The Company is engaged in the sale of new and used motor vehicles and related products and services, including vehicle service, parts, collision repair, finance and lease contracts, third-party insurance products and other aftermarket products.
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United Auto Group, Inc operates in a trillion dollar auto retail industry with 319 retail automotive franchises, representing 42 different brands, and 27 collision repair centers. It has 170 franchises in 20 states and Puerto Rico and 149 franchises located outside the United States, primarily in the United Kingdom.
The Company’s impressive 15.2% growth in revenues in 3Q06 in a highly competitive industry was driven by acquisitions and strong same-store growth from the company’s used vehicle (8.9%), and service and parts operations.
Acquisition of exclusive dealership of ‘smart brand’ in the US from Chrysler has come as a shot in the arms Looking at the impressive performance of this brand in Europe attracting more than 750,000 customers, the company has increased its planned dealer points to 50-70 dealerships from 40-50 dealers in the US.
The Company pursues a strategy of growth by means of lucrative acquisitions, concentrating on sale of imported & luxury vehicles and used vehicles.
Series of acquisitions made in 2006 are expected to contribute $1.5 billion in 2007. It will continue to look for acquisitions opportunities in the year ahead.
Banking on the tremendous success of online-line vehicle auction in the UK where the company now sells approximately 50% of the wholesale vehicles through this system, United Auto is all set to launch its wholesale vehicle online auction system in North America in 1Q07
The Company in 3Q06 has expended approximately $500,000 in SG&A expense related to ‘Smart’. Although we don’t expect this rate in every quarter, ‘Smart’ related SG&A expenses will continue in 2007 thereby squeezing the margins as ‘Smart’ is slated to be launched only in the beginning of 2008.
We believe strong fundamentals, favourable acquisitions and launch of ‘Smart’ will drive the company in future.
It’s an old saying “Avoid putting all eggs in one basket”. The second largest automotive retailer United Auto Group (UAG) benefited from this strategy. It’s diversified segments and product lineup has been able to withstand the harsh auto retail environment. The company witnessed same-store retail revenue growth by more than 10% for its first quarter. This seems to far better when compared to 5% decline in new vehicle retail sales felt across the industry. UAG’s first quarter retail sales improved 22% led by rise in average vehicle revenue per unit and increase from net dealership acquisitions during the period. The company saw a rise in its unit sales largely driven by increase in its premium and volume of foreign brands in both the U.K. and U.S. However, increased level of used vehicle business coupled with a very competitive vehicle sales environment, contributed to an overall 57 bps decline in gross margin. The company projects its earnings from continuing operations for the fiscal 2007 to be in the range of $1.40 to $1.50 per share, excluding the $0.13 per share debt redemption charge. The automotive retailer industry is influenced by general economic conditions. Decline in level of personal discretionary spending, rising fuel prices, mounting interest rates and tightened credit availability would provide a tough time for the company. However, UAG through its diversified portfolio should be able to achieve its fiscal 2007 guidance thereby making it a good stock to buy.