Penske Automotive Group, Inc. (NYSE:PAG) Q2 2025 Earnings Call Transcript

Penske Automotive Group, Inc. (NYSE:PAG) Q2 2025 Earnings Call Transcript July 30, 2025

Penske Automotive Group, Inc. beats earnings expectations. Reported EPS is $3.78, expectations were $3.56.

Operator: Good afternoon. Welcome to the Penske Automotive Group Second Quarter 2025 Earnings Conference Call. Today’s call is being recorded and will be available for replay approximately 1 hour after completion through August 6, 2025, on the company’s website under the Investors tab at www.penskeautomotive.com. I will now introduce Tony Pordon, the company’s Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.

Anthony R. Pordon: Thank you, Julianne. Good afternoon, everyone, and thank you for joining us today. A press release detailing Penske Automotive Group’s second quarter 2025 financial results was issued this morning and is posted on our website, along with a presentation designed to assist you in understanding the company’s results. As always, I’m available by e-mail or phone for any follow-up questions you may have. Joining me for today’s call are Roger Penske, Chair and CEO; Shelley Hulgrave, EVP and Chief Financial Officer; Rich Shearing, North American Operations; Randall Seymore, International Operations; and Tony Facione, Vice President and Corporate Controller. Our discussion today may include forward-looking statements about our operations, earnings potential, outlook, acquisitions, future events, growth plans, liquidity and assessment of business conditions.

We may also discuss certain non-GAAP financial measures as defined under SEC rules, such as earnings before interest, taxes, depreciation and amortization or EBITDA, adjusted net income, adjusted earnings per share, adjusted selling, general and administration expenses and our leverage ratio. We have prominently presented the comparable GAAP measures and have reconciled the non-GAAP measures to the most directly comparable GAAP measures in this morning’s press release and investor presentation, both of which are available again on our website. Our future results may vary from our expectations because of risks and uncertainties outlined in today’s press release under forward- looking statements. I also direct you to our SEC filings, including our Form 10-K and previously filed Form 10-Qs for additional discussion and factors that could cause future results to differ materially from expectations.

I will now turn the call over to Roger Penske.

Roger S. Penske: Thank you, Tony. Good afternoon, everyone. I’m really pleased with the performance of our diversified international transportation service business in the second quarter. Our revenue was $7.7 billion, which was consistent with Q2 last year. Our Q2 revenue was impacted by strategic divestitures of dealership closures made since quarter 2 in 2024, representing approximately $200 million in revenue. EBT increased 4%, our net income increased 4% and earnings per share increased 5% when compared to the second quarter of 2024. Q2 represented our third consecutive quarter of year-over-year earnings growth, and we generated $337 million of income before taxes, $250 million in net income and $3.78 per share. Our EBT margin increased 20 basis points to 4.4% when compared to Q2 last year.

The second quarter performance was highlighted by a 9% increase in same-store retail automotive service and parts gross profit and a 50 basis point increase in service and parts gross margin, also an increase in fixed cost absorption of 330 basis points in the U.S. and 30 basis points in the U.K. Our gross profit increased to $1.3 billion, which compares to $868 million in Q2 in 2019. The company gross profit margin increased 50 basis points to 16.9%, representing the eighth consecutive quarter of strong and stable gross margin. New and used vehicle grosses increased 141% — $141 in the quarter for new and $384 sequentially. Used grosses increased $504 per unit for the quarter and $177 sequentially. New and used vehicle gross and F&I combined or what we call variable gross profit increased $583 per unit or 11% to $5,691.

Our focus on controlling costs such as advertising compensation as a percentage of gross profit helped drive selling, general and administrative expenses as a percentage of gross profit or SG&A to 69.9%, a 30 basis point improvement. As we look at the current environment, we are encouraged by the recent trade agreements. In fact, the recent agreement with the EU is expected to provide benefits to 2 of our largest partners that should benefit from the agreeing by exporting U.S. production. We’ve seen some OEMs increase prices modestly while others have extended during the current pricing. The situation remains fluid, and we remain close — in close contact with our OEM partners. I think our diversification is a key differentiator as approximately 61% of our revenue is generated in North America, 29% in the U.K. and 10% from other international markets.

