Penske Automotive Group Inc (PAG) 2005 Q1 法說會逐字稿

Ladies and gentlemen, good afternoon, and welcome to the United Auto Group first quarter 2005 conference call. A press release which details United Auto's first quarter results was released this morning and is posted on the Company's website, www.unitedauto.com. The call today is being recorded and will be available for replay approximately one hour after completion through April 26, 2005. Please refer to UnitedAuto's press release dated April 8, 2005 at www.unitedauto.com for specific information about how to access the replay.

I would now like to introduce Anthony Pordon, United Auto's Vice President of Investor Relations. Please go ahead.

Thank you, John. Good afternoon and welcome to the UnitedAuto Group first quarter 2005 conference call. Joining us today for the call are Roger Penske, Chairman, Jim Davidson, Executive Vice President, Finance, and Bob O'Shaughnessy, our Controller. At the conclusion of our remarks today we will open the call for questions. I will also be available by phone to answer any follow-up questions that you may have.

Before we begin I would like to remind you that statements made in this conference call may include some forward-looking statements regarding UAG's future reportable sales and earnings growth potential. We caution you that these statements are only predictions which are subject to the risks and uncertainties, including those relating to general economic conditions, interest rate fluctuations, changes in consumer spending, and other factors over which management has no control. Our actual results may vary materially. These forward-looking statements should be evaluated together with additional information about United Auto, which is contained in UAG's filings with the Securities and Exchange Commission including our 2004 annual report on Form 10-K.

During this call we will be discussing certain non-GAAP financial information such as adjusted EBITDA that we believe provides useful information about our business. You can find a reconciliation of adjusted EBITDA posted on our press release, or in the financial areas of the Investor Relations section of our website at www.UnitedAuto.com.

At this time I would now like to introduce United Auto's Chairman, Roger Penske.

Thank you Tony, and good afternoon everyone, and thanks for joining us this afternoon. UAG perform's exceptionally well in the first quarter of '05. We posted a double-digit growth in revenue and net income while posting our 24th consecutive quarter of record results. This performance was highlighted by another strong quarter from the service and parts side of our business which increased 48 million in revenue, or 20.7% as our capacity expansion program continues to show benefits. Also strong increases in gross profit per transaction in new vehicles, used vehicles, and finance and insurance.

UAG's growth occurred despite the many market and weather-related challenges we've faced in some of our key markets in Q1. In the U.S. the new vehicle market was soft in January and February, and in many areas we experienced interruptions from snow and ice as well. The overall market in the U.K. experienced a 7% decline in new vehicle registrations during the quarter as the market waits for the release of several new models this year.

We have the new BMW 3 series, the Lexus GS, the Mercedes M, and we have diesel and hybrid coming to the U.K. which will bode well for us in the future quarters. The highlights in the first quarter and looking at those in detail, our retail unit volume was up 8.5% to just under 66.5 thousand units. Revenue increased 13.8% to 2.6 billion, and our revenue mix for the quarter, the U.S. revenue was 65% of our total, and international was 35%. Our revenue fluctuates seasonally.

As you know in the months of March and September, which represent registration periods in the U.K., We continue to expect international revenue to represent approximately 25 to 30% of the total revenue. The $311 million in revenue increase of 23 million resulted from foreign exchange.

Moving on the gross margin, our gross margin increased 40 basis points to 15.2%. Earnings before taxes increased 8.8% to 37 million. Income from continuing operations increased 13.2% to 23.2 million. We had approximately 400,000 net benefit from foreign exchange, which was just less than 1%. Or $0.01, excuse me. Earnings per share from continuing operations increased to $0.50 despite a 10% increase in average shares outstanding. Just as a data point as you might remember in March of 2004, we issued just over 4 million shares to Mitsui and generated $120 million in equity.

Looking at our brand mix for the quarter, our brand mix in the quarter was consistent with the fourth quarter of last year, domestic at 15%, same as Q4 '04, foreign and luxury 85%. If you just strip out our luxury brands we were at 55% of our total revenue. Our brand mix aligns UAG with the markets, especially of brands growing in the marketplace. In the first quarter the foreign name plates captured another 1.3 market share points and now represent 42.2% of the market, if you'd like to see just exactly how we did with each individual brand, you can look at the selected data sheet contained in the press release we put out this morning. It will give you more detail by individual nameplate.

