst Summary

  • Total revenue increased by 3.1% to $30.5 billion in 2024.
  • Gross profit increased by 1.6% to $5.0 billion.
  • Gross Profit Margin decreased slightly to 16.4% from 16.7% in 2023.
  • Operating Profit Margin decreased to 4.32% from 4.58% in 2023.
  • Net Profit Margin decreased to 3.02% from 3.57% in 2023.
  • Return on Assets (ROA) decreased to 5.52% from 6.75% in 2023.
  • Return on Equity (ROE) decreased to 17.64% from 22.28% in 2023.
  • Basic and Diluted EPS decreased to $13.74 from $15.50 in 2023.
  • Current Ratio decreased to 0.91 from 1.00 in 2023.
  • Quick Ratio decreased to 0.20 from 0.24 in 2023.
  • Debt-to-Equity Ratio decreased slightly to 2.20 from 2.29 in 2023.
  • Interest Coverage Ratio decreased to 4.74 from 6.00 in 2023.
  • Inventory Turnover decreased slightly to 5.71 from 5.79 in 2023.
  • Equity in earnings of affiliates decreased from $293.7 million in 2023 to $200.7 million in 2024, a decrease of 31.7%.

Opportunities and Risks

  • Macroeconomic Conditions: Economic downturns, inflation, and interest rate hikes could negatively impact vehicle sales and profitability.
  • Manufacturer Dependence: PAG relies heavily on key manufacturers, and their actions (e.g., franchise terminations, changes in vehicle supply) could significantly affect PAG’s business.
  • Competition: Increased competition from online retailers and direct sales by manufacturers could erode market share.
  • Vehicle Emissions Regulations: Stricter emissions standards and mandates for electric vehicles could increase vehicle costs and impact consumer demand.
  • Cybersecurity: The CDK Cybersecurity Incident highlights the vulnerability of PAG’s IT systems and the potential for significant disruptions and financial losses.
  • U.K. Regulatory Issues: The FCA investigation into discretionary commission arrangements and the U.K. Court of Appeal judgment on commission disclosures could lead to financial liabilities.
  • Service and Parts Demand: Increasing vehicle complexity and miles driven could drive demand for service and parts operations.
  • Commercial Vehicle Distribution: Growth in power system operations and demand for commercial vehicles in Australia and New Zealand present opportunities.
  • Electric Vehicle Servicing: Increasing EV adoption could create new service opportunities, although service revenue per vehicle may decline.
  • Acquisitions: Continued strategic acquisitions could expand PAG’s market presence and diversify its revenue streams.

Potential Implications

Company Performance

  • Monitor Margin Pressures: Closely track gross profit margins across all segments and implement strategies to mitigate the impact of increased competition and changing consumer preferences.
  • Diversify Revenue Streams: Continue to diversify revenue streams through strategic acquisitions and expansion into new markets.
  • Invest in Cybersecurity: Enhance cybersecurity measures to protect against cyber-attacks and data breaches.
  • Manage Regulatory Risks: Actively monitor and manage regulatory risks, particularly in the U.K., related to commission arrangements and emissions standards.
  • Assess PTS Performance: Closely monitor the performance of Penske Transportation Solutions and identify strategies to improve its profitability in the face of weaker freight conditions and higher interest rates.

Penske Automotive Group, Inc. (PAG) 10-K Filing Analysis – FY 2024

Executive Summary

This report analyzes Penske Automotive Group, Inc.’s (PAG) 10-K filing for the fiscal year ended December 31, 2024. PAG is a diversified international transportation services company and one of the world’s premier automotive and commercial truck retailers. The analysis focuses on key financial metrics, management’s discussion, and identified risks and opportunities. While PAG demonstrated revenue growth, profitability metrics warrant careful consideration. A HOLD rating is recommended, pending further assessment of margin pressures and macroeconomic factors.

Company Overview

Penske Automotive Group, Inc. operates retail automotive and commercial truck dealerships, and also has commercial vehicle distribution and other operations. Key business segments include Retail Automotive, Retail Commercial Truck, and Commercial Vehicle Distribution and Other. PAG also holds a significant ownership stake in Penske Transportation Solutions (PTS), accounted for under the equity method.

Detailed Analysis

Financial Statement Analysis

Revenue and Gross Profit

Total revenue increased by 3.1% to $30.5 billion in 2024. Gross profit increased by 1.6% to $5.0 billion. However, growth rates varied across segments.