PAG’s premium brand mix, our presence in the U.S. and international automotive markets, our North American retail commercial truck dealerships and earnings from Penske Transportation Solutions, coupled with our highly variable cost structure, provide us with opportunities to flex our business to meet the changing automotive and commercial truck landscape. Let me now turn it over to Rich Shearing, who handles our North American operations. Rich?

Richard P. Shearing: Thank you, Roger, and good afternoon, everyone. In our automotive retail business, during the second quarter, we experienced elevated traffic during April and May. We believe the pent-up demand is driving customer resilience, and we have seen stronger traffic and closing ratios so far in July with sales up approximately 10% month-to-date versus prior year. In the second quarter, our new units in the U.S. were up 1%. Some OEMs held off from shipping product as tariff negotiations took place, limiting inventory of some brands. During the quarter, 34% of new units sold were at MSRP compared to 35% in the second quarter last year. Second quarter used vehicle sales declined 3% and were constrained by fewer lease returns and rising prices.

We expect the lower level of lease maturities to bottom this year and begin improving in 2026. We expect franchise dealers will benefit from increasing lease returns for used vehicle sourcing in that time period. Our U.S. service and parts operations generated record levels of revenue and gross profit. Same-store service and parts revenue increased 7% and related gross profit increased 9%. Same-store gross margin increased 90 basis points. Customer pay gross was up 6% and warranty was up 24%. We have approximately 6,000 service bays and 5,800 technicians, and our technician count is up 2% from June of last year. While our service and parts revenue and gross profit is at a record level, we continue to focus on driving higher utilization of our bays and increasing fixed cost absorption.

Turning to Premier Truck Group. We operate 45 locations and remain one of the largest commercial truck retailers for Daimler Trucks North America. Daimler Trucks North America continues to have the largest share in the Class 8 market at 42.5% year-to- date. Premier Truck Group is one of the core pillars of our diversified model and represents 12% of revenue and 11% of gross profit. As we look ahead, the U.S. Congress revoked the EPA waiver that allowed California to adopt more stringent emission rules, which means manufacturers and dealers will no longer have to navigate different rules across different states. Coupled with the waivers being rescinded for Advanced Clean Truck and Advanced Clean Fleet rules, the ZEV mandates have also been effectively removed.

As a result, we believe the potential cost increases for the 2027 model year Class 8 trucks will be more muted than originally expected. During Q2, Premier Truck Group sold 5,339 new and used units. New was up 4% and used units was down 8%. Although used units declined, used truck grosses increased over 50% to $7,037 from $4,502 as late model low-mileage trucks continue to be in short supply. At the end of June, the current industry backlog was 90,400 units or approximately 4 to 5 months’ worth of sales. We did note some pull-ahead ordering during the quarter as a result of tariffs as some customers look to lock in lower prices. Same-store service and parts revenue increased 1% as well. Looking out over the next 6 months, for the first time in approximately 5 years, Daimler Trucks are no longer being allocated on a distribution level to their dealers.

This provides us with an opportunity to conquest new customers. Now turning to Penske Transportation Solutions. Penske Automotive Group owns 28.9% of PTS and records equity income receives cash distributions and cash tax savings. PAG invested $956 million for its ownership and has received nearly $2 billion in cash flow benefits since making that first investment. During Q2, operating revenue was $2.8 billion. Full service revenue and contract increased 4%. Logistics revenue was flat, while rental revenue declined 9%. During the quarter, PTS sold over 11,000 units and ended the quarter with 414,000 units, down from 428,000 units at the end of March. PTS income increased during Q2 as a result of efforts to optimize costs, improve utilization rates and hold pricing.

Equity earnings from PTS investment were $53.5 million, up from $52.9 million in the second quarter last year. I would now like to turn the call over to Randall Seymore to discuss our international operations. Randall?

Randall Seymore: Thanks, Rich, and good afternoon, everyone. PAG’s international operations represent approximately 40% of total consolidated revenue. During Q2, international revenue was $2.9 billion. In the U.K., the macro operating environment remains challenging as inflation, interest rates, higher taxes and consumer affordability impact the overall market. The U.K. market continues to transition new vehicle sales to BEVs and hybrids. In 2025, the government target for BEV penetration is 28%, many of which are being sold through the corporate fleet channels. During Q2, the number of new units we delivered declined by 16% and were impacted by several factors resulting from OEM product changes and reduced incentive offerings, also impacts to the new car markets from the U.K. ZEV mandates and the previously discussed disposed or closed dealerships.