Moving on to our same store performance for the quarter overall same store retail revenue was 0.6% up. We faced a difficult same-store performance for this quarter, overall same store retail revenue was 0.6% up, we faced a difficult same store comparison this quarter after posting double-digit same store growth in first quarter 2004, we actually were up in the Q1 up 6.4% last year, and 30% in the U.K. for a total of 11.3. In addition there was a decline in new vehicle registrations in both the U.K. and U.S. markets. I think despite these challenges our same store vehicle retail revenue was essentially flat during the quarter, but again we achieved growth on average transaction prices, on both new and used vehicles, partially driven by a mix shift towards premium luxury vehicle brands.

The service and parts business also performed very well. During the quarter we saw our overall revenue in this area climb 21% to 279 million including a 6.9% same-store increase, and we even had some stores shut down during the quarter because of the bad weather. Our finance and insurance also increased nearly 5% on a same-store basis.

Turning to our margins, one of our key initiatives is to increase our gross margin. In the first quarter overall gross margin was at 15.2% up 40 basis points. Margin increase I think was supported by increases in new vehicle margin which increased 20 basis points. Again, despite the tough environment. A 5% increase in gross profit per transaction to $2867 per unit on new. On the used vehicle side, margin increased 30 basis points. This included a 9% increase in gross profit per transaction to 2329 per unit.

On the service and parts side our high margin business increased 61 basis points to 10.9% as a percentage of revenue. Increasing the contribution of our service and parts operation continues to be a critical element of our strategy. In particular, I thought I would provide you with a few highlights this afternoon to support what we view this to be key to our growth in our future profitability. Let me just cover Scottsdale 101 in Phoenix where we have nine brands. Just in the back end, our parts and service business grew by 8.7%, and the first quarter now averages 2.7 million per month, and that compares to 2.5 in the first quarter '04, and 2 million in the first quarter of '03 so we're definitely getting traction and repeat business there.

Moving on to San Diego where we have BMW, Lexus, Mercedes and Toyota, all new facilities, the fixed gross business grew by 8.4% in the first quarter, now averages 3.6 million per month. This compares to 3.3 million in Q1 of '04, and 2.6 in '03, almost a million dollars more between '03 and '05. So good traction there also.

Then going to Washington, D.C., and Tysons Corner where we have Mercedes, Porsche, and Audi. As you know, we completed renovations last year, it took us almost 2.5 years to do it, we added 66 service bays. Our fixed business grew by 16% first quarter, and now averages 1.9 million per month. Before we completed our investment in Tysons, our customers had two to five-week service waits depending on brands. Today our service time wait at Tysons is within a day or two. In fact, March CSI scores for both sales and service at Audi, Mercedes-Benz and Porsche, exceeded national averages for the first time. Again, the facilities create I think the right environment for our customers and also our employees. In fact, our Porsche service department was ranked #1 in the region for the first time as well.

Let me just give you a quick bite on acquisitions so far in 2005. We've completed two in the first quarter. In the U.S. we added to our existing scale in the Atlanta metropolitan area with a high volume Honda franchise at the Mall of Georgia, a rapidly expanding premier retail location. In the U.K. we acquired Chrysler-Jeep franchise in Swindon, further solidifying our position as the largest Chrysler-Jeep dealer in the U.K. market. Since acquiring Sytner in 2002, we've built six new Mercedes facilities. We've made a strategic decision to combine our Chrysler-Jeep franchises with our Mercedes locations. This allows us to generate additional scale and to use the combined service department for these brands. This has been very good for us over the last 6 to 12 months. We also completed the purchase of the auto collection in Tulsa from Ford. Our tax rate for the quarter was 36.9 in comparison with 37.2 for the full year of 2004.

Turning to our balance sheet at this time, as we move into the traditional spring and summer selling seasons, I think our inventory really is in great shape. Total vehicle inventories at March 31st were 1.3 billion versus 1.2 at December 31st, 2004. On a same-store basis, vehicle inventory is up approximately 71 million, or 5.8%. Inventories are essentially flat with March of last year despite a 14% increase in our overall business. New was up 54 million, used was up 17.

