Penske Automotive Group - Earnings Call - Q1 2025

Executive Summary

• Record Q1 revenue of $7.60B (+2% y/y); GAAP EPS $3.66 (+14% y/y) and adjusted EPS $3.39 (+6% y/y). Adjusted EBT $310M (+5% y/y). Service & parts strength and SG&A leverage supported earnings despite freight headwinds.
• Versus Wall Street: adjusted EPS beat ($3.39 vs $3.28), EBITDA slightly beat, while revenue modestly missed ($7.60B vs $7.72B). Foreign exchange was a small headwind to revenue and EPS. Bolded items in the tables denote significance.*.
• Operating mix: retail automotive gross margin stable (16.5%); service & parts gross margin up 60 bps y/y to 58.6%. Adjusted SG&A to gross profit improved 70 bps y/y to 70.0%, reflecting cost discipline.
• Commercial trucks: units +4% to 4,714; revenue $823.7M; EBT $45.1M (down from $50.5M) as the freight recession persisted.
• Catalysts: continuing tariff clarity and Freightliner pricing protection, ongoing share repurchases and dividend increases, and durable service & parts momentum could drive narrative and estimate revisions.

What Went Well and What Went Wrong

• What Went Well

  • “Record first quarter revenue, the seventh consecutive quarter of stable gross margin, and a 70-basis point improvement of adjusted SG&A as a percentage of gross profit” (Roger Penske).
  • Service & parts execution: same-store revenue +4%, gross profit +6%; service & parts gross margin +60 bps y/y to 58.6%.
  • Used vehicle GPU +14.6% y/y to $2,149; same-store used GPU +9.9% y/y, aided by U.K. Sytner Select realignment and inventory management.

• What Went Wrong

  • Revenue modestly missed consensus; automotive F&I and commercial truck F&I down y/y (-3.8% and -15.1%, respectively). Estimates context in table shows miss.*
  • Freight softness reduced truck EBT ($45.1M vs $50.5M prior year) and truck service & parts gross margin compressed (-220 bps y/y).
  • Total retail used units -16% y/y, driven by U.K. used-only footprint reset; same-store retail units -4.5%.

Transcript

Operator (participant)

Good afternoon. Welcome to the Penske Automotive Group First Quarter 2025 earnings conference call. Today's call is being recorded and will be available for replay approximately one hour after completion through May 7, 2025, on the company's website under the Investors tab at www.penskeautomotive.com. I will now introduce Tony Pordon, the company's Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Tony Pordon (EVP of Investor Relations and Corporate Development)

Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group's First Quarter 2025 financial results was issued this morning and is posted on our website, along with a presentation designed to assist you in understanding the company results. As always, I'm available by email or phone for any follow-up questions you may have. Joining me for today's call are Roger Penske, Chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations; and Tony Facione, Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity, and assessment of business conditions.

We may also discuss certain non-GAAP financial measures as defined under SEC rules, such as adjusted net earnings before taxes, adjusted net income, adjusted earnings per share, adjusted selling, general and administrative expenses, earnings before interest, taxes, depreciation and amortization, or EBITDA, and adjusted EBITDA and our leverage ratio. We've prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures to their most directly comparable GAAP measures in this morning's press release and investor presentation, both of which are available on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in today's press release under forward-looking statements. I direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs, for additional discussion and factors that could cause future results to differ materially from expectations. I will now turn the call over to Roger.

Roger Penske (Chairman and CEO)

Thank you, Tony. Good afternoon, everyone, and thank you for joining us today. I'm pleased with the results of our first quarter. Our diversified international transportation service business generated record first quarter revenue, the seventh consecutive quarter of stable gross margin, and a 70-basis-point improvement of adjusted selling, general, and administrative expenses as a percentage of gross profit when compared to the first quarter of last year. During the quarter, revenue increased 2% to a record of $7.6 billion. Same-store retail automotive revenue also increased 2%, while related gross profit was up 3%. Same-store retail automotive service and parts revenue increased 4%, while related gross profit was up 6%. Service and parts gross margin increased 60 basis points to 58.6%. Our business generated $337 million in earnings before taxes, $244 million in net income, and earnings per share of $3.66 each, which increased by 14%.

On an adjusted basis, earnings before taxes increased 5% to $310 million, and net income increased 5% to $226 million, and our earnings per share increased 6% to $3.39. As we look at the automotive and commercial truck markets, the current environment remains very fluid. We believe the administration is encouraging companies and individual countries to come to the table to discuss their plans. We remain in close contact with our OEM partners. Many OEMs have announced their intent to hold current prices while tariff negotiations continue, and we believe most brands are evaluating their individual geographic footprint, including production capacity, model mix, suppliers, vehicle content, among others. As we look to the future, the diversification of PAG will be a key differentiator.

The diversification provided by a premium brand mix is present in international automotive markets, our retail commercial truck dealerships, and our investment in Penske Transportation Solutions, coupled with our highly variable cost structure, provides us with opportunities to flex our businesses to meet the changing landscape. Approximately 59% of our revenue is generated in North America, 31% in the U.K., and 9% in other international markets. Our profitability is also diversified with 64% of our earnings in 2024 coming from our automotive retail operations and 36% from our non-automotive operations as we generate that profitability across multiple sources, such as new, used, service and parts, and finance and insurance. In fact, only 26% of our total gross profit in 2024 was generated from new vehicle sales. Now let's turn our attention to a few additional details of the first quarter results.

During the first quarter, we delivered 120,000 new and used automotive units and over 4,700 commercial trucks. New automotive units delivered increased 6% and 8% on a same-store basis. Used automotive units declined 16% and 11% on a same-store basis. The decline is associated with a realignment of our U.K. used-only dealerships to Sytner Select, which took place in the last half of 2024. We sold or closed four locations, realigned the cost base, changed the focus to retailing fewer units at higher margin. Excluding the performance of Sytner Select in both periods, used units delivered only decreased 1% in total on a same-store basis. Average new transaction price increased 4% to $59,202, while average used vehicle transaction price increased 12% to $37,624. New and used vehicle gross profit per unit retailed remained strong.

