Penske Automotive Group (NYSE:PAG) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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Summary
Penske Automotive Group reported Q1 2026 revenue of $7.9 billion, with net income of $235 million and earnings per share of $3.56.
The company made strategic acquisitions of two Lexus dealerships expected to generate $2 billion in annual revenue and repurchased 170,000 shares of common stock.
Penske Automotive Group’s commercial truck segment saw a decline in unit sales due to tariffs and freight market weakness, but new truck orders are increasing, indicating a positive outlook for H2 2026.
Full Transcript
OPERATOR
Good afternoon. Welcome to the Penske Automotive Group from first quarter 2026 earnings conference call. Today’s call is being recorded and will be available for replay approximately one hour after completion through May 6, 2026 on the Company’s website under the Investors tab at www.penskeautomotive.com. I will now introduce Anthony Porten, the company’s Executive Vice President of Investor Relations and Corporate Development. Sir, please go ahead.
Roger Penske (Chair and CEO)
Thank you, Krista. Good afternoon everyone and thank you for joining us today. A press release detailing Penske Automotive Group’s first quarter 2026 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 email or phone for any follow up questions you may have. Joining me for today’s call is Roger Penske, our Chair and CEO Shelly Hallgrave, our EVP and Chief Financial Officer, Rich Shearing from North American Operations, Randall Seymour of International Operations and Tony Piccione, our Vice President and Corporate Controller. We may make forward looking statements on today’s call about our earnings potential, outlook and other future events and we also may discuss certain non GAAP financial measures such as EBITDA and adjusted EBITDA. We’ve also prominently presented and reconciled any non GAAP measures for the most directly comparable GAAP measures in this morning’s press release and investor presentation, again both of which are available 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 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. At this time, I’ll turn the call over to Roger Penske. Thank you Tony Good afternoon everyone and thank you for joining us today. We’re pleased to report a solid productive first quarter. During the first quarter, PAG delivered over 123,000 new and used vehicles and nearly 3,600 new and used commercial trucks and that generated approximately 7.9 billion in revenue. We earned 324 million in earnings before taxes and 235 million in net income and generated earnings per share of $3.56. The first quarter results include a $60 million gain on the sale of a dealership, partially offset by 13 million in certain disposals and other charges. As we continue to optimize our dealership portfolio. Excluding these items, adjusted earnings before taxes was 276 million. Net income was 201 and earnings per share was $3.05. This was a difficult comparison with the prior year period and challenging market conditions impacted year over year performance. We also continue to grow our footprint. In February we acquired two high performing and strategic Lexus dealerships in Orlando metropolitan area of Central Florida, one of the fastest growing regions in the U.S. these acquisitions complement the two Lexus and two Toyota dealerships we acquired in November 2025. Combined, these six dealerships are expected to generate 2 billion in estimated annualized revenue. We also repurchased 170,000 shares of common stock for 26 million. We increased the dividend to $1.40 which yields approximately 3.4%, the highest yield in our peer group. Looking at the details for the quarter, same store Retail Automotive new units declined 5% and used increased 1%. Units retailed were impacted by weather related challenges and a difficult comparison to March 2025 when tariffs caused pull ahead sales and lower BEV sales in the US Associated with the elimination of the BEV tax credit. Gross profit per unit new Unit retailed was $4,783 up $94 sequentially. Gross profit per used unit was $2,076 up $306 sequentially. Our service and parts revenue and gross Profit was a Q1 record. Same store revenue increased 4.6 and related gross profit increased 5.7%. Service and parts gross margin was up 60 basis points. The retail commercial truck segment Q1 unit sales declined 953 units driven by reduced order intake during Q3 and Q4 2025 following the implementation, implementation of tariffs and weakness in the freight market. However, we are encouraged today with the trends we are seeing across the commercial truck market. In recent months we’ve seen an increase in new truck orders. Expect the timing of these deliveries to take place in the second half of 2026. PTS equity income increased 24%. Growth in the full service leasing revenue, improved fleet utilization, lower operating and interest
Rich Sherry
expenses resulting from continued fleet reductions including maintenance and our depreciation were partially offset by continued challenges from the rental and lower gain on sale of trucks. At this time, I’ll turn the call over to Rich Sherry thank you Roger and good afternoon everyone In US Retail Automotive Same store new and used unit sales were affected by two major winter storms Liberation Day tariff announcement and pull forward of retail sales in March of last year and lower Battery Electric Vehicle (BEV) sales from easing emissions regulations and the elimination of the Battery Electric Vehicle (BEV) tax credit at the end of September 2025 during the quarter, 25% of new units sold were at MSRP compared to 29% in Q1 last year. Same store service and parts revenue increased 3.2% and gross profit increased 3.4%. Customer pay was up 4%, warranty was up 5% and collision repair declined 4%. Our US automotive technician count is up 3% when compared to the end of March of last year and our Bay utilization is 84%. Turning to Premier Truck Group Group during Q1, Premier Truck Group retailed 3,583 new and used trucks, generated 695 million in revenue and 128 million in gross profit on a sequential basis compared to Q4 2025. New unit gross increased $111 and used unit gross increased $4,624. New unit sales were down 26% and were in line with the overall North American Class 8 market. The recessionary freight environment and market uncertainty associated with tariffs and the status of emissions regulations impacted new truck in the last half of 2025. However, as Roger mentioned, in recent months we have seen an increase in new truck orders. In fact, Class 8 orders increased 91% and the industry backlog grew 33% to 175,000 units in the first quarter when compared to March of last year. We expect this increase in order activity to result in higher new unit sales in the second half of this year. Service and parts revenue increased 5% as average daily activity continues to grow and service backlog is beginning to increase. Service and parts gross profit represented 73% of segment gross profit during Q1. Turning to Penske Transportation Solutions, we are also encouraged by the stronger financial performance of Penske transportation solutions. During Q1, operating revenue declined 4% to $2.5 billion, lease revenue increased 2%, rental revenue declined 17% and logistics revenue declined 3%. PTS sold 9,319 units in Q1, ending the quarter with a fleet size of 387,500 units compared to 435,000 at the end of December 2024. Gain on sale declined by 26 million in Q1 26 compared to Q1 2025. As PTS continues to right size its fleet, higher fleet utilization, lower operating costs for maintenance, depreciation and interest expense contributed to an increase in earnings. Overall, our equity income from PTS increased 24% to $41 million. I would now like to turn the call over to Randall Seymour to discuss our international operations.