Turning to used cars. Same-store used units declined 23%, which is attributable to the realignment of the company’s U.K. CarShop used-only dealerships to Sytner Select in 2024. Through this realignment, we have taken out approximately 500 people through attrition, which helped drive a lower cost structure. The realignment began in Q3 2024, so the year-over-year decline is expected to abate in the second half of this year. We view this as a positive change for our business. And as a result of this strategy and improved management of overall used inventory, gross profit per unit has increased by over $800 or 56% quarter-over-quarter and $221 sequentially when compared to the first quarter of 2025. Service and parts remained strong as same-store revenue increased 6% and gross profit increased 8%.

Pleasingly, customer paid gross profit increased 10% and warranty declined 5%, largely due to the 20% growth we achieved in Q2 of last year. Turning to Australia. We operate 3 Porsche dealerships in Melbourne, which we acquired in 2024. During the first half of this year, these dealerships retailed 1,136 new and used units and generated $128 million in revenue. The used-to-new ratio is nearly 1:1 and has doubled when compared to the ratio prior to the acquisition. We use our existing scale of the Commercial Vehicle and Power Systems business in Australia to leverage costs while executing our One Ecosystem strategy at the Porsche dealerships, which provides for a superior customer experience. We anticipate generating approximately AUD 450 million in annualized revenue through these automotive dealerships.

Turning to Australia Commercial Vehicle and Power Systems business, we are diversified with revenue and gross profit, which is split approximately 50-50 between our on- and off-highway markets. In the on-highway markets, the brands we represented picked up 30 basis points in market share as the products we continue to sell gain customer preference. In the off-highway sector, revenue and margin were driven by strong energy solutions demand. We have $350 million backlog for 2025 delivery and a total order bank of over $500 million, predominantly related to the large growth in data center and battery energy storage solution businesses. And we see a potential for the total Energy Solutions business to generate over $1 billion in revenue by 2030.

Our defense business continues its strong momentum, too, with projects for infantry fighting vehicles and several Navy applications for frigates and submarines. I’d now like to return the call over to Shelley Hulgrave to review our cash flow, balance sheet and capital allocation.

Michelle Hulgrave: Thank you, Randall. Good afternoon, everyone. Our strategy has been to focus on the strength of our balance sheet, cash flow, disciplined approach to capital allocation and our diversification. Our balance sheet remains in great shape, and our continued strong cash flow provides us with opportunities to maximize effective and opportunistic capital allocation. For the 6 months ended June 30, 2025, we generated $472 million in cash flow from operations and EBITDA was $800 million. On a trailing 12-month basis, EBITDA was over $1.5 billion. Our free cash flow, which is cash flow from operations after deducting capital expenditures was $325 million. Through June 30, we paid $165 million in dividends and invested $147 million in capital expenditures.

We increased our dividend by 4.8% to $1.32 per share last week, representing the 19th consecutive quarterly increase. Since the end of 2023, we have increased the dividend by 67%. On a forward basis, our current dividend yield is approximately 3.1% with a payout ratio of 34.7% over the last 12 months. During the quarter, we repurchased 630,000 shares of stock for $93 million. And year-to-date through June 30, we have repurchased 885,000 shares for $133 million, representing approximately 1.3% of our outstanding shares. Over the last 4-plus years, we have returned over $2.5 billion to shareholders through dividends and share repurchases. In May, our Board authorized an increase in the repurchase authority of $250 million. As of June 30, we have $295.7 million remaining under the existing securities repurchase authorization.

As part of our strategic capital allocation, in July, we acquired a Ferrari dealership in Modena, Italy. As many of you know, Modena is the home of the Ferrari brand. While we continue to evaluate the impact of the One Big Beautiful Bill on our financial statements, we do expect to recognize positive cash flow impacts related to our 28.9% ownership in the PTS partnership. Bonus depreciation, in particular, will provide an estimated benefit of approximately $150 million on the $3 billion worth of capital expenditures in trucks that PTS expects to purchase in each of the next 3 years and beyond. At the end of June, our non-vehicle long-term debt was $1.78 billion, down $69 million from the end of December last year. Debt to total capitalization improved to 24% from 26.1% at the end of December last year and leverage remained at 1.2x.

