Tag Archives: GPI

Group 1 Automotive 2Q17 Earnings Call Notes

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Earl Hesterberg – CEO, President & Executive Director

Poor performance in energy impacted markets

“Although we had another record performance in U.S. FNI per unit retail and a further rebound in Brazilian profitability, these factors were not enough to offset continued weakness in vehicle sales in our U.S. energy price-impacted markets. Combined new and used retail unit sales dropped 7% in Texas and Oklahoma during the quarter. Our largest market, the U.S. energy capital of Houston, had an industry new vehicle sales decline of 10% in the first half of the year and a very weak close to the second quarter with June sales down 24% from June 2016 levels. T”

A lot of high paying jobs were lost in Houston

“I think for us, Rick, the key is when the energy companies start to hire people again. And those — actually markets like Huston have replaced most of the lost jobs. That really is not a net job loss, but the new jobs tend to be in the restaurant, hotel, hospitality industry. The jobs we lost are energy and construction jobs, high paying jobs.

So not only are there fewer customers buying a car, there is a probably a mix issue there too. The new jobs are probably supporting lower mix and more used cars or low end volume brand cars and have probably been hit disproportionately in the midline imports and luxury brands. But I think it’s just a function of hiring again in the energy industry.”

I think the market will continue to head toward electric

“These statements by Volvo by 2025 in the U.K., by 2040, those were just seemed to be statements of strategic intent and very much in tune with the consumer psychology at the moment. It’s driven by all this negative press about diesels. But clearly, things are headed that direction and as there is more offerings from the powerful OEMs, I think it will continue to head toward materiality in our business.”

John Rickel

Opportunity to downsize dealerships

“Well, you’re preaching to the choir on that one, David. No, it doesn’t require much of the brick-and-mortar we have today. We actually have one of the top OEM Executives with us last Saturday who toured all of our different brand dealerships in Houston and we made the point to him that the 2 most important things to us today, and I think OEM dealers, are a service bay and a parking space. Everything else is interesting, but we always need more parking spaces which are very costly when you’re in metro areas where the land is expensive. And a service bay, is valuable and generates gross profit. And showroom size and offices and all those things are interesting, but we can sort those out on our own. So we hope we’ll enter an era soon of more realism in that area. But I can’t say we’re there yet.”

Group 1 Automotive 1Q17 Earnings Call Notes

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Earl J. Hesterberg – President and CEO

Sales down 11% in TX and OK

“Combined new and used sales dropped 11% in Texas and Oklahoma during the quarter. Our largest market, the U.S. energy capital, of Houston, had an industry new vehicle sales decline of 16% for the quarter. Group 1 new vehicle sales in Houston were down 13% for the quarter. So we outperformed the market, but still need to make further adjustments to our business.”

Inventory still far too high

“U.S. new vehicle inventory stood at 29,800 units, which equates to a supply of 86 days, consistent with a year ago but far too high. While first quarter inventories tend to be elevated due to preparation for the spring selling season, we must adjust our inventory level downward in the second quarter. Domestic branded inventories remain the biggest challenge with GM, Chrysler and Ford, all over 100 days. We need to adjust some of our production orders further, especially in our impacted Texas and Oklahoma markets.”

Inventories need to keep coming down in the oil patch

“I don’t know that I can apply any across the board summary of what’s happening, but we’re not the only dealers in these oil patch markets who have found themselves with too much inventory based on a further slowdown of sales. So, these OEMs are quite well managed these days. They understand as well as we do that there needs to be some further production cuts, at least in these pockets, at least in these geographic pockets. They’ve all been working to shift the mix more toward trucks than cars. So, I think that generally speaking, adjustments were made quite well last year. We were actually in this same situation early last year, and by the end of the year I believe much of the industry, and certainly our Company, had the inventory levels under control again. And now with this more recent decline in the oil patch sales, there needs to be another adjustment made, and I’m confident that we’ll work together to make that happen.”

Rig counts are up but haven’t seen much hiring

“We also perceive some of the increased activity by the energy companies. I think if we look at the rig count every week, I think it’s up 300 rigs across the country from the low point, and a lot of the activity is out in the Permian Basin. And capital budgets for most of the energy companies are up this year. So there is increased activity, no doubt. What we have not yet seen is any significant hiring, but we expect that that must occur. So, we are somewhat optimistic about the future, but for the near term we have to deal with the reality of the present. But yes, we’re optimistic that the energy industry is going to start to slowly recover now.”

