Seeking Alpha
Recommended for you:
Profile| Send Message|
( followers)  

We are thrilled to expand our operations in the growing Austin market. In particular, the Toyota and Honda dealerships we acquired each represent one of the larger new unit sales points for these brands in the United States. The Classic Automotive dealerships are a natural fit for the United Auto business and offer many of the same qualities and amenities that are a hallmark of our business today, including outstanding facilities and a focus on exceeding customer expectations.

- George Brochick, United Auto Group's Executive Vice President of West Operations (May 1, 2007)

United Auto Group 1Q07 Earnings (7 metrics)
Premium (luxury brand) vehicle customers and employees that want to work at these stores have pretty high expectations. And so United Auto Group (NYSEARCA:UAG) looks to enhance the experience when people purchase or are having their vehicle serviced. One of the biggest tools UAG uses in trying to enhance the customer experience is by providing premium facilities.

Customers enjoy things like nice waiting rooms/lounges. And when your service bays are air conditioned (for example), people want to work there. So premium facilities allow the company to recruit and retain better employees helping to drive repeat and referral business. The premium facilities also help foster good relationships with their manufacturer partners. And the facilities should create just an all around "enhanced" customer experience.

And I think the company's first quarter results shows United Auto Group is making pretty good strides in this endeavor. . .

United Auto Group Metric #1: the return. United Auto Group said they earned thirty cents ($0.30) per share from adjusted continuing operations. The adjusted part simply excludes $12.3 million in after-tax expenses associated with the company redeeming some bonds early. The adjusted first earnings are 20.7% of the midpoint ($1.45) management has said they expect to earn in 2007 (range of $1.40 to $1.50).

In the first quarter of 2006 UAG earned 20.3% of what they earned for all of 2006. And in the first quarter of 2005 they earned 19.5% for what they earned in all of 2005.

If UAG reaches the midpoint of senior management's 2007 earnings goal, it works out to an "earnings yield" of roughly 6.9%, and the company returns about 19% of its earnings to shareholders every year with its dividend ($0.28 a quarter). The dividend alone (1.3% yield) means that for every $100 of stock I buy of UAG, they send me a check for $1.30 (right now). And if earnings grow, based on the company's current "payout," I tend to get around $0.19 out of every $1.00 the company's earns in a year back in the form of a dividend.

Metric #2: gross profit per new vehicle. UAG generated $3,040 in gross profit per new vehicle (retail) for the first quarter of 2007, a little better than the $2,980 they generated in the first three months of 2006. UAG did $2,901 in the first quarter of 2005. And for all of 2006, UAG did $2,993 in gross per new vehicle.

Metric #3: gross profit per used vehicle. UAG generated $2,385 in gross profit per used vehicle in the first quarter of 2007, a little worse than the $2,509 they did in the first quarter of 2006. In the first quarter of 2005, UAG did about $2,373 gross per used and for all of 2006 generated about $2,427 in gross per used vehicle.

Metric #4: finance and insurance per vehicle. I should point out the new and used vehicle gross profit figures do not include finance and insurance profit figures.

UAG generated $968 in finance and insurance per vehicle in the first three months of 2007, better than the $932 they did in the first quarter of 2006. In the first quarter of 2005 they did $882 per unit. And for all of 2006 they did $917.

Metric #5: parts and service same-store sales. In the first quarter of 2007, service and parts were up 9.7% on a same store (retail) sales basis. And this was up against an 8.7% "comp" in same-store sales growth you saw exhibited by this segment in the first quarter of 2006. In the first quarter 2005, service and parts saw same-store sales up 6.9%. And for all of 2006, UAG's parts and service segment was up 6.9% (same store sales).

Metric #6: Selling, general, and administrative expenses (SG&A) as a percent of gross profits. UAG spent $80.30 in SG&A for every $100 of gross profits they generate. In the first quarter of 2006, they spent $80.80 (after you adjust for continuing operations), and in the first quarter of 2005 they spent $80.50. For all of 2006, UAG spent $79.60 for every $100 in gross profits they generated.

Metric #7: Tax rate. UAG spent $34 in taxes for every $100 in pre-tax profits they generated in the first quarter of 2007. This lower than the $36.40 (per $100) they spent in the first quarter of 2006, and also below the $37 (per $100 in pre-tax profits) they spent in the first quarter of 2005. For all of 2006, UAG spent $33.80 per $100 in pre-tax profits.

UAG 1-yr chart:

UAG 1-yr chart

Source: United Auto Group's 1Q07 Earnings: Seven Metrics