Randall Seymour
Thanks Rich. Good afternoon everyone. During Q1, international revenue was 3.3 billion which is up 6%. International new units were up 2% and used increased 3%. Same store service and parts revenue increased 7% as our strategies to increase customer pay drove a 10% increase which was more than offset the 3% decline in warranty. In the UK market. Q1 automotive registrations increased 6% to 615,000 driven by private and retail demand and an increase in Chinese OEM sales. While we were encouraged by Q1, the UK automotive environment remains challenging as inflation, higher taxes, consumer affordability and the government mandate towards electrification impacts the overall market. During Q1, our UK same store new units delivered were flat from lower sales of several German luxury brands and the elimination of the motability programs for these luxury brands. Same store used units increased 3% and gross profit per unit increased $500 sequentially when compared to Q4 2025 turning to Australia, our Earnings Before Tax (EBT) increased 15% compared to Q1 last year. In automotive our three Porsche dealerships in Melbourne continue to gain market traction through implementing our Porsche 1 ecosystem process. This process has driven higher customer satisfaction with all three dealerships in the top five including the top position nationally. Although we had a decline in new unit sales associated with the transition of the Macan to an all electric vehicle, we had a strong mix of higher end vehicles and our focus on pre owned and after sales continues to drive the business. In the Australian commercial vehicle and power system business we are diversified with revenue and gross profit split approximately 2/3 off highway and 1/3 on highway. The off highway business continues to grow. The current order book has exceeded our full year business plan with strength seen in energy solutions, mining and defence sectors. We have over 600 million Australian and secured orders so far for 2026. The engines and support we provide will be critical as this segment evolves. We continue to see the potential for our energy solutions business to generate at least 1 billion Aussie dollars in revenue by 2030. Over the last several years our focus has been to increase units in operation and to grow the recurring service, parts and remanufacturing aspects of our business. And this focus is starting to pay off. One of the major mining customers operates 125 megawatt power station with 20 Bergen engines that we installed four years ago. As part of the major maintenance interval we have begun to remanufacture 300 cylinder heads which will generate approximately 15,000 hours of work for our business. I would now like to turn the call over to Shelly Holgrave to review our cash flow, balance sheet and capital allocation.
Shelly Hulgrave
Thank you Randall. Good afternoon everyone. We remain committed to a strong balance sheet and a flexible and disciplined approach to capital allocation while driving our diversification strategy, implementing efficiencies and striving to lower cost. SG&A expenses increased by 1.5%, which is lower than the rate of inflation, while gross profit declined 1.7%. SG&A as a percentage of gross profit for Q1 2026 was 74.3%. Adjusted SG&A to gross profit was 73.3%. Q1 SG&A to growth was impacted by employee benefit costs up $4 million, payroll taxes and other UK social programs up 3.5 million, rent and real estate taxes up 7 million and lower automotive units and the impact from lower sales of new and used commercial vehicles at Premier Truck Group. During Q1 we generated $215 million in cash flow from operations and EBITDA of 397 million. During Q1 2026 we invested $63 million in capital expenditures. This is down from 85 million In Q1 2025 we completed acquisitions of two Lexus dealerships representing 450 million in estimated annualized revenue. We increased the cash dividend to $1.40 per share, representing the 21st consecutive quarterly increase on a forward basis. Our current dividend Yield is approximately 3.4% with a payout ratio of 39% over the last 12 months and we repurchased 170,000 shares of common stock for $26 million as of March 31, 2026, $221 million remained available for repurchases under our securities Repurchase Program program. Since the beginning of 2023, we have returned approximately $1.6 billion to shareholders through dividends and share repurchases. At the end of March, non vehicle long term debt was $2.6 billion and leverage was only 1.8 times. Despite completing several large acquisitions over the last six months, floor plan was 4.1 billion and and we had 425 million in vehicle equity for the quarter. Total interest expense increased $2 million. Floor plan interest decreased 4 million due to our cash management and lower interest rates, while other interest expense increased 6 million primarily from higher borrowings for acquisitions. We estimate a 25 basis point change in interest rates would impact interest expense by approximately $15 million. Our effective tax rate was 27.4% in Q1 2026, the prior year Results have been recast for the acquisition of Penske Motor Group using common control as disclosed last quarter. As a reminder, Penske Motor Group (PMG) was a partnership prior to our acquisition and was not subject to income tax Q1 2025 does not reflect federal or state income taxes. Had TMG been included in our taxable group. Therefore, period over period comparisons of net income and earnings per share may not be directly comparable. Due to the change in tax status of pmg, the impact to the effective tax rate would have been approximately 100 basis points and the impact to earnings per share would have been $0.05. Total inventory was 4.9 billion, up 77 million from December 2025. New vehicle inventory is at a 44 day supply including 46 days for premium and 29 days for volume. Forum used vehicle inventory is at a 39 day supply with the US at 33 days and the UK at 42 days. At the end of March we had 84 million in cash and liquidity of $1.2 billion. At this time. I will turn the call back to Roger for some final remarks.
