If Penske can't outrace the recession, who can?
The Penske Automotive Group (NYSE: PAG) reported an adjusted fourth quarter loss from continuing operations of $2 million or two cents per share, compared with a profit of $32 or 34 cents per share in the fourth quarter of 2007. The net loss for the fourth quarter, including charges for the declining value of dealerships, was $510 million or $5.55 per share, compared with a profit of $294 million or 29 cents per share during the fourth quarter of 2007. Earlier this month, PAG also suspended its quarterly dividend of 9 cents per share.
“The fourth quarter was one of the most challenging periods on record in the automotive industry,” said Chairman Roger Penske,” noting PAG’s revenue dropped 29% as credit tightened and economic decisions deteriorated during the fourth quarter.
The loss was amplified by $502.4 million of after tax charges, including $493.1 million of non-cash goodwill and franchise impairment charges because of the declining value of Penske dealerships around the U.S. and in the United Kingdom. Similar write downs are occurring at other large automotive retail groups as dealership values plummet.
“The lack of liquidity in worldwide credit markets and resulting economic effects caused a decrease in consumer confidence, and impacted the willingness and ability of consumers to purchase automobiles,” he said.
Penske said as conditions deteriorated during the fourth quarter, PAG had accelerated its cost reduction program, which included the elimination of 10% of its workforce. The cost-cutting is expected to yield savings of approximately $100 million, he said. “As of the end of the year, our liquidity remained strong, including cash and availability under our long-term credit agreements of approximately $330 million,” he said.
“It’s important to note, Penske Automotive Group is in compliance with the all the covenants included in its credit agreements,” Penske said during a conference call.
One bright spot was the continuing success of the smart USA. The fourtwo model was profitable last year, adding 5 cents per share in profits to the company’s bottom line. “We’re extremely with the pleased the performance of the smart unit,” he said.
For the year end Dec. 31, revenues totaled $11.6 billion, compared to $12.8 billion in 2007. The loss from continuing operations and net loss for the year ended Dec. 31 were $403.6 million, or $4.32 per share, and $411.9 million, or $4.41 per share, according to the company’s financial report.
PAG operates 304 retail automotive franchises, representing 40 different brands and 27 collision repair centers. Penske Automotive, which sells new and previously owned vehicles, finance and insurance products and replacement parts, and offers maintenance and repair services on all brands it represents, has 156 franchises in 19 states and Puerto Rico and 148 franchises located outside the United States, primarily in the United Kingdom.