New vehicle gross was $5,059, down only $87 when compared to the fourth quarter of last year. Used vehicle gross increased $352 per unit when compared to the fourth quarter of 2024, largely due to our efforts with Sytner Select and the overall improvement in used vehicle inventory management. Variable vehicle profit, which includes new, used, and F&I, was $5,281 per unit, representing a $38 unit decline when compared to the fourth quarter of last year. In the quarter, service and parts revenue increased 6% to $789 million, including a 4% on a same-store basis, with customer pay up 1% and warranty up 17%. Warranty continues to be driven by recall activity across several brands. Fixed absorption in the U.S. automotive business increased 310 basis points to 87.1% and was 117.5% for our North American retail commercial truck business.

As we look to continue growing this important part of our business, we've increased our technician headcount by 5% since March of 2024, and the effective labor rate increased 5% in the U.S. and 6% in the U.K. Lastly, I remain pleased with our efforts to control costs. On an adjusted basis, our SG&A to gross profit declined by 70 basis points to 70.0% when compared to the first quarter last year and declined by 30 basis points sequentially when compared to the fourth quarter of 2024. Now let me turn the call over to Rich Shearing to discuss our North American operations.

Rich Shearing (COO of North American Operations)

Thank you, Roger, and good afternoon, everyone. In our U.S. retail automotive operations, we experienced a rise in traffic, especially near the end of March. For the quarter, U.S. new units increased 8%, while used units increased 2%. During the quarter, 29% of the new units sold in the U.S. were at MSRP. Leasing in the U.S. increased to 33% on new vehicles retailed, up from 32% in Q1 last year, and leasing on our premium brands is in the mid-40% range compared to the mid-50% in 2019 prior to COVID. We sold 2,800 new BEV vehicles in the U.S. during the quarter, representing approximately 8.5% of new vehicle sales. Our U.S.-day supply for BEVs is vastly improved at 56 days compared to 76 days at the end of December and 87 days in March last year.

Although we have done a great job working with our OEM partners to manage BEV inventory to be more closely aligned with consumer demand, the majority of BEV units still require significant discounting. The average discount on BEV from MSRP was over $7,400 during Q1 compared to $6,300 Q1 last year. In our automotive business, service and parts same-store revenue increased 6% during Q1, and same-store gross profit increased 8%. Turning to our retail commercial truck business, we operate 45 locations and remain one of the largest commercial truck retailers for Daimler Trucks North America. The retail truck business is one of the core pillars of our diversified model and represents 11% of revenue and gross profit. We believe Class 8 commercial truck demand will continue to be driven primarily by replacement purchases in 2025 rather than fleet growth.

Premier trucks sold 4,714 units in Q1, which was up 4% when compared to Q1 last year, and new units increased 7% but declined 2% on a same-store basis. This compares favorably to the 12% decline in the North American Class 8 market in Q1, as the strength of our customer mix and the strength of the Freightliner-Western Star brands outperformed. As of the end of March, the current industry backlog was 132,000 units, or approximately 6 months of sales, down from 163,000 units in March last year. Used units declined 7%, including 9% on a same-store basis; however, used gross profit more than doubled to $7,541 from $3,187. Revenue was $824 million, and EBT was $45 million for the quarter for a return on sales of 5.5%. Same-store SG&A to gross profit was 63.1%, and fixed absorption was 117.5%.

Looking to the future, Freightliner is committed to a minimal price increase related to tariffs. Initially, a tariff surcharge of $3,000 on heavy duty and $1,500 on medium duty trucks will be applied. Any customer who places an order prior to the end of May for production by the end of October will see a not-to-exceed maximum tariff of $3,500. Tariffs on future orders beyond this point are not known at this time. Further, the potential truck pre-buy for 2027 emission changes will be dependent on the outcome of the current EPA review of the waivers granted to certain states. Turning to Penske Transportation Solutions, during Q1, operating revenue was flat at $2.7 billion. Full service revenue and contract business increased 5%, logistics revenue decreased 1%, and rental revenue declined 10% as the freight recession continues to impact the number of units on rent and our overall rental utilization.

During the quarter, PTS sold over 11,000 units and ended the quarter with 428,000 units, down from 435,000 at the end of December last year. PTS earnings were up $3 million when compared to the first quarter last year, and our share was $33.2 million, up 2% from $32.5 million in the first quarter last year. I would now like to turn the call over to Randall Seymore to discuss our international operations.

Randall Seymore (COO of International Operations)

Thank you, Rich. Good afternoon, everyone. As a reminder, we operate retail automotive dealerships in the U.K., Germany, Italy, Japan, and Australia, and a commercial vehicle and power systems business in Australia and New Zealand. Our international operations represent approximately 40% of PAG's revenue. Looking at the U.K. retail automotive market, the new vehicle market registrations increased 6% compared to Q1 last year. We outperformed the market, as same-store new units delivered in Q1 increased by 9%. New vehicle gross per unit remained resilient, declining only $138 per unit on a sequential basis when compared to the fourth quarter last year. Same-store used units declined 22% as a result of the transition of the U.K. CarShop to Sytner Select and the closure and sale of four locations. Excluding Sytner Select, same-store used unit sales in the U.K. would have only decreased by 2%.

However, used vehicle same-store gross increased by $589 per unit when compared to the fourth quarter of 2024 as a result of improved vehicle inventory management. Service and parts same-store revenue increased 2%, and gross profit increased by 3%. Turning to Australia, as you may recall, last year we acquired three Porsche dealerships in Melbourne. During the first quarter, these dealerships retailed 540 new and used units and generated $60 million in revenue. We remain very pleased with our progress in the commercial vehicle and power system business in Australia as well. Service and parts represented approximately 61% of our total gross profit, so our focus on increasing units and operation is a key driver of the business. In the on-highway market, during the first quarter, we gained 150 basis points of market share. In the off-highway sector, revenue and margin were driven by strong energy solutions demand.

