Company History and Business Overview
Asbury Automotive Group, Inc. (ABG) is one of the largest automotive retail and service companies in the United States, operating a diversified network of dealerships across the country. With a rich history spanning over two decades, the company has established itself as a formidable player in the dynamic automotive industry, adapting to the ever-changing market conditions and consumer preferences.
Asbury Automotive Group was founded in 1995 and went public in 2002, trading on the New York Stock Exchange. The company's origins can be traced back to the acquisition of Precision Motorcars, a small group of dealerships in Georgia. Over the years, Asbury has grown significantly through a strategic combination of organic expansion and strategic acquisitions, solidifying its presence in key markets across the nation.
As of September 30, 2024, Asbury operates 202 new vehicle franchises, representing 31 brands of automobiles, across 153 dealership locations in 14 states. The company also owns and operates 37 collision centers. Asbury's growth strategy has been focused on acquiring and integrating new dealerships into its operations, allowing it to expand its geographic footprint and brand portfolio. In 2020, the company faced significant challenges due to the COVID-19 pandemic, which disrupted automotive sales and operations across the industry. However, Asbury demonstrated its resilience by adapting its business model and continuing to grow, ending 2020 with $7.13 billion in total revenue.
The company's expansion continued in 2021 with several strategic acquisitions that strengthened its presence in key markets. This growth trend persisted in 2022, with Asbury reporting total revenue of $15.43 billion for the year. A significant milestone in the company's history was the successful integration of the Jim Koons Dealerships acquisition in 2023, which added 20 new vehicle dealerships and 6 collision centers to Asbury's operations, further enhancing its scale and brand diversification.
Throughout its history, Asbury has also faced various operational and regulatory challenges. In 2022, the company received a Civil Investigative Demand from the Federal Trade Commission related to its corporate structure and dealership operations. Asbury has cooperated with the FTC's investigation and continues to vigorously defend against the allegations.
Financial Performance and Liquidity
Asbury Automotive Group has demonstrated resilience in its financial performance, weathering various industry challenges with agility. For the fiscal year ended December 31, 2023, the company reported total revenue of $14.80 billion and net income of $602.50 million. The company's operating cash flow for the same period was $313.00 million, with free cash flow of $170.70 million.
In the most recent quarter (Q3 2024), Asbury's revenue increased by 16% year-over-year to $4.24 billion. Net income for the quarter was $126.30 million, with operating cash flow of $404.30 million and free cash flow of $363.00 million. The company delivered adjusted earnings per share of $6.35 for the quarter. However, Asbury estimated that excluding the negative impacts from Hurricane Helene and various stop sale orders, their adjusted EPS would have been between $6.74 and $6.78 per share.
As of September 30, 2024, Asbury maintains a strong liquidity position, with $768.20 million in total available liquidity, comprising cash and cash equivalents, available funds in its floor plan offset accounts, and borrowing capacity under its revolving credit facility and used vehicle floor plan facility. The company's transaction-adjusted net leverage ratio stood at 2.9x, demonstrating its prudent approach to capital management.
Asbury's financial health is further reflected in its liquidity metrics. The company reported a debt-to-equity ratio of 1.45, cash holdings of $60.30 million, and available credit lines of $256.00 million under the revolving credit facility and $310.30 million under the used vehicle floor plan facility. The current ratio stands at 1.20, while the quick ratio is 0.41, indicating the company's ability to meet its short-term obligations.
Operational Highlights and Challenges
Asbury's operational performance has been marked by both successes and challenges in recent quarters. The company's parts and service business has been a consistent bright spot, with same-store parts and service gross profit increasing by 4% during the third quarter of 2024. This growth was driven by strong performance in customer pay and warranty services, highlighting the resilience of the company's fixed operations.
However, Asbury has faced headwinds in its new and used vehicle sales, with the company's same-store new vehicle revenue remaining flat year-over-year and used vehicle retail unit sales declining by 6% during the third quarter. These challenges were exacerbated by the impact of Hurricane Helene, which affected Asbury's store operations in Florida, Georgia, and South Carolina, as well as the stop sale orders for certain Toyota, Lexus, and BMW models, which impacted the company's new vehicle volumes.
Despite these obstacles, Asbury has demonstrated its ability to adapt and optimize its operations. The company has prioritized profitability over volume in its used vehicle business, focusing on maintaining healthy gross profit margins. Additionally, Asbury has been proactive in managing its costs, with same-store adjusted SG&A as a percentage of gross profit improving sequentially during the third quarter.
