Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ABG > SEC Filings for ABG > Form 10-Q on 24-Oct-2013All Recent SEC Filings

Show all filings for ASBURY AUTOMOTIVE GROUP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ASBURY AUTOMOTIVE GROUP INC


24-Oct-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation

Forward-Looking Information
Certain of the discussions and information included in this report may constitute "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are statements that are not historical in nature and may include statements relating to our goals, plans and projections regarding industry and general economic trends, our expected financial position, results of operations or market position and our business strategy. Such statements can generally be identified by words such as "may," "target," "could," "would," "will," "should," "believe," "expect," "anticipate," "plan," "intend," "foresee" and other similar words or phrases. Forward-looking statements may also relate to our expectations and assumptions with respect to, among other things:

our ability to execute our business strategy;

our ability to further improve our operating cash flows, and the availability of capital and liquidity;


Table of Contents

our estimated future capital expenditures;

the duration of the economic recovery process and its impact on our revenues and expenses;

our parts and service revenue due to, among other things, improvements in manufacturing quality, manufacturer recalls, the recently lower than historical seasonally adjusted annual rate ("SAAR") of new vehicle sales in the U.S. and any changes in business strategy and government regulations;

the variable nature of significant components of our cost structure;

our ability to decrease our exposure to regional economic downturns due to our geographic diversity and brand mix;

manufacturers' willingness to continue to use incentive programs to drive demand for their product offerings;

our ability to leverage our common systems, infrastructure and processes in a cost-efficient manner;

our acquisition and divestiture strategies;

the continued availability of financing, including floor plan financing for inventory;

the ability of consumers to secure vehicle financing, including at favorable rates;

the growth of mid-line import and luxury brands over the long-term;

our ability to mitigate any future negative trends in new vehicle sales; and

our ability to increase our net income as a result of the foregoing and other factors.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual future results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, but are not limited to:

our ability to execute our balanced automotive retailing and service business strategy;

changes in the mix, and total number, of vehicles we are able to sell;

changes in general economic and business conditions, including changes in consumer confidence levels, interest rates, consumer credit availability and employment levels;

changes in laws and regulations governing the operation of automobile franchises, including trade restrictions, consumer protections, accounting standards, taxation requirements and environmental laws;

changes in the price of oil and gasoline;

our ability to generate sufficient cash flows, maintain our liquidity and obtain additional funds for working capital, capital expenditures, acquisitions, debt maturities and other corporate purposes, if necessary;

our continued ability to comply with applicable covenants in various of our financing and lease agreements, or to obtain waivers of these covenants as necessary;

our relationships with, and the reputation and financial health and viability of, the vehicle manufacturers whose brands we sell, and their ability to design, manufacture, deliver and market their vehicles successfully;

significant disruptions in the production and delivery of vehicles and parts for any reason, including natural disasters, product recalls, work stoppages or other occurrences that are outside of our control;

adverse results from litigation or other similar proceedings involving us;

our relationships with, and the financial stability of, our lenders and lessors;

our ability to execute our initiatives and other strategies;

high levels of competition in our industry, which may create pricing and margin pressures on our products and services;

our ability to renew, and enter into new, framework and dealer agreements with vehicle manufacturers whose brands we sell, on terms acceptable to us;

our ability to attract and to retain key personnel;


Table of Contents

our ability to leverage gains from our dealership portfolio; and

significant disruptions in the financial markets, which may impact our ability to access capital.

Many of these factors are beyond our ability to control or predict, and their ultimate impact could be material. Moreover, the factors set forth in the discussion and analysis below and under Item 1A entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012 and other cautionary statements made in this report should be read and considered as forward-looking statements subject to such uncertainties. Forward-looking statements speak only as of the date they are made, and we assume no obligation to update any forward-looking statements.