On a worldwide basis our days supply, as of March 31st, worldwide basis, new vehicle days supply was at 50 days in comparison to 55 at the end of last year for UAG. Used vehicle had a 29-day supply versus 36. Then if we scroll down a little bit deeper we look at that time United States only, UAG's new vehicle days supply was 57 days, versus an overall U.S. market of 69 days. Our floor plan support for the quarter was 6.9 million versus 7.2, and I think that's again shows our mix because there is more support, you know, on domestics than in the foreign name plates. That gives you the difference on floor plan assistance.

UAG's used vehicle supply was 32 days. We've now rolled out in the first quarter a 60-day holding policy on all of our used vehicles. At the end of March only 4% of our used inventory was over 60 days, and that represented approximately $5 million. I think this has had a direct effect on used profitability in our wholesale business. We wholesaled almost 18,600 units in the first quarter with resulting profit of $34. In the fourth quarter of '04 we had a loss of 65 on approximately 17,000 units.

Looking at CapEx for the quarter we continue to be very efficient with funding CapEx both in the U.S. and U.K. and after-sale lease proceeds we spent 9 million in the first quarter on current projects. Gross was 50 million proceeds from sale/lease-back 41, and net was 9 million. We expect to incur approximately $75 million in net capital expenditures on a worldwide basis in 2005.

Let's now turn to UAG's leverage. Our debt-to-capital ratio at the end of March was 36% and again it's in the range of 36 to 40 which we've talked about before. When you drill down deeper in our debt position at the end of March, we had 607 million of non-vehicle debt, an increase of 21 million since December of '04. Breaking down our nonvehicle debt we had 300 million of 9.625 tenure senior subordinated debt outstanding. We have a call provision on that in 2000-- in March of 2007. We had 307 million under our credit agreements and other borrowing arrangements.

I would note that the end of first quarter we had approximately 409 million of availability under our U.S.and U.K. credit agreements so we've got plenty of dry powder as we look to potential acquisitions. Before I finish I'd like to take a few minutes to update you on some of the key objectives we outlined in our last call.

We continue to focus on programs to foster growth and to streamline our operations and looking at our facility investment program despite the inclement weather in the eastern U.S. during the first quarter, we remain on track with our campus development projects, in Providence, Rhode Island Inskip and the Turnersville Auto Mall in the Philadelphia/New Jersey market. We'll complete these campus project over the next 18 months in phases opening new stores as they are completed.

In Turnersville we expect to open our new collision center on May 1st. The Honda, Chevrolet, and Acura franchises should be up and running in 90 days. In providence, or at Inskip, we've already completed our new PDI center and Infiniti facility. We expect to open BMW and Lexus stores by August, and the Acura facility by the end of September. We continue to forecast addition of 175 new service bays during this time period bringing our total to over 3750 bays. We remain committed to the OEM corporate identity programs and will continue to aggressively complete these programs where needed across our footprint.

Expense rationalization, we've challenged all of our regional teams and our dealer principals to produce SG&A reduction at all our stores. We expect the development and maturity of our campus area concentration to leverage many of our SG&A costs today, as we have incurred additional rent as many of our renovations have been placed into service. In fact our rent is up 7 million in the first quarter over a year ago, 4 million of that is through acquisition, and 3 million from new sale/lease-backs and COLAs. We are also reviewing every area of SG&A throughout the organization.

Let me turn to earnings guidance. We've updated our earnings guidance for the second quarter and full year in our press release this morning. As I previously noted we believe in a rational approach to growing our business which includes despite the challenging Q1, we are still expecting organic growth of above 3% for the balance of the year. Acquisition growth which we currently estimate to be in the range of 300 to 500 million on a net annualized basis in 2005, I think we'll be on track for that.

We currently estimate second quarter earnings to be in the range of $0.65 to $0.70 per share. Based on our results to date and expectations for the balance of the year we are raising our estimate for 2005. We currently estimate 2005 earnings to be in the range of $2.34 to $2.41 per share. Net guidance is based on an average of 47 million shares outstanding.