We have a $300 million backlog for 2025 delivery and an order bank of over $600 million, predominantly related to growth in the large data center and battery energy storage solution businesses. We continue to maintain market leadership in the high-horsepower power generation segment with over 55% share. I would now like to turn the call over to Shelley Hulgrave to review our cash flow, balance sheet, and capital allocation.

Shelley Hulgrave (EVP and CFO)

Thank you, Randall. Good afternoon, everyone. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize capital allocation. As you know, we follow an opportunistic approach, providing us with the ability to grow our business through acquisitions and return capital to shareholders through dividends and securities repurchases. We strongly believe that the strength of our balance sheet, strong cash flow, disciplined approach to capital allocation, and our diversification will provide benefits as we work with our customers and partners in an uncertain environment. During Q1, we generated $283 million in cash flow from operations, and our EBITDA was $400 million, or $372 million on an adjusted basis. On a trailing 12-month basis, EBITDA was over $1.5 billion. Our free cash flow, which is cash flow from operations after deducting capital expenditures, was $206 million.

During Q1, we paid $82 million in dividends and invested $77 million in capital expenditures to improve or expand our facilities. When compared to Q1 last year, capital expenditures were down $26 million. During the quarter, we repurchased 255,000 shares of stock for $40 million, and year-to-date through April 25th, have repurchased 750,000 shares for $111 million. We expect to continue repurchasing shares on an opportunistic basis. As of April 25th, we have $46 million remaining under the existing securities repurchase authorization. Our dividend is $1.22 per share. Since the end of 2023, we have increased the dividend by 54%. Using yesterday's closing price, our current yield is approximately 3.1%, with a payout ratio of 36%. Additionally, as we focus on strategic capital allocation, we divested one retail automotive location in Q1, which represented approximately $200 million in estimated annualized revenue.

Our strong cash flow has allowed PAG to keep its non-vehicle debt and leverage low. At the end of March, our non-vehicle long-term debt was $1.77 billion, down $80 million from the end of December last year. 78% of the non-vehicle long-term debt is at fixed rate. Debt-to-total capitalization was 24.7%, and leverage is 1.2x. When including floor plan, we have $4.4 billion of variable debt. 55% of our variable rate debt is in the US. We estimate a 25 basis point interest rate would impact interest expense by approximately $11 million. At the end of March, we had $118 million of cash, and the liquidity available to us was $2.1 billion.

Upon the maturity of our $550 million, 3.5% senior subordinated notes due in September, we currently expect to either repay those notes from cash flow from operations or borrowings under our U.S. credit agreement, or refinance those notes in whole or in part with similar notes, depending on the prevailing interest rate. Total inventory was $4.5 billion, down $140 million from the end of December 2024. Floor plan debt was $4 billion. New and used inventory remains in good shape. New vehicle inventory is at a 39-day supply, including 38 days for premium and 29 days for volume foreign. Used vehicle inventory is at a 36-day supply. At this time, I will turn the call back to Roger for some final remarks.

Roger Penske (Chairman and CEO)

Thank you. PAG's Q1 performance was certainly strong. I remain particularly pleased with the continued resilience of gross profit for vehicle retails, performance of our automotive service and parts operations, and the success we continue to demonstrate with our SG&A leverage and our focus on cost controls. I remain confident in our diversified model and its ability to flex with market conditions and remain very pleased with the performance of our business in the first quarter. Operator, at this time, you can open up the call for questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star, followed by the number one on your telephone keypad. To withdraw any questions, press star one again. Our first question comes from John Murphy from Bank of America. Please go ahead. Your line is open.

Roger Penske (Chairman and CEO)

Hi, John.

John Murphy (Managing Director)

Hey, Roger. Hey, everybody. Just a first question on the U.K. I mean, Sytner Select sounds like it's chugging along, and you're making great progress there. We got another two quarters before that anniversary itself. It sounds like there's some other really good work going on in the U.K. to make the business much more efficient and profitable over time. I wonder if you could just maybe comment and highlight some of the things that are going on there.

Roger Penske (Chairman and CEO)

Yeah. Let me let Randall give you an update on that. Go ahead.

Randall Seymore (COO of International Operations)

Yeah. Hey, John. How are you doing?

John Murphy (Managing Director)

Good. How are you?

Randall Seymore (COO of International Operations)

Yeah. Good. Thank you. Look, at the Q1, the U.K. total market was up 6%, and at Sytner, we were up 9%, so outperformed. That was certainly pleasing. As you mentioned, the gross profit on used cars overall was up $589. We had a record fixed month in our after-sales gross profit as well. Back to both new car and used car, really the kingpin there is inventory management. The aging is at the best it has been in quite some time. We are really focusing on our new car day supply by model. What that is doing is translating in lower inventory, more efficient inventory, a better turn on the inventory, and better gross profit. I really hats off to the team there.

On the expense control as well, we're really looking at all of our demos where our headcount, we've had natural attrition where we've had headcount reduction there with some savings. Back to fixed gross profit, our gross profit per technician was up 7%. I think there's a lot of levers there we're pulling that is equated to the good result in Q1. I think the best news is it's all sustainable as we move through the rest of the year.

John Murphy (Managing Director)

That's very helpful. Just a second question on parts and service. Results there are good, particularly on the margin side. It sounds like warranty really dominated. I think, Roger, you mentioned up 17%. Customer pay was up only 1%. Is there a crowding-out effect going on there where there's just so much warranty work, it's kind of tough to get to the customer pay and grow it? If also, you could just remind us what the tech growth there is and door rate increases are as well in the quarter.