Key Ratios:

  • Gross Profit Margin: 16.4% (2024) vs. 16.7% (2023) – A slight decrease indicates potential margin pressure.

Segment Performance

Retail Automotive: Revenue increased, but gross profit decreased, indicating margin compression. Same-store new vehicle unit sales decreased slightly, while average gross profit per new vehicle also declined.

Retail Commercial Truck: Revenue decreased slightly, and same-store unit sales decreased significantly. However, average gross profit per new truck increased, partially offsetting the unit sales decline. The CDK Cybersecurity Incident impacted PTG’s operations.

Commercial Vehicle Distribution and Other: Revenue and gross profit increased significantly, driven by higher service and parts sales and power generation unit sales.

Non-Automotive Investments (PTS): Equity earnings decreased significantly, attributed to weaker freight conditions and higher interest rates impacting PTS’s performance.

Balance Sheet

Key Observations:

  • Inventories increased, potentially indicating slower turnover or anticipation of future demand.
  • Goodwill and other indefinite-lived intangible assets increased, reflecting recent acquisitions.
  • Long-term debt decreased slightly.

Cash Flow Statement

Key Observations:

  • Operating cash flow increased slightly.
  • Investing activities used more cash due to acquisitions.
  • Financing activities used less cash, primarily due to decreased share repurchases.

Management’s Discussion and Analysis (MD&A)

Management acknowledged the impact of macroeconomic factors, including inflation and interest rates, on consumer demand and affordability. They also highlighted the challenges and opportunities presented by the evolving automotive landscape, including the increasing adoption of electric vehicles and changes in the retail delivery model.

Risks and Opportunities

Risks

  • Macroeconomic Conditions: Economic downturns, inflation, and interest rate hikes could negatively impact vehicle sales and profitability.
  • Manufacturer Dependence: PAG relies heavily on key manufacturers, and their actions (e.g., franchise terminations, changes in vehicle supply) could significantly affect PAG’s business.
  • Competition: Increased competition from online retailers and direct sales by manufacturers could erode market share.
  • Vehicle Emissions Regulations: Stricter emissions standards and mandates for electric vehicles could increase vehicle costs and impact consumer demand.
  • Cybersecurity: The CDK Cybersecurity Incident highlights the vulnerability of PAG’s IT systems and the potential for significant disruptions and financial losses.
  • U.K. Regulatory Issues: The FCA investigation into discretionary commission arrangements and the U.K. Court of Appeal judgment on commission disclosures could lead to financial liabilities.

Opportunities

  • Service and Parts Demand: Increasing vehicle complexity and miles driven could drive demand for service and parts operations.
  • Commercial Vehicle Distribution: Growth in power system operations and demand for commercial vehicles in Australia and New Zealand present opportunities.
  • Electric Vehicle Servicing: Increasing EV adoption could create new service opportunities, although service revenue per vehicle may decline.
  • Acquisitions: Continued strategic acquisitions could expand PAG’s market presence and diversify its revenue streams.

Uncommon Metrics

  • Fixed Absorption Ratio (PTG): 125.0% (2024) vs. 129.2% (2023) – A slight decrease, but still strong, indicating the ability of the parts and service departments to cover overhead expenses.

Conclusion and Actionable Insights

Penske Automotive Group demonstrated revenue growth in 2024, but profitability metrics, particularly gross profit margin, warrant careful monitoring. The company faces risks related to macroeconomic conditions, manufacturer dependence, competition, and regulatory changes. However, opportunities exist in service and parts, commercial vehicle distribution, and strategic acquisitions.

Recommendations:

  • Monitor Margin Pressures: Closely track gross profit margins across all segments and implement strategies to mitigate the impact of increased competition and changing consumer preferences.
  • Diversify Revenue Streams: Continue to diversify revenue streams through strategic acquisitions and expansion into new markets.
  • Invest in Cybersecurity: Enhance cybersecurity measures to protect against cyber-attacks and data breaches.
  • Manage Regulatory Risks: Actively monitor and manage regulatory risks, particularly in the U.K., related to commission arrangements and emissions standards.
  • Assess PTS Performance: Closely monitor the performance of Penske Transportation Solutions and identify strategies to improve its profitability in the face of weaker freight conditions and higher interest rates.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Ratio/Metric: Gross Profit / Total Revenues = $5,013.3 / $30,455.2 = 16.46%
    • Trend: 16.46% vs. 4,933.8 / 29,527.4 = 16.71% in 2023. Percentage Change: (16.46 – 16.71) / 16.71 = -1.49%
    • Industry: The average gross profit margin for automotive retailers typically ranges from 10% to 20%. Penske’s margin is within this range.
  • Operating Profit Margin:

    • Ratio/Metric: Operating Income / Total Revenues = $1,316.8 / $30,455.2 = 4.32%
    • Trend: 4.32% vs. 1,351.5 / 29,527.4 = 4.58% in 2023. Percentage Change: (4.32 – 4.58) / 4.58 = -5.68%
    • Industry: Typical operating margins for auto retailers are between 2% and 5%. Penske’s is within this range.
  • Net Profit Margin:

    • Ratio/Metric: Net Income Attributable to Penske Automotive Group Common Stockholders / Total Revenues = $918.9 / $30,455.2 = 3.02%
    • Trend: 3.02% vs. 1,053.2 / 29,527.4 = 3.57% in 2023. Percentage Change: (3.02 – 3.57) / 3.57 = -15.41%
    • Industry: Net profit margins for auto retailers are typically between 1% and 3%. Penske’s is slightly above this range.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Income / Total Assets = $923.4 / $16,720.9 = 5.52%
    • Trend: 5.52% vs. 1,058.6 / 15,671.5 = 6.75% in 2023. Percentage Change: (5.52 – 6.75) / 6.75 = -18.22%
    • Industry: An average ROA for the automotive retail industry is around 3-5%. Penske’s ROA is above average.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Income Attributable to Penske Automotive Group Common Stockholders / Total Penske Automotive Group Stockholders’ Equity = $918.9 / $5,209.8 = 17.64%
    • Trend: 17.64% vs. 1,053.2 / 4,726.2 = 22.28% in 2023. Percentage Change: (17.64 – 22.28) / 22.28 = -20.82%
    • Industry: An average ROE for the automotive retail industry is around 10-15%. Penske’s ROE is above average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Basic EPS = $13.74, Diluted EPS = $13.74
    • Trend: Basic and Diluted EPS were both $15.50 in 2023. Percentage Change: (13.74 – 15.50) / 15.50 = -11.35%
    • Industry: EPS varies widely based on company performance and market conditions.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Total Current Assets / Total Current Liabilities = $5,927.8 / $6,485.9 = 0.91
    • Trend: 0.91 vs. 5,679.7 / 5,657.9 = 1.00 in 2023. Percentage Change: (0.91 – 1.00) / 1.00 = -9.00%
    • Industry: A current ratio of 1 or higher is generally considered healthy. Penske’s is slightly below 1.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Total Current Assets – Inventories) / Total Current Liabilities = ($5,927.8 – $4,640.2) / $6,485.9 = 0.20
    • Trend: 0.20 vs. (5,679.7 – 4,293.1) / 5,657.9 = 0.24 in 2023. Percentage Change: (0.20 – 0.24) / 0.24 = -16.67%
    • Industry: A quick ratio of around 0.5 or higher is generally considered healthy. Penske’s is below this.
  • Cash Ratio:

    • Ratio/Metric: Cash and Cash Equivalents / Total Current Liabilities = $72.4 / $6,485.9 = 0.01
    • Trend: 0.01 vs. 96.4 / 5,657.9 = 0.02 in 2023. Percentage Change: (0.01 – 0.02) / 0.02 = -50.00%
    • Industry: A cash ratio of 0.1 or higher is generally considered healthy. Penske’s is below this.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Liabilities / Total Equity = $11,493.6 / $5,227.3 = 2.20
    • Trend: 2.20 vs. 10,915.9 / 4,755.6 = 2.29 in 2023. Percentage Change: (2.20 – 2.29) / 2.29 = -3.93%
    • Industry: A debt-to-equity ratio of 1 to 2 is generally considered acceptable. Penske’s is slightly above this range.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Liabilities / Total Assets = $11,493.6 / $16,720.9 = 0.69
    • Trend: 0.69 vs. 10,915.9 / 15,671.5 = 0.70 in 2023. Percentage Change: (0.69 – 0.70) / 0.70 = -1.43%
    • Industry: A debt-to-assets ratio of around 0.5 or lower is generally considered healthy. Penske’s is above this.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: Operating Income / (Floor Plan Interest Expense + Other Interest Expense) = $1,316.8 / ($189.8 + $87.8) = 4.74
    • Trend: 4.74 vs. 1,351.5 / (133.1 + 92.6) = 6.00 in 2023. Percentage Change: (4.74 – 6.00) / 6.00 = -20.94%
    • Industry: A ratio of 3 or higher is generally considered healthy. Penske’s is above this.