Just to wrap up this afternoon I think we had a great first quarter of 2005 despite many challenges. I continue to be pleased with our management team and the growth of our service and parts businesses, as an investment as starting to mature. I think the first quarter again demonstrates in that a difficult business climate our model can produce outstanding results. As we move into the important spring and summer selling seasons we remain optimistic about the recent vitality of our business model. There's no question our inventory is in great shape with outstanding days supply metrics. We have ample room in our credit facilities to meet our investment needs. We will continue to pursue selected acquisition opportunities that we fit -- we feel fit our business model.

I thank you and let's now open it up for questions.

[OPERATOR INSTRUCTIONS] First go to the line of Charles Brown with JP Morgan. Please go ahead.

Good morning, Roger, good morning, Tony. Actually, good afternoon. There's been some chatter on sell side that the U.K. was weak in the quarter. Could you elaborate on trends overseas a little bit more than the 7% decline and also how the quarter as a whole trended month-to-month from a comp perspective?

I said the overall market was down 7%. There's a mix of corporate buyers there and retail buyers and I think what happened, the retail was pretty soft in January and February. It picked up in March. Of course we have the registration month in March, and it was strong for us and with brands like Bentley and Audi and Porsche, we really had a strong finish over there and we're on budget, which was I think was quite strong. When you look at the actual numbers which reflect the quarter, January and February were down about 10% and March was down 5, but again this corporate business is a little bit different over there because of the taxes, many times compensation is based on availability of vehicles for corporate executives, so there's a little bit of difference when you look at year-to-year but you know, overall we add good finish to the quarter, and I think that we see that April is starting off decent for us also over there.

Earlier you alluded to some brands that we would be seeing later this year. Exactly when will those roll out in the U.K.?

We're starting to see the 3 series now. Now it's a little late coming out. M class will hit us in the second quarter. We have the GS coming with Lexus in the third and fourth quarter. We also have the hybrid, and then the diesel product will hit with Lexus at the end of the year, first quarter '06 and that's going to be a real benefit to us because today, because of fuel prices and fuel economy, you're seeing a big push towards diesel powered vehicles. Now we're starting to hear a lot of that with BMW thinking about coming over here.

Service and parts obviously did very well in the quarter. What's your long-term target for margins in that business unit?

I think when you look at targets from a gross profit perspective?

Yeah, that would be helpful. You did I think 54 and change in the quarter.

I would say we're looking at the same, because you've got a mix -- we're not a big wholesale parts operator which would drive that margin down. I think with the traction of our body shops we can be looking between anywhere between 50 and 60%. Today we're pretty much looking at, you know, at that 54 to 55%. I think when we look at service and parts, we're going to continue to grow same store we think in 7 to 10%. In fact, when you looked at even the quarter, you know, we had some headwind with shutdowns of some of our locations, where we didn't get the benefit of covering the fixed costs. I think you're going to look at the average from a revenue perspective of a mix, the mix perspective, probably in between 10.8 and 11.5% is where we want to go.

That's great. Within that, can you just provide a little more granularity in terms of what parts of the businesses are really doing well, and to that end could you give us some information in terms of what the capacity rates are at your service bays at this point in time? Then I'll pass it on to others.

I think I've said before we're probably in the 55 to 60% capacity. You just don't put up these big service departments and overnight fill them, but with the units in operation with the foreign name plates, we continue to see that growth, two or three examples I gave you. On the Big 3, we're seeing some of the bays unutilized on the Big 3 late in the afternoon, so we're scratching to get some of the maintenance items in those areas.

But overall when we look at the business, 60% of our business in service comes through customer labor, and 40% is warranty. That warranty continues to go down, except where people like BMW are selling a full-service capability, full circle, so you basically get all your maintenance items when you purchase the car, and of course we carry that back to the factory, so we're going to have to look at that in the future, how much of it is actually taking care of the customer as far as the sale is concerned, and how much is actually warranty. Just to give everybody on the phone, generally I see quality much, much better than I've seen it over the last two or three years.

Thanks.

Your next question is from the line of John Casesa with Merrill Lynch.

Can you tell us what pricing trends have been in new and used cars, your perception? Secondly what, are cap rates doing on the sale/lease backs? What's the market like there?