77% of the non-vehicle long-term debt is at fixed rates. When including floor plan, we have $4.6 billion of variable debt. 54% of our variable rate debt is in the United States. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $12 million. At the end of June, we had $155 million of cash and liquidity of $2.3 billion. In September, our $550 million of 3.5% senior subordinated notes will mature. We currently expect to repay those notes from cash flow from operations or borrowings under our U.S. credit agreement. Total inventory was $4.8 billion, up $209 million from the end of December 2024. Retail automotive inventory was up $44 million. New vehicles declined $20 million, used vehicles increased $49 million and parts increased $15 million.

Commercial vehicle inventory was up $166 million. Floor plan debt was $4.2 billion. New and used inventory remains in good shape. New vehicle inventory is at a 57-day supply, including 59 days for premium and 38 days for volume foreign. Used vehicle inventory is at a 44-day supply. At this time, I will turn the call back to Roger for some final remarks.

Roger S. Penske: Thank you, Shelley. As I mentioned earlier, I continue to be pleased with our performance and the resilience of our business. I would like to thank each of our 28,000 team members that work in our business each day for their efforts to exceed expectations. Our results continue to demonstrate the benefit from our diversification across the retail automotive, commercial truck industries, our cost control and a disciplined capital allocation strategy and certainly a strong balance sheet and cash flow. I remain confident in our diversified model and its ability to flex with market conditions and remain very pleased with the performance of our business. I want to thank all of you for joining the call today, and we’ll open it up for questions with the operator. Thank you.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Mike Ward from Citi Research.

Michael Patrick Ward: I wonder if you can quantify a few of the moving pieces that affected your unit sales in the U.S. and the U.K.?

Michelle Hulgrave: Sure, Mike. It’s Shelley. I’m happy to take that. As we mentioned, we had approximately $200 million of revenue in the quarter in 2024 that we did not have in 2025. We sold and divested of a few stores. We also closed some stores, some of which related to the Sytner Select business in the U.K., as mentioned. So when you look at new and used vehicle units that had an impact as well, new units related to those divested stores were approximately 2,000 units. And we also had the mini brand transfer over to agency. So that impacted the new units by approximately 1,300. When you take that against the units that we reported, we actually were only down about 17 new units quarter-over-quarter. From a used perspective, those divested or closed stores attributed to about 4,400 used units.

Michael Patrick Ward: Okay. And what about — that’s the U.K., right? The divested in the MINI?

Michelle Hulgrave: It’s — well, it’s all of it. We had some stores that we divested in the U.S. as well, but — is just the U.K.

Roger S. Penske: We also had, Mike, mobility in the U.K. is a product that people that qualify for mobility credits that was really slowed way down by Audi, BMW and Mercedes during the quarter really were not in that business, which obviously was an impact to us from the premium sector. We see that coming back this quarter. I think this was all part of a strategy. They were waiting to see what the tariff structure was going to be and didn’t want to pour a lot of their incentive money into mobility. Now that’s changed now, we’ll have to see how that rolls out here based on the current information we have regarding the 15% tariff for the European Union.

Richard P. Shearing: And Mike, I think on a smaller scale, to add to Roger’s point, in the U.S., we had Audi, Porsche and Land Rover kind of suspend wholesales for a period of 45 days in the second quarter as they were further looking to understand what the tariff outcome was going to be. That probably impacted our Porsche business the most. If you look at that brand, our EBT was down 9% in the second quarter, whereas year-to-date, we’re up 1%, and that certainly hurt our mix. But that wholesale from those brands now is flowing again. So it was a short-term impact.

Michael Patrick Ward: Okay. And so is that partly attributed — you said July was up 10%. Is some of that coming back? Is that what that is?

Richard P. Shearing: Well, I think it’s resiliency of the consumer. We’re seeing traffic counts kind of remain flat year-over-year, but conversion has ticked up. So there’s more serious buyers. I would say in June, our conversion of the traffic was down a little bit because I think there was still uncertainty in what the ultimate tariffs are going to look like. Now that we’ve got conclusive positions with Japan, which obviously impacts our Toyota, Honda business, the U.K. with Land Rover, Mini and then the EU with Audi, Mercedes-Benz, BMW, Porsche, the majority of the brand mix we have in the U.S. has some certainty on what the tariffs are going to look like going forward.