Roger Penske (Chair and CEO)
Thank you Shelley. As mentioned, we added two Lexus dealerships to Penske Automotive Group (PAG) during the first quarter and today I’d like to welcome our new teams at Lexus of Orlando and Lexus of Winter Park to our organization. As I said earlier, we had a solid first quarter and I continue to remain optimistic about our business. New and used retail automotive grosses remain strong and service in parts continue to grow. Our diversification remains our key strength of our business model. The recovery in the commercial truck market is underway. We expect to increase new truck orders to benefit the second half of the year and our retail truck dealerships and PTS investment should benefit again today. Thanks for joining our call. We’ll take questions.
OPERATOR
Thank you. If you would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. And if you’d like to withdraw your question again, press Star one. Your first question comes from Michael Ward with Citigroup. Please go ahead
Michael Ward (Equity Analyst)
everybody. Thank you very much and good afternoon. I hope you all are doing well. Weather had a significant impact on the industry in January and February in the us. Can you quantify at all how much you were affected and were you able to get any of that back?
Rich Sherry
Hey Mike, this is Rich here. Good question. I mean as I mentioned in my prepared remarks, two significant storms, both one in January, one in February impacted. The first storm in January I think was almost 2,400 miles in, you know, it’s length and so it impacted our businesses from Texas all the way to the, to the Northeast. And so we had either delayed openings, multiple day closures, you know, as we had to deal with the cleanup. So February wasn’t as bad, but did impact pretty significantly the Northeast. Now the good news is obviously the competitors around us in those markets also suffered the same, same challenges. So we don’t think consumers were running to their dealerships to buy cars while we were struggling. But certainly from a fixed gross standpoint, you know, there was lost business there because that’s time you just can’t get back. So we had the added expense of the snow removal and then we attribute the fixed gross loss to about 4 to 5 million and then in total overall about a 6 million impact to our our earnings in Q1 as related to the weather.
Michael Ward (Equity Analyst)
Okay, thank you, Shelley. Shelley, you called out. I don’t know if you were calling out or just the cost on the SGA side of about $15 million. It sounds like some of those will be recurring. I guess the rent and the health in the UK are those one time in nature, are they not recurring? What were you kind of alluding to with that?
Shelly Hulgrave
Hey Mike? Yeah, a little bit of both. Certainly, you know, rent increases we see year over year, you know, health benefit plans, we certainly hope those costs go down, but that doesn’t seem to be the trend. I wanted to highlight the fact that the UK social programs, this is the last quarter before we anniversary those. So it’s a bit, you know, uncomparable compared to Q1 of 2025. But like I said, we’ll see that anniversary here in Q2.
Michael Ward (Equity Analyst)
Okay, and that’s about 30 or 40bps, right? Yes. We estimate without those that our SG&A to growth would be in that 71 to 72% range that we had talked about. So, you know, still comfortable in that low 70s range. Okay, thank you. And just lastly, it looks like you’ve been doing some portfolio rebalancing. If usually you don’t see much movement in the retail automotive revenue mix, but you see a couple of good changes year over year. And I’m just wondering if that’s a trend we can look to more those kind of your focus. Brands continue to focus on the luxury, the volume farm. That’s the strategy, correct?
Tony Piccione (Vice President and Corporate Controller)
Well, let me say this, that we actually sat with our board probably 18 months ago to determine what was going to be our strategy on brands locations, not only domestically but internationally. And we felt that we would look at our low performers and then we looked at what were the expectations of the manufacturers from a capex perspective and then what could we grow that business? And we determined there were probably a number of locations that we would need to to sell in order to get a return that we would want. On top of that, because of our commitment to go forward with Penske Motor Group, we had to commit to sell two Lexus stores, one in Warwick and one in Madison, Wisconsin, which we completed. Obviously, that gave us the opportunity to buy the Orlando stores and the PMG stores. Along with that, we took out a number of other smaller locations, some larger, some in the UK, and that generate about 300, I’d say, 25 to $350 million worth of free cash flow back on these stores which we, which we sold, which obviously we used some of that money to pay to buy these other key stores that we’re going forward with. So we’ll continue to prune the portfolio. We’re still in the acquisition business. I think we made the decision in the UK to reduce our number of Sitner select stores from 14 to six, which is paying off. We were taking those locations and adding the Chinese brands in the same showroom. So overall, I think the strategy has worked and we’ve kept our leverage, as Shelly said, from about 1.5 to 1.8. Am I right? That’s right. So I think it’s been a good move and we’ll continue. And I think I see our peers doing the same thing because today the cost of doing business is so high and some of these smaller locations with all the controls you need and the high cost of the best people, we just can’t see the numbers give us the returns we want. So all of us are obviously looking for locations. At least we are where we can add on in key markets. So, Mike, Mike, this is Tony. Just page nine of our earnings presentation is a key chart in the deck that lays out what total revenue is. Right? And you can see there, in particular premium 72% volume. Volume, non US, is 22%. And then when you look at the Toyota, the Toyota and Lexus number, it has jumped up to 18% of our overall business from an automotive standpoint. So very, very key with the, with the acquisitions and the OEM presence that we have.