Cap rates in the U.S. are between 8 and 8.5 and we've seen rates in the U.K. at 6 to 6.25, so we're getting some benefits of some real good rates in the U.K. from a cap rate perspective so I think our timing, we couldn't hit it better with interest rates going up, we're getting these cap rates and when you think about the long term play here I think it the's good. The first question, John, I missed it, I apologize.

Pricing. What are the pricing trends in new and used?

Well, from our perspective, you know, we're seeing new price from the standpoint of, you know, we see that continuing to go up, you know, year-over-year and we've had an increase of probably $200 per unit per transaction from the gross side going up from a selling price we're getting some increases, because you've had the manufacturers moving up 1 to 2%, but in many of the domestic they give it back to you in incentives. Looking at incentives in March the average domestic was about $3800. The average Asian was about 1300. That was up a little bit. I think the Big 3 are now driving theirs down but from a transaction price, we see a higher number because our mix is more premium luxury.

Thanks very much, Roger.

Your next question is from the line of Adrienne Dale with CIBC World Markets.

Thank you.

How are you?

Good. How are you?

Great.

Couple of questions. First, I think you were talking about moving to a 60-day holding policy. Do you think that's going to have any implications in terms of having to discount in order to move vehicles off the lot?

We've looked at all these different models, and I've never seen a used car be worth more the longer it ages. We don't have everybody 100% bought into it, but I would say that we move cars out in 60 days, you know, we'll see, #1, we'll make the right decision when we trade it, and when we look at our losses, in fact, you know, our wholesale loss, we've really gone to a profit.

Now what we're drilling into is the cars that we still lose money on, some we make money. I think it the's the right call. As we have interest rates going up, if we can manage a lower used car inventory, we got to 29 days it will keep our interest cost down, so I think it's prudent and many of the other I'm sure good retailers have the same policy. One area where we miss it is because we get into this premium, luxury, like Ferraris, some of the expensive Porsches, you might end up keeping some of those cars longer but that why we're slightly over 60 days, about 4%, but it would be a small amount.

I'm sorry if I missed it but did you mention anything about changes in floor plan assistance?

I just gave you the number. We were 6.9 million in support in Q1 versus 7.2 a a year ago and basically it's because of our mix. There's less floor plan support on the foreign name plates than there is on the domestics.

But are the actual plans they are giving you changing going forward?

To be honest with you at my level I'm not aware that there's anything of any magnitude at this particular time.

Okay. Great. And then obviously there's going to be seasonal variation, but what are your expectations for the EU versus the U.S. going forward for this year? Do you have kind of a rate for the year?

Well, the EU is a big territory, we're operating in Germany and the UK and I think the environment is going to be tougher. People use equity in their homes in the U.K. I think there's been less people borrowing. One thing that's going on I think the manufacturers are now, you know, really starting to rationalize. They're not pushing.

They're looking for a pull situation from the standpoint of demand, because as soon as they get too many cars in the dealer's hands, the pricing goes down and I think that most of the manufacturers have had pretty good rational marketing approaches. We've had record years in the UK, '02, '03, '04, so there could be some adjustment but I think our brands that were strong, and continue, Audi is strong, BMW has good traction, Mercedes is coming back with a new product. Of course, Bentley and Porsche continue to be strong. We have four of those over in the U.K., Porsche and three Bentleys, so we really have some strong margins coming in there.

In the U.S. I look at -- I looked at the flash reports for April. Quite honestly, you know, April certainly looks decent. I looked at our traffic for the weekend through the 17th, and we're on a same-store basis, you know, we're about even par with our traffic from last year and our closing ratios are pretty much the same, so we don't see any -- at least from the data that I get to look at, we don't see anything that shows a big drop at least as we go into Q2.

Great. Lastly, could you give me the car/truck split for sales and inventory, and comment on whether you're seeing any additional pressure on truck sales, light truck sales?

One thing this is important about our model, something we maybe don't talk about too much, 70% of our sales are cars, and only 30% are trucks. So we don't see the downward pressure with the big SUVs. In fact, in many cases you'll see the fuel economy averages on some of the high volume Asian are pretty decent. So I can't give you any real picture, anything real precise on what's the mix change. We are 70/30 today, and obviously because of the higher fuel prices, you're going to see some -- you're going to see some pressure on SUVs, and there's a crossover to the Pacific, and vehicles like that.