Michael Patrick Ward: And Shelley, the $150 million from the Big Beautiful Bill, that’s in addition to any dividend income you get from your equity stake, correct?

Michelle Hulgrave: That’s right, Mike. So we still have the 50% dividend policy that we receive each year. And then the One Big Beautiful Bill, bonus depreciation, in particular, was an item in the Tax Cuts Jobs Act (sic) [ Tax Cuts and Jobs Act ] that was starting to sunset. So we were starting to have to pay more in income taxes from a cash perspective in ’24 and projected for ’25 when that bonus depreciation was supposed to go away. The One Big Beautiful Bill made it permanent and retroactive back to purchases to mid-January. So it’s an estimate of the deferred cash taxes that we expect to enjoy this year and into the future.

Michael Patrick Ward: That will benefit this year?

Michelle Hulgrave: Yes.

Roger S. Penske: We look at about $3 billion to $3.5 billion of asset purchases at PTS each year going forward. So obviously, with 30 — roughly 30% of the ownership, it’s a partnership, we get the benefit on our tax line. So overall, it was a terrific benefit to us. And if you look at this year and say it’s the same in ’26 and ’27, it could be as much as $450 million that we would not have to pay due to this in corporate taxes.

Michelle Hulgrave: And I want to highlight, it doesn’t impact our rate. It’s really just the cash taxes that we have to pay. But given that it’s a cash benefit, we certainly will look to deploy that cash through our capital allocation strategy. So we certainly see that as a benefit going forward.

Roger S. Penske: And on PTS, we have a program there that typically 50% of our earnings before taxes is paid out to the shareholders based on their ownership piece. So based on our current projection, this could be roughly another $100 million. So you’d look at almost $250 million of benefit during 2025 in cash.

Operator: Our next question comes from Ron Jewsikow from Guggenheim Securities.

Ronald John Jewsikow: Roger. Yes, just before my questions, I wanted to say congratulations, Roger, on the Centennial Award recognition last month.

Roger S. Penske: Thank you. That is a byproduct of the 74,000 people that work for us every day, but I appreciate you mentioning it. Thank you.

Ronald John Jewsikow: And I appreciate the quarter-to-date commentary on volumes, but maybe if you could just touch on the GPU trajectory and the cadence throughout the quarter and then into July, if you can talk about that as well.

Richard P. Shearing: Yes, Ron, Rich here. I think when you look at the initial tariff announcement in March, I think it was. That certainly drove some activity. We saw activity spike probably into April and to a lesser extent in May and June. And obviously, we knew that our inventory that was non-tariff impacted at that point in time became more valuable. So there was no need to be giving those cars away, not knowing what the ultimate tariff impact was going to be and when final resolution was going to be made between these countries. So throughout the quarter, in the U.S., our grosses were very stable. Certainly, they were the highest in April at $7,250. But then you look over the quarter between May and June, the spread between those other months was no more than $125.

So I think our team did a really good job of balancing the volume with the grosses during that environment. I think as we go forward, as we look to May, and I said the sales activity has increased, I think we’ll see a little bit of a gross compression, and it’s going to be different by brand. Certainly, I think the other impact when you look at BEVs with the IRA tax credit going away at the end of September, our team is keenly focused on making deals with consumers that are interested in the BEV so that we have the least amount of inventory in that time frame as possible. And I think the OEMs are similarly motivated as well. We’ve seen — with the announcement of those — that tax credit going away, increased incentives on various different models as OEMs look to reduce that inventory.

I think when you look at the margin that we have on the new vehicles, our margins have remained the same, but the average vehicle selling price continues to increase. I think we’ve talked about this before, pre-COVID or 2019 and earlier, our average selling price was $41,000. Our average selling one price today is almost $61,000.

Ronald John Jewsikow: That’s super helpful color. And you kind of touched on my next question a bit there, but on the sunsetting of electric vehicle tax credits at the end of the third quarter in the U.S., you do have more BEV sales than your peers, just given your luxury mix. How should we think about the impacts, not just in the third quarter from volume pull forward, but also long term? I guess, what would the impact of weaker electric vehicle sales mean for your business because they are GPU dilutive. We do know that, but just kind of the puts and takes.