Group 1 Automotive 3Q16 Earnings Call Notes

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Group 1 Automotive’s (GPI) CEO Earl Hesterberg on Q3 2016 Results

There are still many dealers chasing volume

“I think it’s starting to turn but there are still many dealers including us in some places chasing volume. And the problem we have is many of our locations are in these markets where the industry is down double digits. And when you have targets that are up almost double digits, I mean it just you know it’s a disconnect. And that’s the problem when OEMs provide target is they can’t necessarily fine tune them and prescribe for some of the pockets like the oil industry or the industry isn’t behaving like it is another parts of the U.S. So it really get some disconnects on some of these targets versus reality.”

OEMs starting to back off aggressiveness with leasing

“my impression is that OEMs are starting to back off or slow down a little bit on leasing, leasing is not as big for us because of our geographic concentration in south central U.S. where about 17% leasing where as the industry is as you say closer to 30%. So it’s not the same concentration for us, because leasing is quite heavy in the northeastern U.S. and California. But with used car values likely having peak sometime in the past, my impression is the OEMs are starting to become a little more prudent about how aggressive they get in pushing higher levels of leasing.”

Oklahoma not as diversified as Texas

“Oklahoma was probably the market that surprised us the most with the 18% decrease. But I think we always recognize that the Oklahoma economy is not nearly as diverse as Houston or many parts of Texas, so it’s very heavily energy dependent. But I think there’s a general feeling of getting closer to the bottom in Texas, but I don’t think there’s any declaration that we’ve hit the bottom yet.”

UK suffering from uncertainty

“In the U K it’s still just mostly suffering from uncertainty, I don’t think markets particularly weak, but uncertainty is never good for consumer confidence, which is the main driver of auto sales. But I had certainly haven’t any input that says the U K market is especially weaker than it was in September and it was fairly reasonable in September with retail sales down only 1%.

Our inventory levels are still high, OEMs are cutting production

“I don’t think any of us are having to push back as much as we did 90 days ago, because many of the OEMs have now reacted and reduced production. It is true that we’re still very sensitive to our inventory levels and they’re still not quite where we’d like them to be. I think we like them to still be another six or eight days lower. But they are coming into line and I think you’ve probably read about many of the production cuts that the OEMs are making. So I think the entire industry understood the problem, and we’re working together to get it back in line with.”

I think we’ll get some clarity after the election

“Well I think there’s two camps, I think there’s a camp that says flat and camp it says a slight decrease. And I think there’s some factor that will gain some clarity after we get a presidential election outcome, and then we’ll see what the mood of the public is, because so much of consumer confidence are psychological and most experts would contend that the current electoral process is creating some distraction.”

Miscellaneous Earnings Call Notes 4.28.16

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General Electric (GE) Jeffrey R. Immelt on Q1 2016 Results

Saw improvements in our business in China

” We’re in the midst of a challenging Oil & Gas market. However, we are things sustained strength in Aviation and Power markets. Healthcare is rebounding. I was in China last week and saw improvements in our business. Most of the portfolios are strong and we’re delivering. There’s plenty of business out there to achieve our goals.”

McDonald’s (MCD) Stephen J. Easterbrook on Q1 2016

All Day Breakfast came out hard and then settled but is still exceeding expectations even at the settled stage

“we clearly came out of the tracks hard with All Day Breakfast. It exceeded our expectations through the launch phase, and then hit a more settled rate. Frankly, it’s still exceeding our expectations through the settled stage as well. So we’re incredibly encouraged.”

Honeywell International (HON) David M. Cote on Q1 2016 Results

I’m hopeful for a rebound but we’re not going to count on it. Europe did better than expected

“I’m hopeful that there is a global economic rebound, but we’re certainly not going to count on it. If there was any region that surprised me in this past quarter, it was Europe did a lot better than I expected. I don’t know if this is just a one-time bounce or something that’s going to stay consistent, but I was quite encouraged by seeing that. It was a nice surprise. I mean, we’ll see how much that turns into something. But right now, we’re going to stay with this whole idea that this is a slow growth global environment and it’s just the smart way to plan. And you see that reflected in how we are forecasting the second quarter and how we’re forecasting the total year. I just don’t think there’s any percentage right now on being bullish about it. If it happens, great. I think there’s a greater chance it happens than there is that it doesn’t. But that being said, I don’t see any percentage in being bullish about it.”

