Penske Automotive Group (PAG) Q2 2026 earnings call transcript

Thank you, Leah. Good afternoon, everyone. And thank you for joining us today. A press release detailing Penske Automotive Group's second quarter, 2026 financial results was issued this morning and is posted on our website along with the presentation designed to assist you in understanding the company's results. Joining me for today's call are Roger Penske, chair and CEO, Shelly Holgrave, EVP, and chief financial officer, Rich Sheering, North American operations, Randall Seymour, international operations, and Tony Picione, vice president and corporate controller. I'm also available by mail, email or phone for any follow-up questions you may have. We may include forward-looking statements on today's call about our earnings potential outlook and other and we may also discuss certain non-gap financial measures such as EBITDA, adjusted EBITDA, adjusted earnings before taxes, adjusted net income, and our leverage ratio.

We've also prominently presented and reconciled any gap, non-gap measures to their mostly directly comparable gap measures in this morning's press release and our investor presentation, both of which are available on our website. Non-gap measures should be considered in addition to not as a substitute for the comparable gap measures. Our future results may vary from expectations because of risk and uncertainties outlined in today's press release under forward-looking statements. As most of you are likely aware, the company received an unsolicited, preliminary, and non-binding proposal from Penske Corporation and Mitsui and Co to acquire the remaining shares of the company's common stock they do not currently own for cash consideration of 210 per share. The Board of Directors has established a special committee of disinterested and independent directors authorized to retain its own legal and financial advisors to evaluate the proposal.

We have no further comments and will not be taking any questions on this matter at this time. However, I do direct you to our SCC filings, including our Form 10K, our previously filed Form 10Qs for addition discussion, and factors that could cause future events to differ materially from expectations. And now I will turn the call over to Roger Fonski.

Thank you, Tony. Good afternoon everyone and thank you for joining us today. For a please report a strong second quarter and financial results during the quarter, PHE delivered 125,000 new news vehicles and more than 5,400 new and used commercial trucks. We increased our revenue by 6% to eight and a half billion. We generated sequential increase in earnings before taxes, net income earnings per share when compared to the first quarter 2026. Earnings before taxes were 354 million that income was 260 million and earnings per share were $3.96. Second quarter results include approximately 30 million from the gain on sale of dealerships as we continue to optimize our portfolio.

Exuding the gain on sale adjusted income before taxes was 323 million that income was 238 million and earnings per share was $3.62. Cashflow was strong, allowing us to reduce our long-term debt by 141 million and increase our quarterly dividend to $1.44, representing our 23rd consecutive quarterly increase. Let's take a look at the details of the quarter. Same store retail, new and used units, increased 5% gross profit per new unit retail was $4,782 down $1 per unit sequentially. Gross profit per unit retail used was $2,095 up $19 sequentially. Our service in part same store revenue increased 2% and related gross profit increased 3. Service in parts gross margin increased 60 basins points and sequentially 80 basins points quarter over quarter.

Turn to the retail commercial truck segment, new and used truck units, retail increased 2%. In fact, according to industry reports, North American class 8 orders increased 170% in the second quarter compared to the same period last year. We expect to see the benefit from the strong order book in the second half of 2026. I was also pleased with the increase in profitability of PTS.

During the second quarter equity income increased 7% to 57 million and their earnings were 207 million for the quarter. Growing in the full service leasing revenue and improved fleet utilization, lower operating and interest expenses resulted from continued fleet reductions and were partially offset by continued challenges in rental and by lower gain on sale or used trucks. At this point, I'll turn it over to Rich Sharing to discuss our North American operations.

Thank you Roger and good afternoon everyone. In the US, our retail automotive same store new and used unit sales increased by 3%. During the quarter, 24% of the new units sold were MSRP, which is consistent with the first quarter of this year. Same store service and parts revenue and gross profit increased 2.5%. Customer pay was up nearly 4%, warranty was flat and collision repair declined 2%. Our US automotive technician count is up 2% when compared to the end of June of last year and our pay utilization is approximately 84%.

Turning to Premier Truck Group during Q2, Premier Truck retailed 5,431 new and used trucks, same store new units declined 8% and used increased 65%. New units retailed and proved sequentially by 53% to 4,276 compared to 2,786 in the first quarter of 2026. The increase in used units is primarily driven by an improved rate environment from a tightening and overall market capacity and improved spot rates. Used vehicle gross per unit was strong, increasing more than 2,000 on a sequential basis when compared to Q1 and nearly 1,900 when compared to prior year.