Richard P. Shearing: I think, first of all, you got to remember that the overall BEV sales as a percentage of our total sales is in that 6.5% to 7% range. So it’s a small portion of our overall sales. Certainly, in some markets, it’s a much higher percentage when you look at California or some of the Sun Belt states where you don’t have the degradation of the range and other operating concerns associated with the BEV. But we’ve already seen actually some improvement in those markets as the OEMs have adjusted to demand. So if you look at our West region, which is California, Texas, Arizona, that market — those markets sell about 70% of that 6.5% to 7% of our sales in BEVs. And Mercedes and others started to adjust last year to match the BEV wholesale supply to the demand.

I think most aggressively, it was Mercedes. And so when you look at our area there, our California businesses are up 45% or almost $13 million compared to a year ago as a result of some of that BEV being adjusted. So if you look at the incentives, it’s — even before the tax credits were announced, incentives are almost $7,200 for BEVs. It’s about twice the average incentive that we see on the ICE vehicles. And our inventory is down on BEVs. A year ago, we were about 12% to 15% of our new car inventory was BEVs, it’s at 10% today, down 20% on a unit basis year-over-year. And so I think BEVs — we’re going to continue to have BEVs. Obviously, the OEMs have made significant capital investments in the technology and vehicle platform architectures, it’s a matter of making sure that they balance the BEV wholesale supply to us with the actual market demand, whether — and we’ve been doing that now with the tax credit, and we’ll continue to do it after the tax credit.

And one last point on BEVs, still relatively small percentage overall of our fixed business, 2% to 3%. But we see on a dollars per RO almost 2x the benefit from a BEV repair as we do to a — on ICE repair. I think as the vehicles get more mature over time, that could normalize, but right now, BEVs are still more advantageous in the fixed area.

Roger S. Penske: Yes. I think also when we step back and look at supply, when the manufacturers were trying to balance BEV vehicles versus ICE, we actually lost some of the volume and supply during the time when BEVs were at the top of the list to try to generate this big market share. When that goes away, I think we’re going to see it, obviously, in some of the key SUVs and areas that we were looking for vehicles will now not be BEVs, and they’ll come back in the market as ICE vehicles. And I think they’ll adjust, if necessary, some of the content if we have to in order to be — have the vehicles affordable under any tariff impact they might have. So I see it being a benefit. This is my own personal opinion.

Ronald John Jewsikow: Yes. I think we lean in that direction as well, but it’s good to hear that from you, Roger.

Operator: Our next question comes from Jeff Lick from Stephens.

Jeffrey Francis Lick: Roger, Rich, Randall, Shelley, Tony, just a quick clarification before I get my main question. On the 10% units you mentioned being up in July, is that all units or just new?

Richard P. Shearing: Just new.

Jeffrey Francis Lick: Okay.

Richard P. Shearing: New U.S.

Jeffrey Francis Lick: Perfect. Awesome. Rich, I was wondering if we can maybe double-click on service and parts. We’re starting to get into the — lapping the BMW stop sales and other pretty big warranty items. Just curious how you see that playing out? And are the OEMs making any adjustments in terms of how they handle warranty claims? Just any color there would be great.

Richard P. Shearing: No, I don’t think we’re seeing any adjustment from the OEMs on how they’re handling warranty claims. I think they’re frustrated, obviously, with the number of recalls that continue to occur. You mentioned BMW. Certainly, the IBS recall is still active. Their focus last year was on vehicles at the plant, getting those cleaned and dealer inventory, and now we’re into the customer repairs, but we’ve got Mercedes-Benz fuel pump, Honda fuel pumps. And then the big one that we just had release and direction on is Toyota and the Tundra long block replacement, which is a 14-hour repair. We’ve got close to 400 of those in inventory that have been on stop sale. So certainly, we’ve got to balance those repairs with customers who are looking to bring their existing cars into the shops so we don’t end up with long backlogs and things of that nature.

But I think there’s enough customer demand that even if these recalls and the warranty as a percent of our total repair orders goes down, when you look at the car park being 12 to 13 years of age, average mileage being close to 70,000 miles, we’re going to continue to see the benefit in the fixed ops department. And then I think with some of the initiatives that we’ve undertaken relative to shop load, operating hours, shift schedules, those are all paying benefits as well. And I think Roger mentioned that in our fixed absorption increase, our margin improvement up 50 basis points to just under 60%. And then our effective labor rate as well at up 6%. And I think it’s going to take a while for that car park to adjust. You look at the vehicles we’re selling today or servicing today, they’re almost 6.25 years of age on average, and that’s up from 5.6 years in 2019.