Roger Penske (Chairman and CEO)

I think I mentioned that our tech count is up by 5%. The average technician is driving about $30,000 gross profit for the month. I think when you look at customer pay, it declined 3% in the U.S. and certainly 17% from a PTS perspective. I think the most important thing to think about from the standpoint when we look at parts and service is really the utilization of bays. I think, Rich, you talked about it. We talked about earlier today. We're running about 80% utilization of the bays, which is critical. We have a big focus on apprentices coming in because we've got to build these technicians from the bottom up, which I think is key.

From a warranty standpoint, we've got Tundra, we've got Mercedes, we've got BMW, all with big recalls, which is driving that mix where it is at 17% overall versus 1%. I think in the U.K., as Randall's mentioned, we certainly have grown the gross profit there because of cost controls and better utilization. I would say we've driven a lower turnover in our service riders because we're getting probably more share of wallet from the customer when they come in. I think that absolutely is helping us grow our fixed absorption 300 basis points here. I'm not sure what it grew in the U.K.

Randall Seymore (COO of International Operations)

Interestingly, in the U.K. in Q1, our customer pay was up 11%. We are able to grow that business. You are right on the service advisor. We have done a lot of training on best advice with service drivers, service advisor with customers coming through the lane. Good. Our fixed absorption was up just shy of 280 basis points.

Roger Penske (Chairman and CEO)

John, better utilization, more productivity from the technicians, certainly more share of wallet on the ROs. I think that's interesting. One point I want to make that maybe you won't ask, but as we keep monitoring the BEV units, the battery electric vehicles, the average repair is running about $1,400. The ICE vehicle at the same time, same brand, is running about $700. We still have a big opportunity. I would say all the BEV work is warranty. That's also driving the mix.

John Murphy (Managing Director)

Got to love those BEV UIOs, Roger. Maybe just one last one. Tariffs are kind of impossible to call exactly where they're going to land right now, but it sounds like costs are going to go up to automakers and pricing might go up to some extent. Roger, what's your sort of gut feel on the price elasticity of demand, particularly for your imports and your high-end product? I mean, is there room to inch up pricing and the consumer might not push back too much? I mean, what's your general just really gut check on that? It's tough to call.

Roger Penske (Chairman and CEO)

I think you got to go back and we got to look at the price increases that have taken place since 2019. I think the average selling price is up $17,000, just to put that in perspective. I really want to focus on premium luxury because as we look back, we were at 55% leasing. We've gone now to 45% here in the last two quarters. I see the ability to lease these vehicles with higher, certainly, residual values that the finance company is going to put on these will mitigate some of the impact to the customer. I think that's going to be critical. Having those lease cars come back will be important later on because we've had kind of a dip in that from the COVID time when there were more cash buyers.

I think it's going to be, certainly, as I look at it, it's going to be a fluid situation. I mean, things are expected to change. They did last night, obviously. When you put it in perspective, there's about 7.9 million vehicles that are imported to the U.S. each year. Ironically, Mexico and Canada, I think, represent 51% or about 4 million units. With certainly the U.S., Mexico, Canada initiative, hopefully that'll drive that to be more fluid and costs will be more realistic based on that opportunity for the people involved. Overall, I think there will be some impact probably on the lower price vehicles depending if they're coming in from outside the U.S. at the moment. The stacking of tariffs, I think, was taken off the table here last or yesterday when it was announced.

Let me just say, I think it's a fluid situation. Remember, when we look at our business today and look at overall, our total gross profit was $300 million in the first quarter, and only 26% of that was new vehicle. Obviously, with that, it will give us, it's not the whole gross profit chain because of parts and service and our diversification. Overall, we're going to have to work brand by brand. I think, Rich, you might want to comment today from an automotive standpoint and truck standpoint.

Rich Shearing (COO of North American Operations)

Yeah. John, Rich here, I think start with the truck. I think we stay close to Daimler, and as you know, we support exclusively the Freightliner-Western Star brand. I would say they've taken a real leadership position in their communication and position in the marketplace and provided some clarity for how tariffs will impact our products there through October of this year. I think initially they stated there would be a not to exceed amount of $3,500. That was refined to $3,000 on heavy duty, $1,500 on medium duty through July 4th production. They subsequently come out and said that for orders placed prior to May 31st, they'd extend that pricing protection through October. Really the balance of this year from a production and subsequent delivery to us as a dealer standpoint, with the caveat that those orders placed prior to May 31st are non-cancelable.

We will have a high assurance of those orders when they come in that customers are committed to taking those trucks. I think it is good that those customers have that certainty looking out in the future as things are very volatile at the moment. On the automotive side, a little bit varied brand by brand relative to the communication, but I would say the majority of brands have committed for price production through May or June timeframe. With the units we have on ground in inventory at the moment, new units around 16,000, we think that carries us through June from a retail sales standpoint. As we have seen over the last 30 days with various different changes, it is not unrealistic to think we would see further change before the end of June as well.

John Murphy (Managing Director)

Thank you very much, guys. I appreciate it.

Roger Penske (Chairman and CEO)

Thanks, John.

Operator (participant)

Our next question comes from Mike Ward from Citigroup. Please go ahead. Your line is open.

Roger Penske (Chairman and CEO)

Hey, Mike.

Mike Ward (Analyst)

Thanks very much. Good afternoon, everyone.

Roger Penske (Chairman and CEO)

Mike.

Hi, Mike.

Mike Ward (Analyst)

Hi, everybody. SG&A costs as a percentage of gross has been pretty flat. I think now seven straight quarters. Is that sustainable? What are some of the things you've done where it can even go lower?

Roger Penske (Chairman and CEO)

I have Shelley answer that question for you, Mike.

Shelley Hulgrave (EVP and CFO)

Hey, Mike. How are you?

Mike Ward (Analyst)

Hey, Shelley.