Michael Ward (Equity Analyst)
Yeah, yeah. Proactive plan. Looks like you’re just pulling it off. So thank you very much. Appreciate it, everybody. Thanks.
OPERATOR
Mike, your next question comes from the line of Rajat Gupta with JP Morgan. Please go ahead.
Rajat Gupta (Equity Analyst)
Great. Thanks for taking the question. Hi, Roger. Hey, everyone. Just wanted to follow up on ptl. You know, pretty, pretty nice earnings growth, you know, in the quarter, obviously, despite the lower gain on sale. Obviously, a lot of those improvements are coming from just lower maintenance, debt, you know, fleet costs, etc. I’m curious how we should think about the trajectory of BPL earnings for the remainder of the year. Any kind of guardrails you can give us for the full year.
Roger Penske (Chair and CEO)
I think number one, we’ve come from roughly 430,000 units defleated to 387,000 at the end of the quarter. So that’s obviously reduced a significant, significant interest cost in our depreciation has been impacted positively with that. But the good news is that our fleet utilization on the rental side, which were before we were down to 71%, it’s now moved up to 76%. And I think we’ve seen that the operating side of our business has been excellent during the quarter and really in Q4 also because our gain on sale obviously has been down 26 million in the quarter. So we are able to pick that
Rajat Gupta (Equity Analyst)
back up through utilization, through lease revenue and some of our logistics businesses, which provided an overall pickup in our profit, their profit from 120 million to 142 million. We’ve got lower operating expenses, obviously I mentioned maintenance, depreciation, et cetera. So it’s operations. I think you think about interest depreciation gain on sale is down, but still higher than it was a year ago. But we’re seeing rental utilization up about 500 basis points. Got it, got it. So I mean, so just like a lot of these trends are sustainable like from an, or at least from like a cost and earnings perspective, you know, through the remainder of the year on a year over year basis.
Roger Penske (Chair and CEO)
Rajat, could you repeat that please?
Rajat Gupta (Equity Analyst)
I was trying to say that a lot of these trends seem sustainable through the remainder of the year, at least on the cost side.
Roger Penske (Chair and CEO)
you’re talking about pts. Okay, look, certainly we are continuing, we probably have another three or four thousand units that will take out easily during this year from a fleet perspective. We’ll continue to grow it. Also we’re seeing with the revenue coming back on rental, we can take some of our off lease equipment and replace that at that point. So I think the older trucks are out now which were providing much higher maintenance. So we’re seeing that maintenance and tire maintenance much, much better. And I think that the customer acceptance, this is a key one for you. We’re starting to see people signing up for long term leases. Say there was a pause over the last 90 to 120 days with emissions, with costs and et cetera and we weren’t getting the traction in the month of or the quarter Q1. We saw our lease signings going up, which bodes well, for us, for the future, because These leases are 3, 4, 5 years of economic escalators.
Rajat Gupta (Equity Analyst)
Got it, got it. And just to follow up on the parts and service business, more on the international side, pretty strong numbers overall, but it looks like if you look at it excluding the FX benefit, you know, growth was probably flat to slightly up. I’m curious if that’s correct and you know, what kind of initiatives are in place to maybe accelerate that growth going forward. Thanks.
Randall Seymour
Hey, Rajat, it’s Randall. Now if you take the FX out. That’s correct. In the uk we were slightly up, but as an example, Italy we were up 11%, Germany up 20%. And it’s really on the back of customer pay focus because warranty is actually down. And remember, internationally we don’t get the markup on parts like we do here in the US so you only get 10% margin where on warranty on the parts, whereas customer pay, it’s the same. So it’s the mix and the focus on customer payments that’s driving it. You know, with, with the higher margin business.
Rajat Gupta (Equity Analyst)
Got what percent you have. International is UK versus non UK in your numbers there.
Randall Seymour
Italy was up 11%, Germany was up 20. I mean, like just mix of services, just mix up your business in terms of contribution in UK and non uk. John, I’ll get that back. I’ll get that back to you offline after the call.
Rajat Gupta (Equity Analyst)
Understood. Okay, great. Thanks. Thanks for all the color. Good luck.
OPERATOR
Your next question comes from the line of Jeff Lick with Stevens, please. Go ahead.
Jeff Lick (Equity Analyst)
Good afternoon. Thanks for taking my question. Hey Roger, how are you? Good question for Rich. Rich, you know, as we get into this part of the year, kind of, you know, April through the rest of the year, you know, lapping against last year. You know, last year at this time, luxury started to lag, you know, the broader auto sector and you know, with the exception of April and I mean of August and September with the Electric Vehicles (EVs). Just kind of curious how you’re seeing things now as the year plays out, you know, because you, you guys, you know, are a bit unique in that you have easier compares. Just kind of curious, you know, how you’re thinking about, you know, the rest of the year on the new luxury and then maybe also talk about as we lap the Electric Vehicles (EVs), compare anything to think about there.