And with the SAAR continuing to struggle to find a new high watermark, I think I see fixed operations remaining strong.

Roger S. Penske: And I would say automotive, the complexity, Jeff, of the premium luxury cars when you open the hood, and all the things that they have LiDAR and all these things that go with it that the vehicles are coming back to the dealership and they’re not going anymore to the local guy around the corner. So that’s driving the business. And I think that in most cases, as you know, for us on the premium luxury side, which is 71%, a lot of these vehicles are leased and have some maintenance component with them, and that drives them back to our shops, which I think is key. And the good news is that the cost structure in our service department from a labor perspective is flat rate, along with high bonus part of compensation for our service riders.

So we see the ability, obviously, we raise labor rates. And by the way, we typically get a bump in labor cost support from the manufacturers on warranty typically on a 12- to 18-month basis. So obviously, we get that benefit. And then on the parts side, we get paid our full list price on parts on warranty. So this is something that is very positive. And ironically, in Europe and in the U.K., we only get 10%. So this — I look at it as a real bonus here in the U.S. based on the current support of parts and service.

Anthony R. Pordon: So Jeff, the other thing to think about — this is Tony, is the efficiency that we’re creating in the service departments, too, through use of AI in terms of scheduling appointments, tech videos, online pays and numerous other things that we’re doing to try to drive not just more tech efficiency, but just overall efficiency and utilization. So I think all of that plays very well into the margin that we’re generating and the growth of the parts and service business.

Roger S. Penske: Yes. When you look at — let’s just jump to PTS for a minute, and we’ve taken some of the lessons learned on both sides. Every night, Jeff, we unload data from 200,000 vehicles into — from the cloud. And we look at that and it determines predictive maintenance, we might have a truck that’s hauling cement and the same truck hauling feathers, well, obviously, the maintenance requirements certainly would be different. And with this data, then we can adjust the predictive maintenance. And on top of that, when the truck comes in, the mechanic plugs into the ECU and it gives him guided repair, tells him exactly what to do on that truck and how to do it. And this has taken our efficiency way up. So I would say we’ve been using AI a long time, specifically at PTS, and we’re looking how we can get some of that crossover into the automotive side.

Operator: Our next question comes from Rajat Gupta from JPMorgan.

Rajat Gupta: Roger, congrats as well. Just wanted to follow up on PTL. It looks like if we exclude the gain on sale, PTL income was up year-over- year overall. Should we expect that kind of cadence to continue here in the second half? And just maybe if you could give us some broader outlook around where we are in the freight cycle and when you could expect that to reflect? I have a quick follow-up.

Roger S. Penske: Well, from the operating side, when you look at the quarter, our gain on sale was $44 million last year, in the quarter was $16 million. So obviously, down $28 million. So our guys did a great job from an operating standpoint. And as I look out into Q3 and Q4, basically gain on sale will be a real trigger up or down based on what the market pricing is. And we have some disposals that we’ll look at. We dropped 14,000 units out of our fleet during the quarter. So I think that it’s important — or through the year, I’m sorry. I think it’s important that we look at gain on sale or loss or what have it might be, at the end of the day, freight is still flat and that freight, obviously, and will drive excess rental from our existing lease customers and also from just a casual renter.

And I think that, that will be the driver. If I look at the numbers in the quarter, our lease revenue, I think we talked about it before, 5% to 6% and logistics was up 1% and rental was down 9%. So you can see overall cost controls and the gain on sale really gave us a return of over $50 million. And if you went — if you looked at that for the rest of the year, it would be about $200 million. But again, that can be affected by gain on sale.

Rajat Gupta: Understood, understood. That’s clear. And just a broader question on capital allocation. If you take into account the extra $150 million you’re going to be getting from the taxable changes, I mean that’s a pretty step change in your cash flow profile. I’m curious, does that in any way change how you’re thinking about capital allocation, maybe being more aggressive on share buyback versus — or just like other forms of use of cash? And if you could just tell us if you’re looking to reprioritize that.