OVERVIEW
We are one of the largest automotive retailers in the United States, operating 100 franchises (79 dealership locations) in 18 metropolitan markets within 10 states as of September 30, 2013. We offer an extensive range of automotive products and services, including new and used vehicles; vehicle maintenance, replacement parts and collision repair services; and financing, insurance and service contracts. As of September 30, 2013, we offered 29 domestic and foreign brands of new vehicles. Our current brand mix is weighted 87% towards luxury and mid-line import brands, with the remaining 13% consisting of domestic brands. We also operate 24 collision repair centers that serve customers in our local markets.
Our retail network is made up of dealerships operating primarily under the following locally-branded dealership groups:

Coggin dealerships, operating primarily in Jacksonville, Fort Pierce and Orlando, Florida;

Courtesy dealerships operating in Tampa, Florida;

Crown dealerships operating in New Jersey, North Carolina, South Carolina and Virginia;

Nalley dealerships operating in metropolitan Atlanta, Georgia;

McDavid dealerships operating in Austin, Dallas and Houston, Texas;

North Point dealerships operating in the Little Rock, Arkansas area;

Plaza dealerships operating in metropolitan St. Louis, Missouri; and

Gray-Daniels dealerships operating in the Jackson, Mississippi area.

Our revenues are derived primarily from: (i) the sale of new vehicles to individual retail customers ("new vehicle retail") and commercial customers ("fleet") (the terms "new vehicle retail" and "fleet" being together referred to as "new"); (ii) the sale of used vehicles to individual retail customers ("used retail") and to other dealers at auction ("wholesale") (the terms "used retail" and "wholesale" being together referred to as "used"); (iii) maintenance and collision repair services and the sale of automotive parts (together referred to as "parts and service"); and (iv) the arrangement of vehicle financing and the sale of a number of aftermarket products, such as insurance and service contracts (collectively referred to as "F&I"). We evaluate the results of our new and used vehicle sales based on unit volumes and gross profit per vehicle sold, our parts and service operations based on aggregate gross profit, and F&I based on dealership generated F&I gross profit per vehicle sold. We assess the organic growth of our revenue and gross profit by comparing the year-to-year results of stores that we have operated for at least twelve full months ("same store").
Our organic growth is dependent upon the execution of our balanced automotive retailing and service business strategy, the continued strength of our brand mix and the production of desirable vehicles by automobile manufacturers whose brands we sell. Our vehicle sales have historically fluctuated with product availability as well as local and national economic conditions, including consumer confidence, availability of consumer credit, fuel prices and employment levels. We believe that the impact on our business of any future negative trends in new vehicle sales would be partially mitigated by (i) the expected relative stability of our parts and service operations over the long-term, (ii) the variable nature of significant components of our cost structure and (iii) our brand mix. Historically, our brand mix has been less affected by market volatility than the U.S. automobile industry as a whole. We believe that our new vehicle revenue brand mix, which included approximately 49% of revenue from mid-line import brands and 38% of revenue from luxury brands in the third quarter of 2013, is well positioned for growth over the long term.

Our operating results are generally subject to changes in the economic environment as well as seasonal variations. Historically, we have generated more revenue and operating income in the second and third quarters than in the first and fourth quarters of the calendar year. Generally, the seasonal variations in our operations are caused by factors related to weather conditions, changes in manufacturer incentive programs, model changeovers and consumer buying patterns, among other things.


Table of Contents

Our gross profit margin varies with our revenue mix. The sale of new vehicles generally results in lower gross profit margin than used vehicle sales and sales of parts and service. As a result, when used vehicle and parts and service revenue increase as a percentage of total revenue, we expect our overall gross profit margin to increase.
Selling, general and administrative ("SG&A") expenses consist primarily of fixed and incentive-based compensation, advertising, rent, insurance, utilities and other customary operating expenses. A significant portion of our cost structure is variable (such as sales commissions), or controllable (such as advertising), generally allowing us to adapt to changes in the retail environment over the long-term. We evaluate commissions paid to salespeople as a percentage of retail vehicle gross profit and all other SG&A expenses in the aggregate as a percentage of total gross profit, with the exception of advertising expense, which we evaluate on a per vehicle retailed ("PVR") basis.