Activity/Efficiency

  • Inventory Turnover:

    • Ratio/Metric: Cost of Sales / Average Inventory = $25,441.9 / (($4,640.2 + $4,293.1) / 2) = 5.71
    • Trend: 5.71 vs. 24,593.6 / ((4,293.1 + 4,196.6) / 2) = 5.79 in 2023. Percentage Change: (5.71 – 5.79) / 5.79 = -1.38%
    • Industry: Inventory turnover varies depending on the type of vehicles sold.
  • Days Sales Outstanding (DSO):

    • Ratio/Metric: (Accounts Receivable / Total Revenues) * 365 = ($1,002.1 / $30,455.2) * 365 = 11.99 days
    • Trend: 11.99 vs. (1,114.6 / 29,527.4) * 365 = 13.78 days in 2023. Percentage Change: (11.99 – 13.78) / 13.78 = -13.00%
    • Industry: DSO varies depending on the company’s credit terms and customer base.
  • Days Payable Outstanding (DPO):

    • Ratio/Metric: (Accounts Payable / Cost of Sales) * 365 = ($851.7 / $25,441.9) * 365 = 12.20 days
    • Trend: 12.20 vs. (866.9 / 24,593.6) * 365 = 12.87 days in 2023. Percentage Change: (12.20 – 12.87) / 12.87 = -5.20%
    • Industry: DPO varies depending on the company’s payment terms with its suppliers.
  • Asset Turnover:

    • Ratio/Metric: Total Revenues / Total Assets = $30,455.2 / $16,720.9 = 1.82
    • Trend: 1.82 vs. 29,527.4 / 15,671.5 = 1.88 in 2023. Percentage Change: (1.82 – 1.88) / 1.88 = -3.19%
    • Industry: Asset turnover varies depending on the industry.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Stock Price / EPS = $162.37 / $13.74 = 11.82
    • Industry: The P/E ratio varies widely based on market conditions and investor sentiment.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Market Cap / Total Penske Automotive Group Stockholders’ Equity = (66,774,651 * $162.37) / $5,209,800,000 = 2.08
    • Industry: The P/B ratio varies depending on the industry and company’s financial performance.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Total Revenues = (66,774,651 * $162.37) / $30,455,200,000 = 0.36
    • Industry: The P/S ratio varies depending on the industry and company’s financial performance.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: EV = Market Cap + Total Debt – Cash and Equivalents = (66,774,651 * $162.37) + $1,852,000,000 – $72,400,000 = $12,698,788,859
      EBITDA = Net Income + Interest Expense + Taxes + Depreciation + Amortization = $923.4 + $189.8 + $87.8 + $316.5 + $158.0 = $1,675.5
      EV/EBITDA = $12,698.79 / $1,675.5 = 7.58
    • Industry: The EV/EBITDA ratio varies depending on the industry and company’s financial performance.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($30,455.2 – $29,527.4) / $29,527.4 = 3.14%
    • Industry: Revenue growth varies widely based on market conditions and company strategy.
  • Net Income Growth:

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($923.4 – $1,058.6) / $1,058.6 = -12.77%
    • Industry: Net income growth varies widely based on market conditions and company strategy.
  • EPS Growth:

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($13.74 – $15.50) / $15.50 = -11.35%
    • Industry: EPS growth varies widely based on market conditions and company strategy.

Other Relevant Metrics

  • Securities Repurchases: The company repurchased shares during November and December 2024. As of December 31, 2024, $156.8 million remained outstanding and available for repurchases under the securities repurchase program. This indicates a commitment to returning value to shareholders.
  • Equity in Earnings of Affiliates: Equity in earnings of affiliates decreased from $293.7 million in 2023 to $200.7 million in 2024, a decrease of 31.7%. This suggests a decline in the profitability of the company’s equity method investments.

Commentary

Penske Automotive Group’s financial performance in 2024 shows a mixed picture. While revenue increased slightly, profitability metrics such as operating margin, net profit margin, ROA, ROE, and EPS all decreased compared to the previous year. The company maintains a high level of debt, as indicated by the debt-to-equity and debt-to-assets ratios, but the interest coverage ratio remains adequate. The company continues to return value to shareholders through share repurchases and dividends, although repurchase activity decreased significantly in 2024. Overall, the company’s financial health appears stable, but the decline in profitability warrants further investigation.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️