Rich Sherry
Yeah. So I’ll touch on the last comment you made relative to Electric Vehicles (EVs). So if you look Q1 this year versus Q1 of 2025, our EV sales were down 61% this year compared to last year. And certainly, you know, out in our west coast in California, there’s still a certain level of demand for the BEV’s. And so the consumer out there, we haven’t completely replaced that with hybrids or ice. So that was a tough compare year over year. We thought that the Iranian conflict would drive some near term or short term demand in BElectric Vehicles (EVs) that we just haven’t seen materialize. So that escalation in fuel prices hasn’t overcome the consumer’s concerns about, you know, battery electric vehicles either from a range or infrastructure charging perspective. And so I don’t see really a material change occurring in BElectric Vehicles (EVs). The balance of this year, you know, I think it’s kind of stabilized post the tax credit going away in that 4 to 5% of the overall, you know, retail sales market. So then coming back to the luxuries you mentioned or someone did earlier, that the tough compare, certainly in March, you know, we were at 17.6 million saar, April was it at 17 million. And so we’ve got some tough comps year over year. You know, you look at the premium luxury market, you know, certainly the sales are a little bit down in those brands. If I look at, you know, Audi in Q1 was down about 30% overall as their, you know, launching some new models that need to come into the Marketplace. BMW about 15%. You know, Porsche Macan going away, we knew that this year, next year, until they relaunch, that model will be a little more challenging. So we’re down about 18% with them. And Mercedes about the same as BMW down about 15% overall. The, the good news, I would say is that the OEMs have now adjusted to the, you know, what the tariff impact is going to be on their business. Certainly I think they were holding back money on incentives and programs certainly in the latter half of last year, I’d say they’re back in the market. I wouldn’t say the incentives are great, but they’re good and the products they’re producing are still very desirable. We tend these, you know, annual dealer meetings and every single one of them has a bevy of new products that are going to be launching in the market this year that I think are going to be highly desirable. So I think from a model mix and brand mix, you know, with our 72% premium luxury, we’re still in a good position there.
Jeff Lick (Equity Analyst)
And anything to call out with service and parts with respect to warranty that you’re lapping stop sales, especially on the luxury side.
Rich Sherry
So, you know, our Fixed GROss overall was up about 3.5%. We talked about the impact from the storms. You know, an encouraging nugget in there is our customer pay ROs. You know, we talked about that last couple calls we’ve been really focused on that segment too. And you know, the recalls, they continue to happen. So if you look at Toyota, they increased the Tundra recall on engines to the 23 and 24 model year units. BMW’s got a starter recall that was recently announced. And then audi on their 3 liter engine has piston replacements which is about 30 hour job. And then we’re doing a proactive software campaign too on the Q5 product. So look, I know the OEMs would prefer not to have these recalls, but they continue to have quality leakage into the marketplace.
Jeff Lick (Equity Analyst)
Excellent. Well, thanks very much and best of luck in 2Q. Take care, Roger.
Roger Penske (Chair and CEO)
Thanks Jeff.
OPERATOR
Your next question comes from the line of John Babcock with Barclays. Please go ahead.
John Babcock (Equity Analyst)
Hey, good afternoon and thanks for taking my questions. Just quick one on the, on the truck market, I know you’re expecting an increase in truck orders, particularly in the second half. Just curious on the sustainability. I mean, I’m sure there’s probably a portion of the truck demand that’s probably driven by expectations for higher prices, you know, with some of the regulatory changes. So I’m just kind of curious if you think this is something that, you know, you think is long term sustainable truck demand or if this is something that you temporarily driven by some of the short term factors like regulations.
Rich Sherry
I certainly think there is some short term influence on the truck orders similar to what we saw with lack of truck orders in Q3 Q4 last year. John, I think once there was some finality on what the EPA 2027 guidelines were gonna look like and customers could understand what the rule set was gonna be. You know, that’s what drove the order intake here in the first part of this year is as Roger quoted up 91% on Class 8 trucks. I also think, you know, we had a near term bump in particular for Premier Truck Group with tariff announcements in February. And so there was a grace period that was granted to customers that if they placed orders by the end of, or, sorry, by the beginning of March, they could avoid that tariff price increase which was between $1,000 and $1,500 depending on heavy duty or medium duty. And then there’s some things structurally that I think have been going on that we’ve talked about for the last 18 months with the administration. Right. The Department of Transportation and fmcsa have really been cracking down on illegal carriers and non domiciled CDL holders and that has had an effect of tightening capacity. You see that in the spot rates up 30 to 40% year over year and that’s driving higher utilization of say the legal operators on the road. And we’re seeing that manifest itself in our parts and service revenue up just over 4% in that business. And that’s the first, first time in six quarters that we’ve seen a growth in our, you know, our fixed gross profit there. And then when you look at the freight rates increasing, we’re seeing that drive near term used truck demand as well. So our volume sales are trending upward there and our gross profit as you saw on the quarter was up almost $4,000. So and I think if you look, if you follow any of the publics, you know, JB Hunt, Covenant Transport that have reported they would reiterate that they feel that the changes are structural and not temporary in nature.
John Babcock (Equity Analyst)
All that color. Now just on the M and A side of things, you know, you’ve increased exposure to Texas, Toyota and Lexus recently. But on a go forward basis, should we think about expanding brands? Are there certain geographies you want to tack onto also? How are you balancing that with leverage and you know, what’s your comfort level of leverage right now?