Shelley Hulgrave (EVP and CFO)

Hey. Yeah. We are really pleased with our performance in SG&A to growth. You've mentioned relatively flat in the low 70s as we have kind of guided and feel very comfortable with that continued guidance. Down 70 basis points on an adjusted basis year-over-year, down 30 sequentially. It's really all about our team's daily focus on what we can control. As our team is taking a look at headcount, we remain still down 10% from pre-COVID levels on a same-store basis. We look at turnover, which is a daily effort by our teams, and we remain below NADA averages across the board. Really keeping our personnel costs low, looking at comp-to-growth metrics and making sure that we don't leak growth. We had an excellent result this quarter. In the U.S., comp-to-growth declined 30 basis points.

In the U.K., they declined 110 basis points. When you factor in that more of their compensation is fixed, it's a tremendous result by our team. They did a really great job containing those costs. The other side of that equation, obviously, is growing growth. When you look at some of our higher margin growth lines, we've grown service and parts 40% since the same Q1 of 2019. Randall and Rich both talked about fixed absorption on their business lines. Some of the other items that we can control, advertising, for example, down $3 million quarter-over-quarter. Things like travel and entertainment down $1 million. All of those items really continue to add up, and we're seeing a bright result.

Mike Ward (Analyst)

What I gathered from what Randall was saying, it sounds like the U.K. market has maybe bottomed and is starting to turn the other direction, gaining some momentum. If a lot of those costs are fixed, then if we start getting some momentum in the U.K., we should see additional improvement. Am I hearing that right?

Randall Seymore (COO of International Operations)

Yeah. Look, I would say as far as the macro market overall, being up 6%, I don't expect it to go up significantly. I think just our leadership team over there is doing an amazing job, and we're pulling some levers, like I talked earlier, relative to inventory management. One thing I didn't mention was upside on F&I. We've introduced some more products. Remember, March was a registration month, too. September will be the next one. I think our performance and as it pertains to managing the gross growth opportunity and our expenses is absolutely sustainable and super proud of what the team's doing.

Roger Penske (Chairman and CEO)

I should mention, too, on the Sytner Select what you're doing on inventory.

Randall Seymore (COO of International Operations)

Yeah. We typically hold about 2,000 units in inventory. Just to give you a note, as of today, we had 11 cars over 90 days. We are really managing the age. I think even more important than that is the sourcing and really trying to get more stickiness on trades, whether it be on new car or used cars, because our gross profit opportunity on trades is a lot better than raising your hand at the auction next to 50 other people. The result of that was a record gross profit per unit at Select in March after escalating even from January, February being strong. The other point in that business, I mean, we are really focused on younger used cars, meaning the 0-4, maybe 5, 6.

As soon as you start getting over that, that space, you end up selling it, and then you invariably have problems, and you got to take care of the customer. Your policy expense goes up or you're buying the car back. We have just found it better to keep it clean with the newer cars there on the Select side.

Mike Ward (Analyst)

Shelley, is the share count currently or what we'll see on the 10-Q is it about 66 million?

Shelley Hulgrave (EVP and CFO)

It's pretty consistent with prior year. As you know, when we make those buybacks, that number is weighted, Mike. And we also had a share grant within the quarter. So you'll see a fairly consistent 66.7% in the quarter. However, we'll continue to see that go down as the repurchases are weighted differently throughout the year.

Mike Ward (Analyst)

For 2Q or 1Q? Because you bought back in April, right?

Shelley Hulgrave (EVP and CFO)

We bought back in March and in April. You will see the full effect of the March during Q2 and then a weighted Q2 number for the April repurchases.

Mike Ward (Analyst)

Is the weighted Q2 number going to be 66.7 or is it going to be lower than that?

Shelley Hulgrave (EVP and CFO)

Oh, I'm sorry. I thought you were talking about EPS for Q1, but it's all that. Yeah.

Tony Pordon (EVP of Investor Relations and Corporate Development)

Yeah. So Mike.

This is Tony. With the shares that we repurchased in the month of April, the share count will be lower in the second quarter than what it was in the first quarter.

Shelley Hulgrave (EVP and CFO)

Correct.

Mike Ward (Analyst)

Right. Right. Okay. Now, Shelley, when you're looking at repurchase, is it just the big sell-off in April with the tariff talk, opportunistic, and is that the way you're going to look at it? I know you balance it out with acquisitions and other stuff. Has that side of the market dried up and you just find your stock cheap enough and that's why it ticked up a little bit?

Shelley Hulgrave (EVP and CFO)

I would not say that it is dried up by any means, Mike. I would say the industry as a whole seems to be taking a pause as we await different outcomes of the tariff discussion. We are certainly still interested from an acquisition standpoint. We will remain opportunistic. If the market remains consistent or if we find ourselves with different options, we are going to weigh them as they come.

Roger Penske (Chairman and CEO)

Yeah. Mike, we've operated. We really haven't changed any offense. We've been operating under a 10b5, obviously, which goes out as of, I think, today, but that's been the driver specifically over the last quarter.

Mike Ward (Analyst)

Okay. When are your board meetings scheduled? Is there a specific date, like Tuesdays of the month or anything like that?

Roger Penske (Chairman and CEO)

No, they vary. Our board meetings are five times a year, and the time varies based upon availability of the board.

Mike Ward (Analyst)

Okay. Perfect. Thank you very much, everyone.

Roger Penske (Chairman and CEO)

All right. Thanks.

Tony Pordon (EVP of Investor Relations and Corporate Development)

Thank you.

Operator (participant)

Our next question comes from Daniela Haigian from Morgan Stanley. Please go ahead. Your line is open.

Daniela Haigian (VP of Equity Research)

Thank you. Within used, I know you mentioned in Q&A there's a focus on 0- to 4-year-old, maybe 5- to 6-year-old vehicles. With the younger used supply still tight and vehicle pricing only moving upwards from here, do you see greater opportunity in this makeshift towards this kind of middle-aged cohort? How does that impact your GPUs?

