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Text: As always, I'm available by email or phone for any follow-up questions you may have.
Joining me for today's call are Roger Penske, our Chairman and CEO; Shelley Hulgrave, our Chief Financial Officer; and Tony Facioni, our Vice President and Corporate Controller.
We may also discuss certain non-GAAP financial measures, such as earnings before interest, taxes, depreciation and amortization or EBITDA.
I direct you to our SEC filings, including our Form 10-K for additional discussion and factors that could cause results to differ materially.
I'm pleased to report all-time record third quarter results for PAG, in the best quarter in the history of the company.
Our total revenue increased 9% to $6.5 billion and income from continuing operations before taxes increased 53% to $476 million and income from continuing operations increased 44%, the $355 million and related earnings per share increased 45% to $4.46.
Although unit sales were impacted by supply shortages in both our retail automotive and commercial truck dealership operations, earnings growth was driven by a 39% increase in retail automotive, 135% increase in commercial trucks variable gross profit per unit retailed, also 4% increase in retail automotive service and parts gross profit and a 230 basis point reduction in SG&A to gross profit and $15 million in lower interest costs coupled with an increase in commercial truck dealership EBT of 106% and an 83% increase in earnings from Penske Transportation Solutions.
This demonstrated the continued strength of our investment and the benefit provided by our diversified business model.
Looking at our retail automotive operations on a same store basis for Q3 '21 versus Q3 '20, units declined 8%.
However, revenue increased 7%.
Gross profit increased 18% including 180 basis point increase in our gross margin.
Our variable gross profit increased 39%, to $5,769 per unit compared to $4,152 last year.
Looking at CarShop, we now operate 22 locations and expect to open one additional location by the end of the year.
We recently added locations in Leighton Buzzard and Wolverhampton in the UK and our Scottsdale location opened this week.
During the quarter, CarShop unit sales increased approximately 1% to 18,451 units, revenue improved 24% to $438 million and gross profit per unit increased 12% to $2,668.
Our current annualized run rate is approximately 70,000 to 75,000 units representing revenue of $1.6 billion and an EBT between $45 million and $50 million.
Turning to the retail commercial truck dealership businesses, our Premier Truck Group represented 11% of our total revenue in the third quarter.
Retail revenue increased approximately 26%, including a 6% on a same store basis.
On a same store basis, retail gross profit increased 40%, including a 10% increase in service and parts.
Earnings before taxe is increased 106% to $48 million and the return on sales was 6.7%.
The Class 8 commercial truck market remains very strong and during the third quarter, North American Class 8 net orders increased 28% and the backlog increased to 179% to 279,000 units, representing a 13-month supply.
Based on the current industry forecast, retail sales are expected to increase over the next two years and provide tailwinds to our commercial truck and truck leasing businesses.
Turning to Penske Transportation Solutions, we own 28.9% of PTS which provides us with equity income, cash distribution and cash tax savings.
PTS currently operates the fleet to over 350,000 vehicles.
For the nine months ended September 30th, PTS generated $8.2 billion in revenue and $949 million in income or a 12% return on sales.
In Q3, PTS generated $2.9 billion in revenue and income of $409 million or a 14% return on sales.
As a result, our equity earnings in Q3 increased 83% to $118 million.
Our full service leasing and contract sales were up 8%.
Our commercial rental revenue was up 51% and our utilization hit 88% with an additional 14,000 units on rent.
Our consumer rental is up 27% and our logistics revenue increased 27%.
Our gain on sale of used trucks is up 140%, as a strong freight environment and a supply shortage of new trucks is certainly driving a demand for used vehicles.
Looking at the PAG balance sheet and cash flow.
The balance sheet remains in great shape.
At September 30th, we have $119 million in cash and we ended the third quarter with over $2 billion in liquidity.
When looking at our capital allocation, we maintain a disciplined approach that focuses on opportunistic investments across both our retail automotive and commercial truck businesses, capital expenditures to support growth including our first half growth strategy, delivering a strong dividend to our shareholders, reducing that whenever possible and share repurchases.