Roger Penske (Chair and CEO)
Well, I think our leverage gives us all sorts of opportunity. Point number two, we’re sitting with 70 plus percent premium luxury and 21 or 22% volume foreign. And we’re focusing obviously on the mix of our business in those particular areas probably more critically and looking for opportunities. I think our goal obviously is to maintain, as Shelley said, our dividend, you know, our buyback and our capex. We think by eliminating some of the stores that we have allowed us to reduce our capex hopefully by 100 million this year. And that’s going to give us the opportunity to continue to focus, I would say internationally. We’ve also done some pruning of our businesses there. I think at the end of the day, you know, we’re focusing on investments in Australia, in the defense area, in the power system and power generation. So the good thing is we have such diversification then obviously the returns that we’re getting from Premier Truck Group, their Freightliner business, their market share leaders and we’d be looking for other locations, you know, in the US and Canada to represent them because those have been turned out to be quite good. And I think what’s key is we’ll look right now like the Stores we did in Orlando. The right brand, certainly the right location and profitability. So I think we have, we have the luxury of not being in a hurry when you put 2 billion of revenue on. Now we’ve got to continue to integrate those into our company, which I think we’re doing well. And we’ll again look for ones with a brand. Look at Toyota and Alexis right now. The lowest day supply of the industry. Are we talking under 20 days? When you think about it, some of the lexus stores under 10 and they could continue to keep the product tight. And that to me is going to be critical. And they’re saying that’s where they’re going to operate in the future and we’re getting some of that already. Also, when you look at Land Rover, you look at Porsche in our business is down not because we’re down, it’s because of supply of the vehicles we want and that’s being impacted by tariffs, et cetera. So we’re going to be cautious here and there will be people that are confused out there that own these businesses, some of the smaller operators, if they’re contiguous to our circles, you know, we’re going to pounce all over those if we can. That’s a long answer.
John Babcock (Equity Analyst)
Yeah, no, thanks. That’s perfect. Appreciate it.
OPERATOR
Your next question comes from the line of Mike Albanese with Stonex. Please go ahead.
Mike Albanese (Equity Analyst)
Hey guys, thanks for taking my question. Could you guys just comment on what you saw in Q1 regarding Chinese models and taking share in international markets? And then you, you know, is there a house view on how you think about the implications to premium luxury? And I mean, do you think about leaning into, you know, building exposure with these models or just kind of continue to take it slow and monitor?
Randall Seymour
Let’s let. Randall is the expert on that. Just came back from the auto show in China, so he’s most current that we have on the phone. But once again, what we’re doing, what we’re seeing in the UK and Europe. Yeah, Mike. So, you know, obviously the Chinese brands are, are gaining share in Europe. In fact, you know, the markets that were in uk, Italy and Germany, they’ve more than doubled. In fact, if you look at Australia last year the Chinese brands were 15% and year to date, this year through the first quarter, they’re up to 23%. So we are, we’ve put our toe in the water in the UK and in Germany starting really effectively the beginning of the year. We started late last year, but this is our first full quarter. We’ve got 11 locations between the UK and Germany right now, four different brands. And I would say first of all our strategy has been to put these brands into existing facilities. So in the UK we have our Sittner select, which is our big box used car retail. So we’re able to put the brand there, you know, with a, call it a minimal CI spend and we’re in business so we don’t have additional fixed expense. We can sweat the asset a little bit more. But you know, frankly first blush so far has been, has been, has been positive. You know, we’re going to take a walk before run approach. You know, in these big box used car retail we get about 400 guests per week. So you know, these Chinese OEMs are eager to partner with us more. So, you know, that’s one of the reasons I went to the auto show is really to understand the difference between these brands. You can’t just throw an umbrella, say Chinese brands, just like any western brands, each of them have their pros and cons. So look, we’re gonna, we’re gonna expand where it makes sense, but we’re gonna be, let’s say eyes wide open, cautious as we do it.
Mike Albanese (Equity Analyst)
Great, thank you. And then I probably just follow up to that. You know, it probably matters brand by brand as you alluded to. But could you just comment on what you’re seeing in terms of, you know, unit profitability on these vehicles?
Randall Seymour
Yeah, it’s, look, it’s, it differs slightly I would say in the uk, Geely and Cherry have both been good to deal with. You know, one concern like with any brand, gotta make sure they don’t over inventory, that they’re not gonna over dealer the market, you know. Cause then it’s just a race to the bottom. And the other challenge, you think about it, you open a brand new store standalone, you don’t have any fixed operations. So you know, instead of running at 75% fixed, absorption at zero right at the beginning, now over time that will increase. But that’s, you know, that’s to get a return on that investment. And then in Germany we have BYD and mg and we just started those. So I would say it’s too early today. I’d say when you look at the margins in the big boxes, we’re probably getting a couple thousand pounds more on the Chinese brands than we are with our used vehicles. We’re selling in the same store. So right now it could be Christmas. We don’t know what’s going to happen as we, as we go forward. But look at the product’s good. We’re not seeing any consumer pushback. The mix has been about 50% retail, 50% fleet. Obviously they’re gonna put some in fleet to seed the market and get some volume up and awareness in the marketplace. But I think their approach has been sensible overall. Again, as a dealer you just caution not to, that they don’t saturate the market.