Premier Truck Group generated 928 million in revenue and 143 million in gross profit and gross margin increased 20 basis points. As Roger mentioned throughout the first half of 26, we have seen a stronger order book developed for the Class 8 market. In fact, Class 8 market orders increased 170% and the industry backlog grew 105% to 186,000 units in the second quarter. We expect to see the benefit from the strong order book in the second half of 2026 in the form of retail sales. Service and parts revenue increased 5% as average daily activity continues to grow and service backlog continues to increase.

Turning to Penske transportation solutions were also encouraged by the stronger financial performance. During Q2, operating revenue was flat with the prior year quarter. Least revenue increased 1% rental revenue declined 12% and logistics revenue declined 2%. PTS sold 9,170 units in Q2 ending the quarter with a fleet size of just under 380,000 compared to 414,000 at the end of June 25.

As PTS continues to right-sided fleet and dispose of older higher mileage trucks, the gain on sale declined 13 million in Q2. However, higher fleet utilization, lower operating costs and lower interest expense contributed to a 7% increase in equity earnings. As a result, the equity income increased to 57 million from 54 million. I would now like to turn the call over to Randall Seymour to discuss our international operations.

Thanks Rich. During Q2 international revenue was 3.2 billion which is up 10%. Same store new units increased 8% and used units increased 7%. Same store revenue increased 10% while same store grows profit increased 6%. Same store service and parts gross profit increased 5% as customer pay was up 3% but warranty declined 7%. Looking at the UK and our Q2, our new vehicles delivered increased 14% which was in line with the overall UK market increase of 13%.

Gross profit per unit increased sequentially by $303 when compared to Q1 and 2026. Same store used units increased 9% and gross profit per unit was 2228 which was down only $29 per unit on a sequential basis.

While we were encouraged with performance in Q2, the UK automotive environment remains challenging as higher taxes, consumer affordability considerations, the reduction in mobility programs and the government mandate towards electrification impact the overall market.

Turning to Australia in automotive retail our three Porsche dealerships in Melbourne continue to gain market traction through implementing our one ecosystem process. This process has driven a seamless experience for our customers resulting in top customer satisfaction scope scores for all three of our Porsche dealerships in Melbourne.

During Q2, new unit sales were impacted by the switch of the Macon model to a only powertrain. However a strong model mix of new vehicles sold coupled with a 10% increase in used units showcased the ability of our business to flex with market conditions. Also pleasingly fixed operations gross profit increased by 11%.

Turning to the Australian commercial vehicle and power systems business we are diversified with a revenue split approximately two thirds off highway and one third on highway. The off highway business continues to grow. The current order book has exceeded our full year business plan with strength seen and energy solutions mining and defense sectors. We remain a market leader in the over 1250 kilowatt horsepower high horsepower market. During Q2, our off highway revenue increased 63% and the future order pipeline remained strong as we secured over 300 million of orders in Q2, bringing the order book to nearly 660 million secured orders for 2026. And now let's turn the caller to Shelley Hochre to review our cash flow balance sheet and capital allocation.

Thank you Randall. Good afternoon everyone. We 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 costs. For the six months ended June 30th, 2026. We generated 418 million in cash flow from operations and even of 829 million dollars. During the first half of 2026 we invested 134 million in capital expenditures. This is down from 147 million for the first half of last year. We completed acquisitions of two Lexus dealerships representing 450 million in estimated annualized revenue.

We increased our cash dividend from $1.40 to $1.44 per share representing the 22nd and 23rd consecutive quarterly increases. On a forward basis our current annualized dividend is $5.76 with a yield of 2.9% and a payout ratio of 40% over the last 12 months. And we repurchased 265,000 shares of common stocks for $43 million. Since the beginning of 2023 we have returned approximately $1.6 billion to shareholders through dividends and share repurchases. At the end of June non-vehicle long-term debt was $2.5 billion and leveraged was only 1.7 times despite completing several large acquisitions over the last eight months. We also reduced long-term debt by 141 million during the second quarter.

Floor plan was 4.4 billion and we had 412 million in vehicle equity. For the quarter total interest expense increased $6 million. Floor plan interest decreased 5 million due to our cash management and lower interest rates while other interest expense increased 11 million primarily from higher borrowing costs as a result of acquisition.

We estimate a 25 basis point change in interest rates would impact interest expense by approximately $15 million. Our effective tax rate was 26.2% in Q2 2026. The prior year results Q2 2025 have been recast for the acquisition of Penske Motor Group using common control as disclosed last quarter. As a reminder, PMG was a partnership prior to our acquisition and was not subject to income tax. Q2 2025 does not reflect federal or state income taxes has PMG been included in our taxable group.

Therefore period over period comparisons of net income and earnings for 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 earnings for share would have been 5 cents.

