Asbury Automotive Group, Inc. (ABG)

Q2 2010 Earnings Conference Call

July 27, 2010 10:00 AM ET


Ryan Marsh – Treasurer

Charles Oglesby – CEO

Craig Monaghan – CFO

Michael Kearney – COO


Rick Nelson – Stephens Inc.

Dan (ph) – Deutsche Bank

John Murphy – Bank of America / Merrill Lynch



Good day and welcome to Asbury's Automotive second quarter financial results conference call. Just a reminder, today's call is being recorded.

At this time for opening remarks and introduction, I will turn the call over to Mr. Ryan Marsh. Please go ahead sir.

Ryan Marsh

Good morning to everyone. Welcome to Asbury Automotive Group's second quarter 2010 earnings call. Today's call is being recorded and will be available for replay later today. As you know the press release detailing Asbury's second quarter results was issued earlier this morning and is now posted on our website at

Participating with us today are Charles Oglesby, our CEO; Craig Monaghan, our CFO; and Michael Kearney, our COO. As always, at the conclusion of our remarks, we will open the call up for questions and I'll be available in my office afterwards to address any follow-up questions you might have.

Before we begin, I must remind you that the discussion during the call today is likely to contain forward-looking statements. Forward-looking statements are statements other than those which are historical in nature. All forward-looking statements are subject to significant uncertainties and actual results may differ materially from those suggested by the statements.

For information regarding certain of these risks that may cause actual results to differ, please see our filings with the SEC from time to time including our Form 10-K for the fiscal year ended December 31, 2009 and any subsequently filed quarterly reports on Form 10-Q. We expressly disclaim any responsibility to update forward-looking statements.

It is now my pleasure to turn the call over to Charles.

Charles Oglesby

Thanks, Ryan and good morning everyone and thanks for joining us today. Today we reported Asbury's second quarter income from continuing operations of $0.42, more than a two-fold increases versus $0.20 a year ago. These results were driven by a 13% increase in revenue and a reduction of 400 basis points in SG&A as percentage of gross profit. We saw double digit growth in new and used vehicle units. Parts and service gross profit is up 5% boosted by a 5% increase in customer pay, and finance and interest gross profit improved 35% with F&I per vehicle working back over $1000 a vehicle. Our operating income margin of 3.4% is a 31% increase over a year ago and sequentially is up 13% over this year's first quarter.

Asbury has covered a lot of ground in a short period of time with many of the initiatives we have put in place in order to improve our profitability regardless at the broadest SAR environment and a 11 million SAR is still a very depressed sales environment, yet Asbury continues to deliver healthy results. I am also very encouraged by the completion of our IT strategy review and the result plan to take us to the next level of productivity gains. Craig will fill you in on the details and I will turn the call over to Craig now.

Craig Monaghan

In the second quarter, Asbury delivered income from continuing operations of $0.42 per diluted share versus $0.20 in the prior year period. Last year results included a charge of $0.04 per diluted share due to expenses primarily associated with the company's relocation and restructuring activities. Our improved performance was primarily the result of a 13% increase in gross profit and 400 basis point decrease in SG&A as a% of gross profit.

This quarter in particular demonstrates our ability to flow through incremental changes in gross profit to operating income. While our gross profit increase 13% compared to the prior period, operating income jumped 46%. We were able to flow through 55% of the increase in gross profit to operating income as a result of our leader cost structure and discipline. While analyzing SG&A expense it is important to consider rent expense. Renting versus buying is a financing decision. Either you pay interest expense on a mortgage, repay rent expense with a lease. The expense however, it's different parts of the income statement and can potentially distort productivity analysis. If you will adjust our SG&A for rent expense, Asbury's SG&A as a% of gross profit was 70.5% in the second quarter. We embedded a new table to our standard press release that provides more visibility on our rent expense. We are maintaining our capital spending discipline in 2010, the CapEx target remaining at approximately $25 million roughly in line with our depreciation expense. We expect our effective tax rate to 38% to 40%.

With respect to discontinued operations, a majority of the $900,000 loss was linked to dark (ph) rents on vacated properties we no longer conduct operations. Absent non-recurring items, we anticipate incurring $0.02 to $0.03 loss per diluted share per quarter for the foreseeable future. Our financial condition remains strong with total available liquidity of approximately $260 million as of June 30, 2010. This includes cash and (inaudible) offset availability of $94 million as well as borrowing availability of $166 million. We have a strong capital base, liquidity and flexibility to retire debt, grow organically or grow through acquisitions.

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