Mike Albanese (Equity Analyst)
Okay. And then just my last question on this front. Is there anything we should be thinking about in terms of implications on after sales with these brands? I mean is it the same process getting them in the service lanes and the same, you know, general ro that you would get on premium luxury or.
Randall Seymour
Yeah, go ahead. Look, it’s, it’s a, it’s a good question. More from the standpoint of hey, are they prepared and hence are we prepared? You know, that we’ve got all the right safety stock from a part standpoint that when the customer does come in that we can handle them efficiently. So that’s one big message I had with these OEMs as I met with them. And they seem to understand that we haven’t had any challenges yet. But it’s been so minimal, Mike, relative to the number of customers we’ve had come in. I can’t say dollar per repair order but one thing is these cars have 7 year warranty on it so we think the customer is going to be stickier rather than having a three or four year warranty. They’ll keep coming back. Well said. Thanks guys. We don’t know what the used car buyer is going to be also is the captive finance companies, you know, which lead the browns around the world that have the best captive finance are the ones that we see are best for us. So right now they’re using banks and other things in order to support it and they will buy down the right to be competitive in the market. So those are all things and we don’t have units in operation. That’s why Randall decided if we were going to do it, we’re going to put it in places where we all already have revenue and we have a parts and service that just a different car goes on the lift on the morning versus those select locations where we have full fixed operations in each of them. So it’s again, we’re just utilizing our assets better. We’re trying them in a different market. What’s going on in Germany versus what’s happened in the uk? You might talk a little bit about Australia. Yeah. From a, from a, from a Chinese standpoint. Yeah, well, look at we, we don’t have any Chinese brands there now, but like I said, it’s up to 23% and that’s one market where the, you know, Australia is pinched a little bit more with lack of fuel. They’ve only got two refineries there, so they’re dependent on import. So their fuel price went up more than most countries and they’ve seen significant increase in BEV sales along with the Chinese sales. So, you know, think about it. They went from 15 to 23% in just one quarter and those customers now are getting a taste of the quality of those brands. So it’s, you know, it’s a disruptor for sure.
OPERATOR
Your next question comes from the line of Daniela Hagean with Morgan Stanley. Please go ahead.
Randall Seymour
Hi Daniela. Hi. Thank you for taking the question. So switching gears a little bit to a more thematic question. The trend of energy and autos converging on a global scale is getting a lot of interest from investors. Could you speak a little bit about your Australia New Zealand segment and any opportunity there? Well, thanks, Danielle. It’s Randall again. So first of all, let’s say the energy businesses is vital. You know, across the world, but particularly in Australia, the data center businesses is exploding and we have a 75% market share in data center backup power for the power range of 1250 kilowatt and higher, which the majority of them are. So that’s just, you know, our business pipeline there is extremely strong. We’re very tight with numerous customers and that’s good news. The bad news with that is you sell the engine and it sits there, right? You go, you do maintenance on it once a month, but it doesn’t run so you don’t have that after sales annuity. So where we’re focused is to continue to grow our prime power strategy and units in operation. So as an example, four years ago we built a power station with our Bergen engines in the northwest of Australia, which for our biggest mining customer, 175 megawatt stations. 15 engines, 20 cylinders per engine. These are massive engines. 18 liters per cylinder, these are, and these run seven to 8,000 hours a year. And so we’re in the cycle right now after they got this commissioned where the 16,000 hour maintenance interval, you have to take the heads off and remanufacture them. We have all that capability and expertise to remanufacture these heads in country as part of Penske Australia. So up for those 15 engines or 300 cylinder heads, that’s about 15,000 hours worth of work. So our strategy is to do more, get more units in operation that are prime power and we’ve got that whole vertical strategy and approach and solution for those customers in the market. So it’s a key strategy, without a doubt for us.
OPERATOR
Great, thank you. Your next question comes from the line of Alex Perry with Bank of America. Please go ahead.
Alex Perry (Equity Analyst)
Hey, guys, thanks for taking my questions here and congrats on the strong quarter. I wanted to ask about the outlook in the uk, sort of X, the Chinese brand, sort of, sort of the core outlook in the uk and then just one piece on the Chinese brands. Are you expecting to. I know you said earlier going to take a measured approach there, but will you continue to add doors there? So just wanted to get your thoughts on the uk sort of outside of what’s going on with the Chinese brands.
Randall Seymour
Yeah, I think we’re going to be measured is the right word. But it was interesting. Again, meeting with all these OEMs and understanding the strengths and what some of their strategies are and how that aligns with our strategies. I think we’ll continue to evaluate two things. Number one, which brands make most sense to continue to partner with and number two, where we have available facility, infrastructure. Again with the strategy of saying we already have it, let’s put it there. And you know, because again, with the lack of units in operation, you don’t have that after sales. So, you know, the cost to get in is minimal. And then look at, we’re going to, as usual, be good partners with these brands and want to grow and help them understand the market better.
Roger Penske (Chair and CEO)
But they’re going to limit us based on over dealering. Yeah. And we start to see what the discounting is because we don’t want to handle vehicles, can’t make any money.
Alex Perry (Equity Analyst)
Yep. That makes a lot of sense. And then just on inventory levels across the network more broadly. Can you just talk about, you know, how you feel about inventory levels? It sounds like, you know, there’s certain brands toward Alexis where you’re light, anywhere you think you’re over at inventoried and then in the brands that you’re light, you know, how much do you think that that’s sort of restricting the sales velocity and any line of sight into those improving.