Turning to SG&A, expenses increased by 3% during the quarter. SG&A is a percentage of gross profit for Q2 2026 was 71.8% compared to 69.8% in Q2 last year but was 250 basis points lower sequentially when compared to the first quarter of 2026. Q2 2026 SG&A expenses were impacted by higher cost for personnel expenses including employee benefits information technology expenses rent and rent related costs and vehicle maintenance costs.

Total inventory was 5.1 billion up 295 million from December 2025. New vehicle inventory is at a 51 day supply including 58 days for premium and 28 days for volume 4 use vehicle inventory is at a 44 day supply. At the end of June liquidity was approximately 1.4 billion including 70 million in cash and 1.3 billion of availability under the U. S. and international credit agreement and revolving more fixed facilities. At this time I will turn the call back to Roger for some final remarks.

Thank you Shelly. We had a solid quarter and remained optimistic about our business. Our diversification remains a key strength of our business model. Our recent acquisitions of Toyota and licensed dealership in California, Florida and Texas demonstrate our ability to identify and incorporate significant acquisitions into our portfolio. New news retail on motor grosses remains strong and service in parts continue to grow. The recovering the commercial truck market is underway. We expect the improving freight conditions to benefit both our commercial truck dealerships and also PTS. Again thanks for joining us for the call today and your confidence in PHE. Let's turn it over to the operator.

Yeah John, Richard. So you look at the backlog. It's 186,000 is what it's grown to with the ramp up in the orders year to date. So that represents about an eight and a half months worth of production.

You know, as you know, we're exclusively tied to Daimler Shucks North America and they have manufacturing plants both in Mexico and the United States depending on the type of vehicle that they produce. Generally from order intake to delivery depending on where their first production slots availability is. It's a 45 to 60 day, you know, kind of timeline from when the truck order would be placed to when we receive that truck at our dealerships. You know, so obviously there's each month they're producing units that are intended to come to our dealerships and so if you look at this order ramp up for the first half of the year we anticipate the majority of those orders that we've taken to convert into retail sales in the second half of this year.

So if you look at premier truck groups backlog it's about 10,400 units. Some of those will probably spill into the first part of next year but the majority of those will deliver, you know, in the second half of this year.

It started to build in December which is about three to four months late in the normal order cycle would generally take place. It's so you look at Q2 they were up 170 percent. June the orders were up 231 percent and year to date through six months they're up 117 percent. So essentially the majority of the manufacturers, you know, are at their production capacity for this year and sold out and so we'll see those that order intake probably curtail a little bit the second half of this year as the manufacturers start to publish the calendar year 2027 pricing. So as a result of that though it's going to keep our use truck demand elevated, you know, because the availability of new trucks from an order book and their ability to produce this year, additional new trucks will be muted.

Richie also I think we had with 6,000 deliveries in the first half, correct, and we're expecting 10,000 in the second half. So quite an increase and I think we feel good about margins staying pretty much consistent based on the mix of our business.

Yeah and you saw that in the in the press release that you know our use gross per unit up almost 2,000 both sequentially and year over year.

Well I think basically where you see the the defleading really we had over 88,000 rental trucks and we brought that down and I think we're at a point now we actually are in pretty good shape because what's happening is the utilization today is is almost 80 plus percent where it was down in the low 70s. So that drove our decisions to deplete and of course that reduced our total debt, almost two billion dollars when you look at year end forecast. Obviously maintenance is down, interest is down and we've taken out some mechanics because we're the reduced fleet. And I think what we're going to grow it back you know based on on our lease business and our logistics business.

So I think when you look at the number of trucks we've sold in the first six months was 18,500 which was lower than it was in the past.

Yeah thanks.

Well look it's just a turbulent market right now Mike. I mean with the with the dev mandate and with the government change there it's a little bit of a question mark. What they're going to do you know the mandate is 33 percent on the zeb and we're only at 25 percent next year goes to 38. So you know that puts pressure on the OEMs and then that also dictates what channel they sell the cars through. And then so the second point is you know the Chinese brands have doubled their market share from seven and a half to over 15 percent in fact in June they were over 16 percent.

So you know look we feel good the way we've structured our team there we've gone from random to to market area. And you know look at our brands our point premium was was good in Q2. So we think we've got more opportunity on the actor sales side. So it's just you know the macro environments just not it's not easy. So it's just going to change it's going to continue to be changing every quarter. So there's no way it's not like we've had a base and we're starting to turn positive. So I think we've hit our pace Mike. I think it's just that the uncontrollable macro items have been difficult to probably remain that way. So if you could say it's a new normal and you do we show our resilience being able to operate and perform in that in that environment.

I would say though when we look at the Chinese you know doubling their market share correct year over year but that's primarily in the lower cost vehicles and we're 97 percent premium luxury. So at the moment I don't think that's that's going to be an issue for us.