In fact, year-to-date, we have repurchased 2.5 million shares representing approximately 3% of the total shares outstanding.
Year-to-date we generated $1.3 billion in cash flow from operation.
We invested $157 million in capital expenditures, including $18 million to acquire land for future CarShop expansion.
Net capex was $84 million.
At the end of September, our long-term debt was $1.4 billion.
We have repaid $922 million of long-term debt since the end of 2019.
In addition, we have either repaid or refinanced our senior subordinated debt to lower rates while lengthening the term to take advantage of current market conditions, which has contributed to a $34 million reduction in interest expense so far this year.
These initiatives have lowered our debt to total capitalization to 27%, compared to 37% at December 31st and 45.6% at the end of 2019.
Our leverage ratio fits at 0.9 times, an improvement from 2.9 times at the end of 2019.
At the end of September, our total inventory was $2.6 billion, retail, automotive, inventory is $2 billion, which is down $937 million from December last year.
We have a 19-day supply of new vehicles.
Our day's supply of premium is 22 and volume foreign is 9.
We expect the current supply challenges coupled with strong demand to keep our new vehicle supply at low but manageable levels.
Used vehicle inventory is in good shape with a 40-day supply.
Moving onto our digital initiatives.
We continue to grow, expand and enhance our digital footprint including the introduction of new tools and technologies to offer our customers a hybrid customer-driven shopping model.
Depending on their preferences, customers can purchase either fully online, in-store or any combination of the two.
We will also deliver vehicles directly to a location desired by our customers.
As part of our omnichannel customer experience, we strive to be a leader and online reputation including online customer reviews and star ratings on Google.
Looking at our other digital tools, we retailed 2,550 vehicles or 4.3% of our U.S. unit sales and 14% of our customers use preferred purchase and their buying journey.
Using the Sytner by-on tool in the UK, a customer reserve a car for 99 pounds, apply for financing, receive insta credit approval, obtain a guarantee price and pay online.
During the quarter, we sold 3,700 units using this platform.
When you combine all of our digital tools, including new technology available at CarShop, a customer may perform any part of the transaction online or may use these tools to shorten or visit to the dealership.
Looking at corporate development, in addition to the 220 million of year-to-date share repurchases, we completed acquisitions totaling $600 million in annualized revenue through September 30th.
In October, we acquired the remaining 51% of our Japanese-based joint venture of premium luxury automotive brands, which will add $250 million in consolidated annual revenue and we have another $300 million in annualized revenue of deals in our pipeline that we expect to close either in the fourth quarter or early in 2022.
We also opened up a new Porsche dealership in Washington D.C. earlier this year and we have three other open points under construction.
We increased our CarShop locations by five and expect to open one additional location by the end of the year, bringing our total to 23 locations.
We remain on track with CarShop to retail 150,000 in unit sales and generate $2.5 billion to $3 billion in total revenue and our $100 million of EBT by the end of 2023.
As we look across our diverse portfolio of businesses, we continue to target organic and acquisition growth, as well as further operating efficiencies to continue to grow and expand our businesses.
Before I close, I'd like to congratulate the 35 U.S. dealerships that were named by automotive news to the 100 best dealerships that work for listing.
We had more dealerships on the list than any other automotive retailer, including six of the top 10, 12 of the top 25 in the 2021 ranking.
Our Audi of charge stores ranked number one in the country.
Additionally, seven PAG dealerships were ranked in the top 10 nationally, including the top three places for their efforts to promote diversity, equity and inclusion.
We're honored by these accomplishments and are extremely proud of our team for their commitment to drive the passion and the efforts in working together to be one of the very best.
I'm also pleased to announce the Penske Automotive Group was ranked first in the listing of U.S. public dealerships teams in the 2021 automotive reputation report published by reputation.com.
In closing, our business remains strong and our record performance demonstrates the benefit of our diversification.

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penske automotive group q1 earnings per share $4.46.
qtrly total revenue increased 8.8% to $6.5 billion.
qtrly total revenue increased 8.8% to $6.5 billion from $6.0 billion.
q1 earnings per share $4.46.

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