Roger Penske (Chairman and CEO)

Daniela, let me say this. I've been in this business a long time, and we have tried every model. CarShop over here going down into the double-digit car years from an old perspective. In the U.K., as we were trying to do 5,000 cars a month, we were down deep into double-digit. The outcome was brand damage because of so many cars that we had to deliver policy on or buy back. We focused on the 1-4. Because of our premium business from the standpoint of new cars, on the lease returns that we get, we see a much better profitability. We're running thousands of loaner cars, which we can turn into young used cars on a quarterly and annual basis, which makes a big difference.

I would say at the moment, we're staying in the 1-4, and you can see our margin. Typically, we don't get the F&I bang because we get flats in many of the leases that we do. It is a 3-year, maybe max 4-year, and we have the opportunity to buy that vehicle back. Obviously, everybody does, but we focus on that along with trades as our first offense as we look for used cars.

Rich Shearing (COO of North American Operations)

Daniela, the other thing to remember on used cars with our heavy leasing percentage, approximately 40% of our used vehicle sales in the U.S. are certified pre-owned. That helps skew it in that 0- to 4-year, 1- to 4-year-old timeframe.

Daniela Haigian (VP of Equity Research)

That's helpful. Thank you. One more on parts and service. You have relatively inelastic demand there. You mentioned 80% utilization. Is there demand to grow your current capacity, or do you think you have the base and capacity currently to service incremental demand?

Rich Shearing (COO of North American Operations)

Certainly, Daniela, Rich here on the U.S. side. We have capacity. I mean, as Roger said, we're about 80% utilization. We probably have requisitions open right now for about 50 technicians. We grew our technician base in the first quarter by 94 technicians. We would obviously look to continue to grow that technician base to leverage the utilization higher on our existing service facilities. I think we would do that certainly near term before we need to look at adding any brick and mortar to.

Roger Penske (Chairman and CEO)

Yeah. We added 100 base in 2024.

Rich Shearing (COO of North American Operations)

Yeah. Correct.

Daniela Haigian (VP of Equity Research)

Great. Thank you.

Rich Shearing (COO of North American Operations)

Thank you.

Operator (participant)

Our next question comes from Ron Jewsikow from Guggenheim. Please go ahead. Your line is open.

Ron Jewsikow (Director)

Yeah. Good afternoon, Roger.

Roger Penske (Chairman and CEO)

Hey, Ron.

Ron Jewsikow (Director)

Thanks for taking my question. Maybe starting off with kind of the tariff impact on parts and service. Any sense for how much parts inflation could hit your parts and service segment? It sounds like customer willingness to pay is quite strong, but just wanted to get your sense of how the customer will absorb those costs because I assume you're going to look to pass them through.

Roger Penske (Chairman and CEO)

I don't think we've calculated that. Now, when you think about today, typically two-thirds of the repair order is labor, and one-third of the repair order is parts. When we think about a lot of parts that are being utilized for older cars, they are really not genuine parts, and they're coming out of China. If China has a higher, say, 145% tariff, that's going to drive their cost base up, and we'll get probably even with what we have here with the genuine parts. We might even see a benefit from that as we go forward. That is speculation. I can't say I see it today, but it will certainly help us a lot in body shop parts where there's a lot of non-genuine parts being used. We will see.

Ron Jewsikow (Director)

No, that's helpful color on how you could become more competitive versus some of the independent shops.

Roger Penske (Chairman and CEO)

For sure.

Ron Jewsikow (Director)

I think it's been a while since we've been into a call this long and haven't really touched on new GPU kind of outlook. It seems like we got another data point this quarter that trends are stabilizing at a much higher level. I guess specific to your portfolio of brands, should we expect a couple hundred dollars of new GPU moderation on a go-forward basis, or do you think we're closer to the bottom and maybe that second derivative of declines continues to improve?

Roger Penske (Chairman and CEO)

When you look at new in Q1, we were down 3% on new. Usually, we were up 15. This is on a total basis. Our F&I, say, was up 4%. Overall, variable was up 6%. On a same-store basis, we actually were up on new 5%, and usually, we were up 10%. I think that the last five quarters, we were at really $5,229 in first quarter of 2024, $5,300, $5,072 in Q3, and $5,146. We have been, I guess, hovering around $5,000. A lot of that has to do, I think, our mix of BEV vehicles has gone down if you look at it overall and replaced by ICE. I think someone mentioned it earlier that we are discounting BEV vehicles probably about $7,000 under MSRP. That has some impact on it. That mix is now down.

I think we've got an inventory, Rich, of what?

Rich Shearing (COO of North American Operations)

Sixteen thousand new units.

Roger Penske (Chairman and CEO)

No, of BEV.

Rich Shearing (COO of North American Operations)

Oh, BEV. Sorry. Yeah. It's 10% of total and under 1,700 units.

Roger Penske (Chairman and CEO)

Under 1,700 units at this point. Overall, I think that as I look into Q2, you'd have to think about with our businesses up 11% this month. If you look at the quarter, you'd have to think there would be some momentum going to the end now before the current vehicle inventory we have is sold out because then you're going to be dealing with different cost pressures from the tariffs.

Rich Shearing (COO of North American Operations)

Ron, to your point on our brand mix, I would only add that in the quarter, compared to our peer group, we had the lowest decline in new gross, and we had the highest increase in used gross. I think that supports the premium brand mix that we've got.

Ron Jewsikow (Director)

Any sense for how that trended in Europe versus the U.S.? Because typically, we would see, I think, luxury underperform going from 4Q to 1Q. Just trying to get a sense of unpacking that by region.

Randall Seymore (COO of International Operations)

Yeah. In the U.K., our new gross profit was down slightly. It trended very similar to what it was in the U.S. on a new car side. Again, it's going to be predicated on mix.

Rich Shearing (COO of North American Operations)

Okay. In the U.S., Ron, we were down $76 a unit or 1%.

Roger Penske (Chairman and CEO)

We had a registration month in March, which drives some bonuses and other things at the end of the quarter, which could affect upward gross profit.