Flight hours is the most important driver of the aerospace cycle

“I’d say it comes back to flight hours again. They fly a lot. And that’s really – I’ve said many times the biggest Aerospace driver we have is flight hours. And it’s not tied to OEM schedules or airline profitability or any of that generally. The long-term trend is going to be driven by flight hours. If they’re flying, everything ends up working out. Whatever short-term disruptions or benefits, whatever you’re seeing, over time flight hours ends up being the driver. Flight hours continue to climb, and that’s a good phenomenon for us.”

LyondellBasell Industries’ (LYB) CEO Bob Patel on Q1 2016 Results

Olefin and polyolefin markets are tight

“Looking forward, we see olefins and polyolefins markets remaining tight during the near-term. There are heavy turnaround schedules in both the US and Asia. The recent rise in crude oil prices provides tailwinds for both pricing and demand, as customers no longer feel incentives to delay purchases, in hopes of future declines in product prices.”

Procter & Gamble’s (PG) Q3 2016 Results

Jon Moeller

It’s not enough just to gain market share

“The reason that we’ve talked a little bit about not following share out the window, we can be gaining shares in categories that are declining, and that’s not going to grow our top line. What we need to be doing as innovation leaders in our categories is getting the market growing through that innovation and gaining a share of that growth.”

Twitter’s (TWTR) CEO Jack Dorsey on Q1 2016 Results

Acquisitions have been critical in creating value for the internet sector for two decades

“The first point I would make is that acquisitions have been critical in creating value for the Internet sector, consumer Internet sector over the last two decades. Many of our competitive peers have bought assets at very early stages that have resulted in billions of dollars of value and Twitter has been the same”

Goal is to be one stop shop for advertising

” At end of the day, our goal is to be a one-stop shop for advertising. And having both owned and operated inventory, third party inventory and ad text stock that can serve both of those constituencies is really critical.”

United States Steel’s (X) CEO Mario Longhi on Q1 2016 Results

Favorable trade case results are boosting the domestic steel industry

“Last year, we successfully advocated for the passage of the Level Playing Field Act in the trade adjustment assistance bill. This represents the first time in decade that U.S. trade laws were revised and clarified to align with the original congressional intent. The interpretation and enforcement of these new laws has already been reflected in preliminary determinations in the three major trade cases we elected to pursue with other steel companies in 2015. Yesterday, we announced another step in our efforts to have the rule of law enforced. We filed a complaint with the U.S. international trade commission to initiate an investigation under section (337) of Tariff act of 1930 against the largest Chinese steel producers and their distributors. The 337 complaint alleges illegal unfair methods of competition and seeks the exclusion of all unfairly traded Chinese steel products from the U.S. market. I would like to emphasize that the remedy under section (337) is not a tariff, it is an exclusion of products from the U.S. market. Our complaint alleges three clauses of action, the illegal conspiracy to fix prices, the theft of trade secrets and the circumvention of trade duties by false labeling.”

Third Point 2Q16 Investor Letter Dan Loeb

One of the most catastrophic periods of hedge fund performance since this fund’s inception

“Unfortunately, many managers lost sight of the fact that low net does not mean low risk and so, when positioning reversed, market neutral became a hedge fund killing field. Finally, the Valeant debacle in mid-March decimated some hedge fund portfolios and the termination of the Pfizer-Allergan deal in early April dealt a further blow to many other investors. The result of all of this was one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund”

Volatility is bringing excellent opportunities

“As most investors have been caught offsides at some or multiple points over the past eight months, the impulse to do little is understandable. We are of a contrary view that volatility is bringing excellent opportunities, some of which we discuss below. We believe that the past few months of increasing complexity are here to stay and now is a more important time than ever to employ active portfolio management to take advantage of this volatility. There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies. ”

Texas Instruments’ (TXN) Management on Q1 2016 Results

Kevin March

Inventories were up because we expect higher shipments

“We expect that material is going to ship over the balance of the year. And between the increased shipments in 2Q and the shipments of that personal electronics material, we’ll see the days of inventory drift back down comfortably inside our model, very similar to what we saw last year. If you go back and take a look last year, we were also a little bit higher in the first quarter, anticipation of second quarter growth, and then days drifted down as we came through the year.”