If you talk to the manufactures today, everyone is working on fuel economy because they've got all this commitment and tooling in large SUVs, and many crossover vehicles, and they've got to be sure that they get the fuel economy, with the new emission requirements to the point where they can stay competitive and utilize their facilities.

Hybrids, you've got to remember, hybrids are hot. With Lexus coming out with the 400 H, the Prius, Escape, and what Ford and other manufacturers have, I think there's going to be a shift to those vehicles, too. So, again, most of those are cars, except as we get into the 400 H at Lexus.

Great. Thank you.

Our next question is from the line of Matt Nemer with Thomas Weisel Partners.

Good afternoon, Roger. Great quarter. First question is on the SG&A front. As a percent of growth profit you were up a little over 100 basis points. I guess I'm just wondering if there are some issues in there other than the rent which you already explained, that might be driving that up, that are more one-time in nature, like Sarbanes-Oxley or technology, corporate costs, et cetera.

Well, I think that as I did the calculations we were 12.2 for Q1 and we were 11.8 in the first quarter of '04. And 20 basis points is sale/lease-back. And I guess we had some insurance costs, we had a loss due to a hail storm. We don't break that out obviously. And again because we hit some of our targets in our higher luxury I think our comp cost was a little higher in the quarter than I had expected, but it's so difficult when you're talking about 30 or 40 basis points, you know, to pinpoint.

I think where we're focused on SG&A, and as I mentioned earlier we're challenging our teams, to try to look for ways that we can reduce those but when we're growing we want to be sure that we have enough personnel people in place, we're dealing with a litigious society out there, from the standpoint of finance and insurance. We want to have the right people in place to deal with some of the things that come up.

Standardized pay plans I'm looking at that. I think we've got to be careful because each brand creates a different type selling process. In the U.K. we've got central services which has done a good job for us. One of the area we have a lot of demonstrator vehicles in our international business, we might look to take some of those out. If I looked at 12, if you took the sale/lease-backs out and compared it, it's not bad. But we've got margin, we've got to be sure we don't keep driving the SG&A up, I got the message loud and clear.

Got you. And the next question is, on the used vehicle side the environment seems pretty strong right now, and I guess I'm just wondering what you're seeing out there and why maybe you guys were sort of flat to down on units? On the same-store basis?

Again, I think that as we look at this business and I got the question earlier about wholesaling, we're probably moving out units that we can wholesale, and not hold them longer, that might have reduced some of our, you know, some of the units available for retail. I think, you know, overall we were flat even with a growth we were flat on wholesale, 18.5 versus 18.3 a year ago. It's so easy to buy a new car.

In the premium luxury I would say domestics, you probably see larger used car operations than you do in many of the high-volume foreign name plates. Then you get into premium luxury and there's a lot of leasing going on. Many of those vehicles come back out from the customer and we can't even buy them because they're too high priced. Not the availability that we want. So there's a lot of different dimensions to the used car business.

We think we're in it, which is an important part of our mix, and certainly from an overall standpoint when you look at our margins, in the first quarter this year our margins were up. We're at 11.4 in the U.S. versus 10.8 a year ago, and in the U.K. we're 6.9 versus 5.4. So I guess that's showing the margins we are getting on the luxury vehicle. Now we have to try to pick up, I think we were 0.5, 0.5 to 1, used versus new. We need to get that up to 0.7. We do very well in some of the locations in the U.K. and some locations here but overall we're -- I think that's an opportunity for us if I look long term.

Just to follow up on that, can you comment on the trend in used vehicle sales during the quarter? Did it -- I mean, have things slowed down from the beginning of the year when demand was very high, wholesale prices were very high?

I would say when the weather is lousy, we have a tough time selling used cars. Probably easier to sell new. With the spring coming, I would think used would be better. I don't have any data early in Q2 to say that used vehicle business is up or down, to be honest with you. I'm just looking at overall traffic, and that would include both new and used and the traffic is consistent same-store year-over-year, and our closing ratios are, you know, about the same.