The United States automotive retail market showed continued improvement through the third quarter of 2013, with new vehicle SAAR increasing to 15.5 million during the third quarter of 2013 as compared to 14.3 million during the third quarter of 2012. We continued to benefit from improving economic conditions in the first nine months of 2013, which we attribute to improved consumer confidence, the continued availability of credit at terms favorable to consumers resulting primarily from the current low interest rate environment, gradually improving unemployment and the increasing age of the U.S. automotive fleet. We believe that the overall economic recovery will continue to be fragile, and may be subject to further changes based on consumer confidence, interest rates, unemployment levels and other macro-economic factors as the long-term prospects for, and the timing of, a return to a stronger economy continue to be difficult to predict.
We had total available liquidity of $272.4 million as of September 30, 2013, which consisted of cash and cash equivalents of $1.3 million, borrowing availability of $235.3 million under our revolving credit facilities and $35.8 million of availability under our floor plan offset account. For further discussion of our liquidity, please refer to "Liquidity and Capital Resources" below.


Table of Contents

RESULTS OF OPERATIONS
Three Months Ended September 30, 2013 Compared to the Three Months Ended
September 30, 2012

                                              For the Three Months Ended
                                                     September 30,                Increase         %
                                                2013                2012         (Decrease)      Change
                                                   (Dollars in millions, except per share data)
REVENUES:
New vehicle                               $      759.7         $      672.3     $     87.4          13  %
Used vehicle                                     421.6                333.0           88.6          27  %
Parts and service                                154.0                141.8           12.2           9  %
Finance and insurance, net                        54.7                 44.0           10.7          24  %
Total revenues                                 1,390.0              1,191.1          198.9          17  %
GROSS PROFIT:
New vehicle                                       46.3                 41.8            4.5          11  %
Used vehicle                                      30.3                 25.9            4.4          17  %
Parts and service                                 94.0                 82.5           11.5          14  %
Finance and insurance, net                        54.7                 44.0           10.7          24  %
Total gross profit                               225.3                194.2           31.1          16  %
OPERATING EXPENSES:
Selling, general and administrative              159.7                140.0           19.7          14  %
Depreciation and amortization                      6.2                  5.5            0.7          13  %
Other operating expense (income), net              1.4                 (0.5 )          1.9          NM
Income from operations                            58.0                 49.2            8.8          18  %
OTHER EXPENSES:
Floor plan interest expense                       (2.9 )               (2.9 )            -           -  %
Other interest expense, net                      (11.1 )               (8.7 )          2.4          28  %
Swap interest expense                             (0.1 )               (1.3 )         (1.2 )       (92 )%
Convertible debt discount amortization               -                 (0.1 )         (0.1 )        NM
Loss on extinguishment of long-term debt          (6.8 )                  -            6.8          NM
Total other expense, net                         (20.9 )              (13.0 )          7.9          61  %
Income before income taxes                        37.1                 36.2            0.9           2  %
INCOME TAX EXPENSE                                14.3                 13.6            0.7           5  %
INCOME FROM CONTINUING OPERATIONS                 22.8                 22.6            0.2           1  %
DISCONTINUED OPERATIONS, net of tax               (0.1 )               (1.9 )          1.8          95  %
NET INCOME                                $       22.7         $       20.7     $      2.0          10  %
Income from continuing operations per
common share-Diluted                      $       0.73         $       0.72     $     0.01           1  %
Net income per common share-Diluted       $       0.73         $       0.66     $     0.07          11  %


______________________________
NM-Not Meaningful

                                       19
--------------------------------------------------------------------------------
  Table of Contents