Dave Pahl

Weakness came in as expected but broad based strength in other areas

” that portion of demand where we saw weakness came in about as we expected. The strength was more broad-based, and we continue to, obviously, to see strength in automotive and then the improvement in industrial and comms equipment. So, very, very broad-based strength that we saw. So the second part of your question was sequentially. What we saw from the trends there, no surprise that automotive remained very strong, and it was driven by infotainment as well as the hybrid electric and powertrain systems. Industrial, again we had growth across almost every sector inside of industrial. Personal electronics down, with most sectors declining”

Group 1 Automotive’s (GPI) CEO Earl Hesterberg on Q1 2016 Results

Vehicle inventory stood at 85 days vs 69 days in 1Q15

“The U.S. new vehicle inventories stood at 31,400 units which equates to an 85 day supply compared to a 69 day supply for the first quarter of 2015. Luxury brand inventories drove much of the year-over-year increase. We have adjusted orders and expect to bring inventory closer to our target level of 60 days by the end of the second quarter. ”

Oil companies still have a long way to go in restructuring their balance sheets for what’s happened to oil prices

“our new vehicle sales in Houston, we held a 1% decrease for the quarter, so we’re fighting it pretty well, but I attend a lot of meetings and I’m various Boards with these oil company executives and they still have quite a way to go in restructuring their balance sheet and that’s what happening now.”

Hasn’t been a big consumer confidence problem outside of energy impacted markets

“No, I don’t really see weakness outside of the energy belt. David I’d say people are reacting to the fact just not growing as significantly as it had been in recent years. So when it’s flat without it only grow 1% or 2% or 3%, I think it feels for a lot of people like it’s just very slow. But I wouldn’t say I have seen any big consumer confidence crisis anywhere outside of the energy impacted market.’

AGCO (AGCO) Martin H. Richenhagen on Q1 2016 Results

2016 farm income expected to remain below 2015 levels

“estimates call for 2016 farm income to remain below 2015 levels. In North America, relatively young machinery fleet and dealer efforts to reduce inventory levels have contributed to continued decline in industry sales through the first quarter. Weaker demand from the row crop sector resulted in significantly lower industry retail sales of high-horsepower tractors, combines and sprayers.”

Notes From the Merrill Lynch Auto Summit

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

$BWA Borg Warner

“as we look ahead, fuel economy and emissions improvements will remain the key objectives for automakers around the world”

“Throughout our history, our technology has competed against alternatives”

“Chinese domestic companies are going to get stronger and better and better, and I think they’re going to get a lot of support for that”

“I think the way to think about what the next technologies look like for us, first of all, each of the products that we have in the portfolio today are all enabling fuel economy and emissions performance across-the-board, every one of those products. And we see area for opportunity and advancements in all of those products, actually. So if I think of turbochargers to pick on an example, we see optimization in the turbo to help the automakers overcome such things as transient response, or turbo lag as some folks may know it. So we’ve got a bunch of examples going on there where we’re looking to use lighter materials, different types of materials. So there’s a whole stream of work around next generation of the products that we have today, and I could list those examples for — across every one of the products that we have. And that’s a big, big part of the work that we do. But the other part of the work that we do, and that’s kind of part of the BorgWarner DNA, is what’s the next thing that’s not in our portfolio, and we approach that both organically as well as through M&A. So we’re looking at what the powertrain may look like 10 years, 12 years, 15 years. We have a Chief Technology Officer, a team of people that are dedicated to — that’s what they do. And that may come externally where we may see a technology that isn’t in play today but will be in a decade”

“The way we interact with the customer is almost always as a system-type approach. But what leads us to the solution with the automaker is our system know-how. Absolutely, our engine system know-how or our clutching and control systems know-how. And integral to that know-how is a tremendous amount of sophistication that we have inside the company about understanding engine and transmissions as a complete system.”

$TRW TRW Automotive

“we’re big, we’re global. We have over 65,000 employees around the world. There is usually not a platform or a car that you can name where we don’t have some kind of content on”

“there’s no one platform, no one product, no one customer that is hugely material to the company, and that speaks to the defensive nature of our business.”

“We do feel that there’s pent-up demand building in Europe. We do think that the normalized level is something more in the 20.5 million to 21 million zone.”

“over many years, it’s gone from a component base to a systems base to an integration.”

“We go through ups and downs, be it the downturn of ’08, ’09, the investment phase that we’re going through now, commodity spikes. But at the end of it, we always generate cash…Two worst years in the history of the auto industry, ’08, ’09, we generated $545 million in those 2 years. And this is something that we highly focus on in the company”

“Yes. We are making money in Europe at these levels. I think at 18.4 million vehicles being produced this year, that’s well above our breakeven. You’d have to get down into the 17 million, sub-17 millions before there’s any concern or worry.”

$DLPH Delphi

“The pace of change in the automotive industry, well, it’s accelerating…global platforms have become a reality. By 2020, they will represent over 1/2 of the global vehicle build.”