So that would bode to say hey, we're probably seeing decent used car cape capability.

My last question is, if you look at the floor plan interest expense it actually came in lower than what we were looking for, given the increase in LIBOR, and I'm wondering if the real inventory, I guess your average inventory was lower than the 50 days and 29 days at the end of the quarter might actually imply.

Yeah, we had real good inventory control and I think that when you looked at the quarter we had about $0.025 of headwind on interest, both floor plan and working capital, but that's what we've got to do. We've got drive it down. When you think about size of our business now and when you look at quarter over quarter, we had $71 million, I think more inventory with a much bigger business. So obviously we were more efficient.

Super. Thanks very much.

Thank you.

And next we go to the line of Gerry Marks with Raymond James.

This is John Tate filling in for Gerry. He had to run to another meeting. Does your guidance include any impact of options expense for 2005?

We don't have options. We have gone to restricted stock as a component.

Okay. Thank you. The $870 in F&I per vehicle that you put up for this quarter is that a good number to use for the rest of the year?

I would think that's probably pretty decent. I think, John what you've got to remember, with our brands, there's more leasing going on with Audi, BMW, and Mercedes, so we don't have the benefit of being able to sell the extended warranty to many of those customers so that would drive our F & I product per unit down. Also, if you look at the fourth quarter, we had a big impact of a serious increase, I think it was $140 per unit which drove it up, but I think the current level is pretty realistic.

Okay. Could you speak to any specific strengths or weaknesses in any of your particular regions that you operate during the quarter?

Well, I think that we had the Detroit area because of the weather we had Atlanta hit us with an ice storm. I could go on and on and give you a weather report. There's nothing that I would say is out of control. We had the Houston market continues to be challenging for us. Detroit, because of the weather and on the East Coast, you know, these storms went all the way up the East Coast, but I don't think there's I can't say any market would stand out that I've got trouble in. I think it's more us than it is the market in many cases.

Okay. Last question. Do you have any specific priorities for your cash flow in 2005?

Well, you know, with any extra cash we're going to pay down our working capital debt certainly is primary and we would also -- we look at it be in a position, you know, to make selective acquisitions both domestic and internationally so, you know, it would be debt reduction and acquisitions, because we're -- most of our big projects we have tailored to sale/lease-back commitments with our partners already. So we'll be able to fund those at the time. And again, you know, we look at our business. I think I said earlier on the call, we're looking at 300 to 500 million net annualized revenue in acquisitions for the year.

Thank you very much.

Next go to Scott Stember with Sidoti & Company.

Could you talk about the split in same-store sales between the U.S. and Europe in total in the quarter?

Really in revenue, retail revenue, you know, we were -- we were 0.6% up and on a same store basis the international was up 3.1 and we were down 0.4% in the U.S.

Okay. And just circling back to the interest rate situation, in general, I think the last quarter you were close to 30% of your total debt profile was fixed, I think it was in the high 20s. Where does that stand today, and are there any chance of any swaps in the future to mitigate any rising interest rate situations?

No, I would say right now 27 to 30% is fixed. We have 600 million out of our total which would be fixed either through fixed rate or swaps.

And we could expect that to stay the same for the rest of the year?

Yeah, I've looked at it. We have more people talking to us about things we can do and I think at the moment my best offense is to manage our inventories.

All right. That's all I have. All my other questions were answered already.

Thanks, Scott.

And next go to Jonathan Steinmetz with Morgan Stanley.

Good afternoon everybody. A couple of questions. Most of them have been answered. But can you elaborate a little bit more on the increase in the used gross profit per vehicle, just how much of this was a brand mix issue, how much was country mix, how much may have just been execution-oriented, on sort of, like for like?

I think if you look at the revenue, let's look at the revenue per unit. In the first quarter in the U.K. the average used vehicle revenue per unit was $46,400, then the first quarter of '04, it was 38,700. So you've got $6,000 or 7,000 worth of increase in revenue, so obviously a higher revenue increase per unit, we would get more margin. In the U.S. was pretty much flat on used at 18.5 versus 18.6 in '04. So, again, that's driving the $400-plus in the U.K. and roughly 100 in the U.S. I think that we got better used cars, we're getting them to the market quicker and we're getting better value.