                                                            For the Three Months Ended September 30,
                                                                    2013                   2012
REVENUE MIX PERCENTAGES:
New vehicles                                                          54.7  %             56.4  %
Used retail vehicles                                                  26.7  %             23.5  %
Used vehicle wholesale                                                 3.6  %              4.5  %
Parts and service                                                     11.1  %             11.9  %
Finance and insurance, net                                             3.9  %              3.7  %
Total revenue                                                        100.0  %            100.0  %
GROSS PROFIT MIX PERCENTAGES:
New vehicles                                                          20.6  %             21.5  %
Used retail vehicles                                                  13.9  %             13.5  %
Used vehicle wholesale                                                (0.5 )%             (0.2 )%
Parts and service                                                     41.7  %             42.5  %
Finance and insurance, net                                            24.3  %             22.7  %
Total gross profit                                                   100.0  %            100.0  %
SG&A EXPENSES AS A PERCENTAGE OF GROSS PROFIT                         70.9  %             72.1  %

Net income and income from continuing operations increased by $2.0 million (10%) and $0.2 million (1%), respectively, in the third quarter of 2013 as compared to the third quarter of 2012. The increase in income from continuing operations was primarily the result of a $31.1 million (16%) increase in gross profit, which was partially offset by (i) a $19.7 million (14%) increase in SG&A expenses,
(ii) a $6.8 million loss on the redemption of the 7.625% Senior Subordinated Notes due 2017 (the "7.625% Notes"), (iii) a $1.9 million increase in other operating expense, net and (iv) a 2.4 million (28%) increase in other interest expense, net. Net income and income from continuing operations for the third quarter of 2013 were reduced by $1.3 million, net of tax, due to real estate related charges. On a pre-tax basis, these charges totaled $2.1 million and are included in Other Operating Expense, net. Gross profit increased across all four of our business lines and was driven by
(i) an $11.5 million (14%) increase in parts and service gross profit, (ii) a $10.7 million (24%) increase in F&I gross profit, (iii) a $4.5 million (11%) increase in new vehicle gross profit and (iv) a $4.4 million (17%) increase in used vehicle gross profit. Our total gross profit margin decreased 10 basis points to 16.2%. In reviewing the contributions of our business lines to our overall gross profit, we experienced a 160 basis point increase in our finance and insurance business and a 40 basis point increase in our used retail business, which were partially offset by a 90 basis point decrease in our new vehicle business and an 80 basis point decrease in our parts and service business. The $198.9 million (17%) increase in total revenue was primarily a result of (i) an $87.4 million (13%) increase in new vehicle revenue and (ii) an $88.6 million (27%) increase in used vehicle revenue.


Table of Contents

New Vehicle-
                                               For the Three Months Ended
                                                     September 30,                Increase            %
                                                  2013             2012          (Decrease)         Change
                                                   (Dollars in millions, except for per vehicle data)
Revenue:
New vehicle revenue-same store(1)
Luxury                                       $       279.6     $    245.6     $       34.0             14  %
Mid-line import                                      360.5          332.4             28.1              8  %
Mid-line domestic                                     99.6           94.3              5.3              6  %
Total new vehicle revenue-same store(1)              739.7          672.3             67.4             10  %
New vehicle revenue-acquisitions                      20.0              -
New vehicle revenue, as reported             $       759.7     $    672.3     $       87.4             13  %
Gross profit:
New vehicle gross profit-same store(1)
Luxury                                       $        20.2     $     18.4     $        1.8             10  %
Mid-line import                                       18.3           16.8              1.5              9  %
Mid-line domestic                                      6.4            6.6             (0.2 )           (3 )%
Total new vehicle gross profit-same store(1)          44.9           41.8              3.1              7  %
New vehicle gross profit-acquisitions                  1.4              -
New vehicle gross profit, as reported        $        46.3     $     41.8     $        4.5             11  %

                                               For the Three Months Ended
                                                     September 30,                Increase            %
                                                  2013             2012          (Decrease)         Change
New vehicle units:
New vehicle retail units-same store(1)
Luxury                                               5,692          5,020              672             13  %
Mid-line import                                     13,533         12,642              891              7  %
Mid-line domestic                                    2,747          2,595              152              6  %
Total new vehicle retail units-same store(1)        21,972         20,257            1,715              8  %
Fleet vehicles                                         242            537             (295 )          (55 )%
Total new vehicle units-same store(1)               22,214         20,794            1,420              7  %
New vehicle units-acquisitions                         673              -
New vehicle units-actual                            22,887         20,794            2,093             10  %