“China isn’t the only area that we’re seeing massive change, stricter fuel economy. And emission standards are taking hold worldwide. And consumers are demanding to be connected from the car.”

“we do have the industry’s leanest cost structure.”

“Delphi is a very large and a very complex company that earns the trust of our customers through outstanding, flawless execution…we purchase 0.25 billion parts every day from 6,400 supplier locations. Our 110,000 people in our 141 global facilities deliver 60 million parts every day at quality levels of less than 2 rejected parts per million and with on-time delivery of 99.5%”

“We believe the role of the Tier 1 supplier is becoming increasingly more important. OEMs rely on system integrators like ourselves. And there are only a few Tier 1 suppliers like us that are focused on innovation and even fewer that can execute globally like we do”

“there’s a long list of consumer electronic companies that’s at the top of the game and the connectivity technology. But being able to make that technology, automotive grade and make it work in a car, then that’s a different story, and that’s where we come in at Delphi. Those companies don’t know cars like we do, so we work very closely with companies like Microsoft, NVIDIA and Google”

“we’re a very high-tech company with very special products, and there’s an extra amount of percent of vehicles on the planet that will not utilize ours, particularly, a lot of the entry-level emerging market types of vehicles. They’re not heavily contented in our space, and we do not try to engineer down into that. So there’s probably 35% to 40% on the vehicles that we don’t want to be on because they won’t generate the kind of value that we want to generate, and we don’t plan on taking our technologies and trying to cheapen them, and brand them down to meet into that space. In addition to that, we don’t — we only have about 5% of our business with the Japanese OEs.”

“[on how to achieve fuel efficiency] much improved conventional Powertrain through technology improvement, it will lead the way, it will be the majority of what you see in d vehicle fleet followed by the hybrid and the plug-in and then the EV…when we look at our content for vehicle, it’s actually higher on the electrified vehicle than it is on the conventional vehicle.”

$GPI Group 1 Automotive

“we’re the fourth largest dealership group in the U.S. Last year, we retailed a little bit over 128,000 new vehicles, about 85,000 used vehicles”

“We’re currently up to 142 dealerships, representing over 180 franchises, we have 36 collision centers…we added 18 dealerships in Brazil.”

“brand mix has always been very dominant with Toyota and Lexus, it’s still about 30% of our company. And then you can see Nissan and Honda and BMW and MINI, all around 11%; and Ford, a significant part of our business at a little less than 10%. You can also see that Texas, California and Massachusetts are our primary geographies, and the U.K. showing up there at about 6%, but I expect will continue to grow.”

“While Only 12% of our revenue, our Parts & Service business generates 42% of our profit. Finance and Insurance business also is disproportionate in its contribution to our profit level, 4% of revenues generate 23% of our gross profit. So although a vast majority of our revenues, 57%, come from selling new vehicles, only a little more than 1/5 of our profit comes from that.”

“We continue to see great potential for growth in the U.S. market in the next few years as well. However, still a lot of pent-up demand, the age of the car park is as old as it’s ever been, near 11 years. The number of licensed vehicle drivers is on the rise. Financing is widely available in the market. And used vehicle prices, although they’ve softened recently, are still very strong, which helps consumers trade their vehicles.”

“And as new vehicles trailed off during the recession, our best source of inventory, if you will, is the trade when somebody comes to buy a new vehicle and that fell off as the new vehicle sales fell. We got down to a low of about 50% of our used vehicles being sourced via trade-in, where kind of prior to the recession, we were running about 70%. That puts some downward pressure on our margins…we have to go to auction to source cars. We’re paying $500 to $1,000 more kind of for a similar vehicle. You got auction fees, you got transportation cost, and you’re ultimately bidding against other dealers. So it’s a more expensive place to pick up inventory, so we think there’s opportunities going forward there.”

“the productivity of salespeople over the last decade, or maybe it was even longer than a decade, hadn’t really improved much while you’re selling 8 to 10 cars per month per salesperson. And we’ve got to find a way to change that.”

$HTZ Hertz

“$9 billion of revenue. You can see that a little over 84% of that is in the rental car space…equipment rental business is a $1.4 billion business”

“we’ve really focused over the last couple of years in becoming experts in the used car market. if we can sell a car directly to a dealer, we can make $500 more per car by eliminating that wholesale channel. That’s really the fees that you pay to the wholesaler. And if we can sell directly to the retail channel, there we can make $1,100 more per car”