Ron Jewsikow (Director)

Okay. No, I really appreciate the color. Thanks for taking my questions.

Roger Penske (Chairman and CEO)

Yeah. Great, Ron. Thank you.

Operator (participant)

Our next question comes from Jeff Lick from Stephens. Please go ahead. Your line is open.

Roger Penske (Chairman and CEO)

Hey, Jeff.

Jeff Lick (Managing Director)

Hi, Roger. Good afternoon, everybody. Thanks for taking my question. Question for Rich. Rich, in the U.S., I know some of your brand partners on the luxury side, Mercedes, particularly BMW. Last year, were a little more focused on BEVs. I think that had implications in terms of both how the sales play out and the GPU. I wonder if you could maybe just unpack that and just share how that benefited Q1 or how that rolled through Q1 last year.

Rich Shearing (COO of North American Operations)

If you look at BMW—sorry, Mercedes, let's start there. If we go back about a year ago now, they were north of 40% of our total inventory was battery electric vehicle. Not only battery electric vehicle, but on the high end of the price point with the EQS and EQE.

Probably mid-year last year is when they realized they had to make adjustments to balance production with supply. They have made almost a 180-degree turn. As we sit here today, the Mercedes day supply is significantly reduced and under 5% of our total inventory at this point. We have seen a significant benefit in that to our West Coast dealerships and their profitability with the right mix and the right day supply for the demand in the market. BMW has come off their peak as well, but they are still around that 25-30% as a percent of total from a BEV mix. They have probably the broadest product line of battery electric vehicles servicing the lower end of the market to the higher end of the market. Certainly, the i4 is a good seller there.

If you look at day supply overall for battery electric, we peaked in June of last year at a 91-day supply on new. As we sit here today, we're at 56 days at the end of the quarter. I think in April here, we're at 51 days. It continues to trend in a more positive direction. Obviously, from a gross standpoint, we see that the gross profit on BEVs all in, when you look at the front-side money and F&I, is generally 65%-70% of what we would have on an ICE vehicle and heavily discounted, as Roger said, over $7,400 now. Anything that balances that improves.

The other thing BMW is doing in this month of May is pausing wholesale deliveries of BEVs and supplementing with ICE vehicles, which I think is going to be very beneficial for our stores that are high on the BEV concentration at the moment. That is another adjustment they're making to the market conditions.

Jeff Lick (Managing Director)

Just a quick follow-up or a side question on a commercial truck or retail truck. Can you give me context to the delay in the 2027 emissions standards and just how big of a deal do you think that is? There was some thought that there'd be some pull forward of demand here and all over the next 18 months. Just curious, by way of magnitude, how much you think that's going to affect your business.

Rich Shearing (COO of North American Operations)

I think that any pull ahead in demand will be predicated on the outcome of the Congressional Review Act of the waivers that have been submitted by the or the legislation that's been submitted by the House for potential rescindence of the advanced clean car, advanced clean truck, and the omnibus rule. Those will be voted on, we think, by the end of May. If those waivers do get rescinded, that not only impacts California, but the other 13 states that opt into those regulations, Oregon being one of them that we operate in.

That will have a positive impact, but it will obviously not spur any pre-buy at that moment because there will not be the rush to purchase trucks that are not going to be impacted by the increased cost of those vehicles, which our intelligence would say is north of $20,000 per vehicle for the technology that has to be added to meet these emissions requirements if they were to go into effect. I think the other important aspect of that legislation reform is one emission standard across the U.S. That creates a lot of complexity for the manufacturers today and for us as retailers to make sure that that truck is certified for the state it is going to operate in and it is being registered correctly. I think if successful in those legislative reforms, it would only be positive for the transportation on the commercial side.

Jeff Lick (Managing Director)

That's great. Thanks for that amount of detail. Best of luck in Q2, and we look forward to talking to you soon.

Rich Shearing (COO of North American Operations)

Thanks, Jeff. Thank you, Jeff.

Jeff Lick (Managing Director)

Thank you.

Operator (participant)

Our next question comes from Rajat Gupta from JPMorgan. Please go ahead. Your line is open.

Roger Penske (Chairman and CEO)

Hi, Rajat.

Rajat Gupta (Equity Derivatives Structuring Analyst)

Great. Hey, Roger. Hey, everyone. Thanks for taking the question. Just one last question on just the used cars. I know you've got a lot of that given it was a pretty substantial improvement. The level of GPU that you had in the first quarter, the $2,100 level, is that a new base level we should be thinking about going forward? Do you feel comfortable sustaining those kinds of growth? I know it can be a little volatile here in Q2 with the pre-buy and just the pull forward a bit and just used car inflation. But $2,100, is that a new normal for the business medium term?

Roger Penske (Chairman and CEO)

I think it can vary, but we're getting the benefit when you look at the total company, meaning international plus domestic, the impact of certainly Sytner Select, now highly profitable on the used, is driving a significant amount. I think, Randy, you said you were up in the U.K. on used grosses?

Randall Seymore (COO of International Operations)

Yeah, $580.

Roger Penske (Chairman and CEO)

580. We ended up being 357, I think, on a global basis. To me, I think the one thing that could impact us some is that the vehicles during COVID, there was not a lot of leasing. Some of the cars that we would get back, we're not getting. They are building that pipeline back for us. I think the lack of new vehicles, when you think about it during COVID, drove the used vehicle business. Again, we're probably going to see some upward pricing. With that, we might see advance rates from the finance companies capped. It would reduce our ability to get higher gross margins. I think we'll deal with that case by case as we go forward.

I'm comfortable that we've got a lead to peer group on the used side because we're not into the 10- and 20-year-old cars. We're in vehicles that are one to four, which we can obviously, and they're certified, as Tony said, that it gives us the opportunity to get more margin. 70% of our sales in the quarter were 1-4 years old. I think that and 5-8 was 20%. You see it's a very, very small part of that. I think overall, the same thing in the U.K., 65% was 1-4 and about 30% 5-8. That was probably skewed still by Sytner Select.