New Vehicle Metrics-
                                                    For the Three Months Ended
                                                          September 30,                                             %
                                                      2013               2012          Increase (Decrease)       Change
Revenue per new vehicle sold-same store(1)      $     33,299         $    32,331     $           968                 3  %
Gross profit per new vehicle sold-same store(1) $      2,021         $     2,010     $            11                 1  %

New vehicle gross margin-same store(1) 6.1 % 6.2 % (0.1 )% (2 )%



(1) Same store amounts consist of information from dealerships for the identical months of each period presented in the comparison, commencing with the first full month in which the dealership was owned by us.

The $87.4 million (13%) increase in new vehicle revenue was primarily a result of a 7% increase in same store new vehicle unit sales, combined with a 3% increase in same store revenue per new vehicle sold. Our total new vehicle revenue also benefited from $20.0 million derived from acquisitions. Same store unit volumes for our luxury and mid-line import brand segments increased by 13% and 7%, respectively, reflecting (i) a general increase in consumer demand, (ii) the continued availability of credit at terms favorable to our customers and
(iii) the availability of new vehicle inventory from which to choose.


Table of Contents

Unit volumes from our domestic brands also increased 6% on a same store basis. New vehicle SAAR increased by 8% to 15.5 million for the third quarter of 2013 as compared to 14.3 million for the third quarter of 2012, which contributed to the unit volume increases in each of our three brand segments.
Total new vehicle gross profit increased by $4.5 million (11%), driven by a 7% increase in same store new vehicle unit sales but partially offset by a 2% decrease in our same store gross profit margin. Gross profit derived from our acquisitions contributed $1.4 million to the increase in gross profit during the quarter. Our same store gross profit per new vehicle sold increased to $2,021, an $11 (1%) increase over the same period in 2012. Our margins in the near future are expected to be primarily dependent upon market-based forces of supply and demand.

Used Vehicle-
                                           For the Three Months Ended September
                                                           30,                                                    %
                                                 2013                2012            Increase (Decrease)       Change
                                                        (Dollars in millions, except for per vehicle data)
Revenue:
Used vehicle retail revenues-same store(1) $      359.3         $      279.3       $             80.0             29  %
Used vehicle retail revenues-acquisitions          11.8                    -
Total used vehicle retail revenues                371.1                279.3                     91.8             33  %

Used vehicle wholesale revenues-same
store(1)                                           49.7                 53.7                     (4.0 )           (7 )%
Used vehicle wholesale
revenues-acquisitions                               0.8                    -
Total used vehicle wholesale revenues              50.5                 53.7                     (3.2 )           (6 )%
Used vehicle revenue, as reported          $      421.6         $      333.0       $             88.6             27  %
Gross profit:
Used vehicle retail gross profit-same
store(1)                                   $       31.0         $       26.3       $              4.7             18  %
Used vehicle retail gross
profit-acquisitions                                 0.4                    -
Total used vehicle retail gross profit             31.4                 26.3                      5.1             19  %

Used vehicle wholesale gross profit-same
store(1)                                           (1.2 )               (0.4 )                   (0.8 )           NM
Used vehicle wholesale gross
profit-acquisitions                                 0.1                    -
Total used vehicle wholesale gross profit          (1.1 )               (0.4 )                   (0.7 )           NM
Used vehicle gross profit, as reported     $       30.3         $       25.9       $              4.4             17  %
Used vehicle retail units:
Used vehicle retail units-same store(1)          18,099               14,463                    3,636             25  %
Used vehicle retail units-acquisitions              616                    -
Used vehicle retail units-actual                 18,715               14,463                    4,252             29  %



Used Vehicle Metrics-
                                               For the Three Months Ended
. . .
  Add ABG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ABG - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.