Okay. And on Sirius, could you break out how many warrants essentially you earned in the quarter?

We have the opportunity to earn 2 million warrants for the year. We get a piece of that each quarter, and we have to mark that to market. I think the benefit was 1.6 million million pretax, but we have expenses in the dealership, we don't record against that, but it was, I think, about a penny and a half, roughly, you know, from the standpoint of support.

Just for modeling purposes --.

Remember those vest annually in January, and as we did last year, when they vested we sold those and generated the cash.

And just for modeling purposes, the 1.6 pretax is it fair to think of a normal corporate tax rate or would that be treated differently?

Normal corporate tax rate.

Thank you very much, Roger.

Thanks.

[OPERATOR INSTRUCTIONS] Next we go to the line of Jordan Hymowitz with Philadelphia Financial.

Hey, guys. Good quarter. Most of my questions were answered as well. I'm just wondering if you could break it out on the same store, new/used, finance, service, and parts, US versus international?

Jordan, say that again.

Can you break out new vehicle was down negative 30 basis points. Can you break that out please domestic versus international --?

If I looked at new vehicle revenue we were down 0.3% in both U.S. and international and on used we were down 6.3 in the U.S. and down 0.9 international.

And how about service and parts, finance and insurance?

Service and parts, we were up 7.2 in the U.S. in revenue, and up 6.3 internationally to give us our 6.9.

Great job on the service and parts.

I think we're in the right spot here. The nice thing it's a margin, someone asked me earlier, 50 to 55%. I think that you know, it really looks good. When you look at the overall used revenue in the U.S. we're down 5.9 but up 6.7 internationally, so it gave us a total of 0.5, what we said was flat.

Thank you.

Okay. Thanks.

And next go to Rick Nelson with Stephens. Please go ahead.

Hey, Rick.

Thank you. Congratulations, Roger.

Well, we keep trying here.

Can you talk about the year-over-year operating profit trend down at international versus domestic? To get a look at where the growth is coming from, from a profit standpoint. Is it domestic or international dealers?

This is your favorite question, right? I think I was ready for this. If you looked at -- in the first quarter we said 35% of our revenue came from our international businesses, and we were a little bit north of 40% for our operating income, and obviously we get a little bit of bump on that because of the registration month but we'd be looking at, for the full year, in the 35 to 36% pretty much traditional. We've seen in the past and that's of operating income.

Okay. And what was the year ago percentage?

Pretty much the same. We're a little bit higher in the first quarter because of the strength of -- the strength of the U.K..

So the growth rate is pretty similar between the domestics? And the international segment?

You mean the growth -- okay, yeah, I would say it's -- the guys here are saying it's pretty much the same, yes. Call Tony and maybe he can give you a more precise answer than I gave you. I'm sorry.

April -- any comments what you're seeing there in the U.S. and in the U.K.?

I think I said earlier that looking at the traffic in the U.S. on a same-store basis we're seeing it consistent with last April, and obviously you have a little bit of a reduction in the U.K. coming off the registration month but, you know, it's going to be challenging, as we go forward, you know, over the next, you know, next 60 days but we're seeing Tamsen very strong in Germany in the premium luxury, and also Nix, our title Lexus partner in Frankfurt, as they had excellent growth, and so we see those as complimenting our business. I wouldn't have given you the guidance that I gave if I didn't think that we were on track, you know, for a decent quarter. When you look at that the quarter a year ago I think we were at $0.71. We had $0.09 benefit from the UTI game, so we're at 62.

I think our guidance represents, you know, roughly 5 to 10% increase, you know, quarter-over-quarter. The other thing that's happening, I think our loyalty, we're tracking now loyalty by brand, and UAG's loyalty factor in the quarter, 52% of the people that bought cars from us had either done service or parts, or bought a previous car from us. From a loyalty perspective, repeat referral is excellent for us.

Mr. Penske, no further questions in queue.

Thank you, John. Thank you everyone for being on the call. Thank you.

And ladies and gentlemen that does conclude your conference for today. Thank you for your participation, and you may now disconnect.