Rajat Gupta (Equity Derivatives Structuring Analyst)

Got it. Got it. That's helpful. Just one question on PTL. Not a lot of discussion today. Just curious, any thoughts on the outlook here? I know you've talked about some choppiness in the freight market. Curious how that impacts the PTL business. Should we expect the first quarter type of trend, flat year-over-year growth type of trends to continue for the remainder of the year, or should we expect to be a little more volatile? Thanks.

Roger Penske (Chairman and CEO)

Let's say the freight market. Let's just answer with that first. Freight market, obviously, has not been good for the last 36 months when you think about it. Our rental business is certainly seasonal. With the freight market down, what we're seeing is that our customers who are leasing trucks on a 3- to 5-year basis with CPIs, we see those customers not reaching out for extra vehicles, which is typically 50% of our rental revenue. What we've had to do is reduce our fleet, which we've done from 88,000 down into the 70s. That has driven lower maintenance, lower cost, lower depreciation. We're trying to match it. If we do not see an increase, certainly because of the freight, I think our rental business will continue to suffer.

That drives maybe a gain on sale of vehicles because when you're defleeting, we can't get the margins you can if you're selling them one at a time. We sold 4,000 vehicles last month. We are watching it. The good news is we outperformed the first quarter last year. Our income was about $1 million more for our percentage that we own of the company. Overall, our fleet is young. I think that we are well balanced on the headcount. We have taken out hundreds of people in the rental product line because of the lower utilization and the lower demand.

Rajat Gupta (Equity Derivatives Structuring Analyst)

Got it. Got it. That's helpful. Just this last one here, you talked a little bit about some pull forward or maybe some pre-buy here in the second quarter, primarily for the premium luxury brands. Did you expect the second half to see some material deceleration here or irrespective of what happens with prices? Just curious if there's any way to size what degree of pull forward or pre-buy you might be seeing in the business.

Roger Penske (Chairman and CEO)

Let me see. If we got any momentum, it's going to be momentum on our existing inventory, isn't it?

Randall Seymore (COO of International Operations)

Correct.

Roger Penske (Chairman and CEO)

For us to be able to project what potential cost increase we have in the vehicle, we don't know that right now other than some of the things that were brought up last night and Trump's latest declaration as far as tariffs. I would say the second half would be more cloudy for me from the standpoint of where we're going to be. We've got 16,000 vehicles that we can sell at current cost with no increases due to tariffs. Of course, we hope to go through those over the next 60 days. Again, we're going to then have to look at what have we been able to be supplied at what price as we go forward. Rich, do you have any other comment?

Rich Shearing (COO of North American Operations)

No, I think you covered it. I mean, to your point, Rajat, we saw a little bit of a tailwind at the end of March, and certainly that carried into the beginning of April. With each discussion around tariffs and then subsequently coming lower, it's difficult to predict what that demand looks like in the near term.

Roger Penske (Chairman and CEO)

Yeah. One other thing that I didn't mention, when you talked about the freight market, we're understanding that the ports receiving container ships from China looks like it's going to be down 60% here over the next several weeks. That'll certainly have some impact on the freight market. Yeah.

Rajat Gupta (Equity Derivatives Structuring Analyst)

Understood. Thanks for all the color and good luck.

Roger Penske (Chairman and CEO)

Thanks.

Randall Seymore (COO of International Operations)

Thank you.

Operator (participant)

Our last question comes from David Whiston from Morningstar. Please go ahead. Your line is open.

Roger Penske (Chairman and CEO)

Hey, David. How are you?

David Whiston (Senior Analyst)

Good, Roger. Hey, everyone. I actually just have one question. You mentioned that early in the call, you said on a monthly basis, technicians contributing about $30,000 in gross profit per month. I was just curious, roughly what was that number right before COVID?

Roger Penske (Chairman and CEO)

Wow. I don't think anybody has that number. I'll get Tony to get that for you. We've been growing that. We've been growing it for a couple of reasons because our effective labor rate has gone up. You follow me? We pay a percentage of that to the technician. Obviously, that's driven the opportunity, plus our ROs from the standpoint we've had more ROs, more service. That's driving it. That's one of the reasons we want to continue to grow the mechanic base because we can drive more business, which I think is key, which will drive gross margin and for the technician because it's the best job in the company because we provide the customer, provide the location, and we collect the money either from the factory or our customer.

I think that our turnover, when you look at turnover in that sector, I think we're running probably about 11% or 12% or 13%, which is world-class because it's so important to get these highly skilled people to stay with you because of the complexity of the vehicles today.

Tony Pordon (EVP of Investor Relations and Corporate Development)

David, I would add to Roger's comments on the growth. I would attribute some of it to our digital tools as well that we've deployed that enable us to load the shop more effectively. We are getting a better utilization out of the available hours that the technicians have through our artificial intelligence with service booking and reception. Tech video adoption is something that is still relatively new that we get better proficiency at across the businesses. Last August, we launched a communication tool for customers booking service appointments with us called FastLane that enables us to add previous recommended not done items that the customer declined at a previous event. It enables us to get that information in front of them. That generated an additional $5.4 million in revenue in the first quarter or on average about $704 per appointment.

All those things collectively and then other things we're doing in the shop from an efficiency standpoint to keep the technicians in the bay where they're most productive and most happy are things we continue to look at as well as service advisor training. It's not any one thing. It's a bunch of little things that are adding up year-over-year to make that improvement.

Roger Penske (Chairman and CEO)

Yeah. I just checked in pre-COVID, the average technician gross was about $26,500.

David Whiston (Senior Analyst)

Okay. Great. Thanks, guys. That's all very helpful. That's all I had.

Tony Pordon (EVP of Investor Relations and Corporate Development)

All right. Thank you, David.

Roger Penske (Chairman and CEO)

Thank you, everyone, for joining us today.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.