Michelle Hulgrave: Rajat, it’s Shelley. It certainly provides us with more opportunity. And as we said before, we’re going to continue to weigh current market conditions. The first half of 2025 certainly had a bit of tariff uncertainty. And so you saw us as well as some of our peers really look to take advantage of a down market and focus on buybacks. We are always going to remain focused on our dividend. And so year-to-date, about $300 million of return to shareholders. we’ve started to see folks come out and make some purchases and acquisitions, and we’re still focused on growing that side of the business as well. So I think it will be a tale of 2 halves, and we will certainly look at different market conditions, but the additional $150 million of benefit that we’re estimating certainly helps to provide us with more opportunity.

Roger S. Penske: I would say from an M&A perspective, obviously, our doors are open, and we’re looking at a decent pipeline right now. How those will mature, I can’t say, but certainly, we’ll look to do M&A, more M&A, obviously, in the last 6 months than we did in the first 6, Shelley, that would be probably fair.

Michelle Hulgrave: Right.

Operator: Our last question comes from David Whiston from Morningstar.

David Whiston: I wanted to stick on the M&A topic actually because if I remember correctly, you’ve talked in the past about wanting to acquire $1.5 billion in annual revenue, and you’ve just done the prior deal so far. So even if you do end up closing some of these deals in your pipeline, do you think the $1.5 billion acquired number for ’25 is still on the table? Or is it going to be lower?

Roger S. Penske: I would say it’s not realistic to think we’re going to — on an annualized basis, maybe we could look at it. But I guess if I had the perfect storm, I’d like to grow 5% organically and 5% through acquisition. Now we’re not meeting those targets right now, but certainly, in the capital position we’re in from — certainly from an acquisition standpoint, we really should be in really in good shape. And when you look at the capital allocation, we had a strong cash flow of $472 million from operations. And certainly, with the uncertainty that followed the tariffs, I think that we have to — we paused, and I think that certainly made a difference. We’ve talked about 1.3% the outstanding shares we purchased already about $900,000, and we paid out $165 million in dividends.

So I think the shareholder themselves is getting a benefit from dividends, I think the yield at 3.1% is strong. We’re certainly paying out at over 35% roughly in payout. So we’re going to hit all those levers. But trust me, we are definitely looking at acquisitions. But what I don’t want to do, I think Ferrari was kind of a special one when you think about that brand, we’re the largest dealer in the world, and we have the ability to have the house dealership next door was key. But as we look at these, we want to be sure that we can tuck things in where we have scale, look at markets, and we’re going to be prudent as our peers have been. But I think with the size of the U.S. auto market, when we look at internationally, these businesses have an opportunity to grow through acquisition for many years to come.

David Whiston: And just one other question on Porsche Australia. You mentioned the used to new ratio has already doubled in about a year’s time. And I’m just curious, was that mostly due to a lot more advertising or just changing internal operations at those stores?

Roger S. Penske: Look, let me ask — let Randall see more. He’s calling in from the U.K. Hopefully, we connect you around. You want to make a comment on what you’ve been able to accomplish in Australia in just less than a year?

Randall Seymore: Sure. No problem. Good question. So this was mostly internal. In fact, it was virtually all internal processes relative to just taking advantage, focusing on getting more trades, whether it be on selling a new or a used, the efficiency of reconditioning the marketing them properly. But the big opportunity, a lot of the independent used car providers we’re getting a lot of these cars. So we’re just organically keeping them. And then we’re opportunistically out there buying them as well. So it was a big focus and the team did a great job.

Roger S. Penske: And that business really has turned out to be really amazing when you think about it, we have the 3 stores in the big city of Melbourne. Randall and the team are really looking at as 1 dealership with 3 locations in the city. We can combine customer service, 1 inventory for all 3 dealerships and the marketing. I think it’s really key. And then we have the benefit of our commercial business that’s taking place in Australia, our financing, our legal, our insurance, our HR, all of those functions are — we can take the advantage of those in our auto business and will give us a runway, hopefully, to continue to grow the auto business in Australia as we go forward. I think we need to get the Porsche dealerships solid and have a year or so under our belt, but we certainly would look, is that a place that we could grow some of our business with our expertise.

All right, everyone. Thanks for joining us today. I think it was a great quarter. As we said earlier, lots of moving parts, but I think the management team we have across all aspects of the business has really been great. I think our turnover is the lowest in the industry, and I think that provides us the best management. So look forward to talking to you next quarter. Thank you.

Operator: This concludes today’s conference call. You may now disconnect.