Acquisitions and Divestitures
Asbury has been actively engaged in shaping its portfolio through strategic acquisitions and divestitures. In December 2023, the company completed the acquisition of the Jim Koons Automotive Companies, adding 20 new vehicle dealerships and six collision centers to its network. This transformative acquisition has expanded Asbury's geographic footprint and enhanced its scale and capabilities.
During the first nine months of 2024, Asbury also divested several franchises, including a Lexus dealership in Wilmington, Delaware, a Nissan dealership in Denver, Colorado, a Nissan dealership in Atlanta, Georgia, a Chevrolet dealership in Atlanta, Georgia, and a Honda dealership in Spokane, Washington. These divestitures are part of the company's ongoing efforts to optimize its portfolio and strengthen its competitive position.
Technological Advancements and Innovation
Asbury Automotive Group has been proactive in embracing technological advancements to enhance the customer experience and streamline its operations. In the third quarter of 2024, the company launched a pilot program with Tekion, a leading automotive retail technology provider, in four stores within its shared service center. This initiative is part of Asbury's broader strategy to leverage cutting-edge technologies to improve efficiency, productivity, and customer satisfaction.
Additionally, Asbury has continued to invest in its Clicklane platform, which allows customers to complete the entire vehicle purchase process online. During the third quarter, Asbury retailed approximately 13,000 sales through Clicklane, a 13% increase over the prior year period, with a notable 20% increase in new unit sales through the platform.
Segment Performance
Asbury Automotive Group operates through two reportable segments: Dealerships and TCA (Total Care Auto, Powered by Landcar).
The Dealerships segment, which is Asbury's core business, includes the sale of new and used vehicles, parts and service operations, and the arrangement of third-party vehicle financing and sales of various vehicle protection products. For the nine months ended September 30, 2024, new vehicle revenue in this segment increased by $820.4 million (15%) compared to the prior year period, driven by a 15% increase in new vehicle unit sales. Used vehicle revenue increased by $614.1 million (18%), primarily due to a 19% increase in used vehicle retail unit sales. Parts and service revenue grew by $196.1 million (13%), while Finance and Insurance (F&I) revenue increased by $62.5 million (12%).
The TCA segment represents Asbury's captive finance and insurance product provider. During the nine months ended September 30, 2024, the TCA segment generated $104.8 million in revenue, consisting primarily of earned premiums and $13.3 million in investment income from its investment portfolio. For the full year 2024, Asbury anticipates TCA's pre-tax results to be between $70 million and $80 million.
Regulatory Challenges
Asbury is currently facing regulatory scrutiny from the Federal Trade Commission (FTC). On August 3, 2022, the company received a Civil Investigative Demand from the FTC requesting information and documents concerning the company's corporate structure and operation of six of its dealerships. On February 8, 2024, the FTC alleged that the company and three of its dealerships violated the FTC Act and Equal Credit Opportunity Act (ECOA) in connection with the sale of add-on products. Asbury disputes these allegations and filed a lawsuit against the FTC on October 4, 2024. The outcome of this dispute is currently uncertain and may have implications for the company's operations and reputation.
Outlook and Future Considerations
Moving forward, Asbury Automotive Group faces a dynamic landscape, with both challenges and opportunities on the horizon. The company's guidance for the full year 2024 remains cautious, as it continues to navigate the impacts of Hurricane Milton and ongoing stop sale orders affecting certain popular model lines.
For the full year 2024, Asbury anticipates an adjusted tax rate of approximately 25.3%. The company expects capital expenditures to be between $180 million and $200 million. For the fourth quarter of 2024, Asbury projects its adjusted SG&A as a percentage of gross profit to be in the mid-60% range, given the anticipated impact from Hurricane Milton and ongoing stop sale activity.
The broader automotive industry is showing signs of recovery, with new vehicle sales in the U.S. reaching a seasonally adjusted annual rate of approximately 15.60 million during Q3 2024, up from 15.50 million in the prior year period. This increase reflects higher inventory supply and continued consumer demand, which could provide tailwinds for Asbury's operations.
Nevertheless, Asbury's diversified business model, focus on operational excellence, and commitment to technological innovation position the company well to adapt to the evolving automotive industry. The company's strategic acquisitions, such as the Koons acquisition, and its ongoing portfolio optimization efforts demonstrate its ability to identify and capitalize on growth opportunities.
As Asbury Automotive Group navigates the complexities of the current market, investors will be closely watching the company's ability to maintain its financial strength, optimize its operations, and leverage its technological capabilities to drive long-term sustainable growth. The resolution of the ongoing FTC investigation and the company's ability to successfully integrate recent acquisitions while managing its cost structure will be key factors in determining Asbury's future performance and market position.