Rich Sherry
Yeah, Alex Rich here. So I’ll speak to the US and then Randall can cover internationally just as a top side from an overall perspective on new. We ended the quarter 43 days and unused, you know, 33 days and the new compared to 52 days a year ago. So we’re down from a day supply standpoint, you know, nine days, you know, you’ve got to look at both the day supply and the model mix within the inventory that you have by brand. And so even though we would say that Toyota, Lexus, you know, it’s great from a day supply standpoint, we would prefer to have, you know, maybe more RAV fours in that inventory and less Tundras as an example, you know, so you gotta look at it from both perspectives. But certainly, you know, they are the healthiest in maintaining that. So supply versus demand balance. We talked last year, you know, we felt Honda maybe overproduced a little bit and our day supply crept up there. They had a plant closure earlier this year that has got them back more in line, you know, and then we still gotta balance the Bev mix in there. You know, we’ve seen that come back up, you know, after the, the tax credit went away at the end of September and we had that sell through, we were down to 12 days supply on BEV. We’re up to 78 days supply now, you know, and so that’s higher than certainly our overall new car average is and certainly higher than we would want it to be. And then I think from a used perspective, we would prefer to have more used. Right now there is demand in the used car market, but we’ve been disciplined again on our sourcing of used cars. We could go out and buy more used cars but it would have the counter effect of lowering our grosses on the other side of the ledger. So we’ve stayed within our wheelhouse of 0 to 4 year old used cars not going up market in the 8 plus year range for used cars. So that’s a little bit of color on the US. So Randall.
Randall Seymour
Yeah, look it very similar in the UK. Our new car supply is 40 days and you know, give you an idea. The lowest day supplies land Rover at 35 days and the highest is Audi at 45 days. So the band’s pretty small with all the brands in between. And then our used car supplies 42 days, similar to the US. It’s difficult now, but I would say our team in the UK has done a fantastic job with acquisition of used proper appraisals. The available gross we have in our used cars right now is as best it’s been in months. So anyway, we feel we’re in very good shape.
Alex Perry (Equity Analyst)
That’s incredibly helpful. Best of luck going forward. Thanks, Alex. Thanks Alex.
OPERATOR
Your next question comes from the line of David Whiston with Morningstar. Please go ahead.
David Whiston (Equity Analyst)
Good Afternoon. Hey there. On service bay utilization, you talked about it being, I think, 84%. So I was just curious what prevents that from being not being 100%? Is it purely labor shortages or other variables? Yeah, it’s a combination of techs, you know, because that is a measure of tech ratio to Bayes. And so our tech count is up 3%. Our guys will tell you you don’t want. And we’re probably never going to have 100% bay utilization because in order to achieve that, you’d need that to. Randall’s comments earlier. Have every part you need at the time you need it, and invariably that’s never the case. And so you’re in process of having a car torn down, waiting on a part that’s tying up a bay. Or in the case of battery electric vehicles, you’ve got a flat bay and you’ve got. You need a bay next to it to reinstall the battery. So we feel pretty good at 84%. We probably can tick that up a few percentage points more. But with the flexibility we need for the type of work we do, growing north of 90% would be a challenge.
Rich Sherry
I think, Rich, also these bigger jobs where we’re taking engines out of tundras and things like that, you almost need a second bay next year operating bay in order to be able to do the work. So it’s flexible. But we are. Put it in perspective.
Roger Penske (Chair and CEO)
We’re adding, we’re going to 100 bays at Longo Toyota in California. We’re building a new full dealership with 100 bays in Hutto, Texas, outside of Austin, and we’re adding another 30 bays to Central Florida. Charter will get us to almost 100. So you know our commitment because the units in operation for this brand make this a real opportunity. Talk about where growth will be and depending on its warranty. Look, we like to warranty work, but the customer comes back because he’s got a car that’s not in for warranty every day. So I think that’s key. And that’s where Toyota, many cases, leads the market. And there’s no question that our biggest push when we talk about investment is some of the showroom capex that’s required because in many cases that means we got to tear up our buildings. We just did this in San Diego at Lexus, and we spent almost a year, you know, new furniture, et cetera, et cetera. I think it’s done great, but we have to go further than that. This is some of the questions that we have today. What is the store making what’s the expectation of the oem? And we’re pushing back to them in a good way, trying to explain to them we need to spend more in parts and service. Let’s make the showroom smaller. Let’s put more cars outside and work on more inside. I know it’s opposite of what the thinking is, but, you know, we have Bill Brown, Ford number one Ford dealer in the country. We could put three cars in the showroom, and they sold 600 cars this month, you know, and what are we doing? We’re expanding the service. So there is no question, the back end. And that’s why we like Rich’s business and Premium truck. What are you, 120, 130% fixed coverage at Premier Truck? Yeah, we’re 127%. 127%. So how many trucks you have in the showroom? Zero. Getting off base. David,
OPERATOR
thank you. That does conclude our question and answer session. And I would now like to turn the conference back over to Mr. Penske for closing comments.
Roger Penske (Chair and CEO)
Thanks for joining us. We’ll see you next quarter.
OPERATOR
Thank you, ladies and gentlemen. That does conclude today’s call. Thank you all for joining. And you may now disconnect.
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