Yeah Mike the Chinese brands sold 171,000 units for the first half of the year. That's up from 79,000 last year. 100,000. So you know it's meaningful and we'll talk about what our strategy is and what we're adding those to our franchise deck.

Yeah so we're we're sweating assets current facilities. We have all of our sit-and-or-select locations have Chinese brands in them and then where we have separate facilities that are existing. You know maybe as an example we had a jag lander over dealership where we no longer have jag and there was a standalone jag dealership next to it and we're gonna put a Chinese brand in there. So you know you just can't afford without after sales without used cars in no fixed absorption essentially you're living on new cars but of course over time that will improve and look at they've been aggressive on pricing on payments they've suspended the rates. Inventory has been a mix depending on the brand but you know look our toes in the water and and margins are acceptable.

So yeah total of 10 locations and I would say we're strategically and pragmatically you know growing that. Yeah I think as I look at it like we don't know how many dealers are going to put in you know what's going to be the volume aspirations they don't have a captive finance company so they're relying on subsidizing banks and other things and that's always a question when you're dealing against MB financial you know Audi financial center where we have you know lease programs we've got programs on certified vehicles so there's a big stretch there then the kind of people they have in the field and we're going to have to build a fixed business and right now you know it's just really get ready and that's it.

I think you know the truck market is going nuts right so.

Yeah truck market is certainly attractive you know and that's why we remain committed to being flexible. We talk about that a lot and it's just about allocating our capital wherever it makes the most sense the opportunities that we have with PMG and again with Orlando with great brands in great markets that was really attracted to us but the acquisition market is very healthy. You saw we continue to increase our dividend this last quarter we're making investments internally with our CAPAC. So continuing to fire on all cylinders and remain flexible so that we've got the most you know best use of our capital. We also paid down a hundred and forty one million dollars worth of debt so you know we improved our leverage state and we'll continue to look at what makes the most sense for our CAPAC.

And we've made a couple of key commitments in Europe and in Germany which we feel fit with a structure store group we have up in Akken which is in northern Germany which has been quite profitable for us and we're continuing to we added a Ferrari location in Modna this past year which has been very positive for us so in the three stores in Melbourne from a Porsche standpoint so we're certainly open for business.

So yeah Mike we're exclusive we have a framework with them and that prohibits us at the moment from acquiring brands that compete with the product lineup they have. So you know light duty stuff 4.5 where they don't produce trucks you know to participate in that we have we have in the Zuzu franchise in Canada but look they're 40 percent of the market they continue to be successful they produce a truck that's got the lowest total cost of ownership it's reliable. We've got a presence both in Canada and the US we're one of only three dealer groups that have that ability so we and we've got some headroom to grow and we don't hear anything in our backyard here you may have heard this week too they just opened the Gordie Howe Detroit River bridge crossing it's going to help goods you know significantly from a congestion standpoint where you had the ambassador bridge and the blue water bridge it's going to really help trade go back and forth between we'll see what happens with Canada right?

Correct and it's been a good relationship and I think you know they're you know they notify us when there's opportunities and we get back to them they've been you know very helpful and of course one of the key things is that our finance partner you know was Daimler and and Toyota and they stepped up at every every ounce that when we do an acquisition they're signed by side with us so I'd say you know they've served us well back to we had Chrysler, Daimler, Chrysler, right Shelley doing our financing yep I don't know how many years ago.

Yeah thanks Alex Randall here just so our business in Australia is one third on highway which is our over the road truck distribution and retail business then two-thirds off highway mining is a big chunk of that defense rail marine and then as you said energy solutions and we're we've got about 1,300 people of which 500 are technicians so we have a very good footprint and infrastructure there we're in all the capital cities and then you know spotted in other places where we've got business particularly in mining so the energy solutions business in the backup power for data centers 1250 KV in higher we've got 75 plus market share in that you know Australia is the number two market in the world from an AI token export standpoint so the investment continues so our pipeline continues to grow and as we deliver we're replacing the pipeline so it's a it's a creative growth and you know we've stated I think on the last couple calls that we feel we can hit a billion Australian dollars in data center revenue by 2030 and you know with the current demand and with our market share and the relationship we have with both the customers and frankly supply of the engines is probably the biggest challenge but we're working hard with our partners there we definitely see a path to achieve that target that's really helpful and then maybe just shifting I think the new commercial trucking side was asked about earlier but just as we think about the use commercial truck demand you know that sort of already turned this quarter maybe talk through the strength you're seeing there you've seen operators sort of take advantage of the higher freight rates could this lead to an increase in GPUs on the use truck side how do you sort of expect the use truck business to play out to the bounce of the year is driven by what we're seeing in the spot rate market if you look at drive-in reefer flatbed those rates are anywhere between 40 and 50 up over where they were a year ago and their highest level since 2021 so whenever you get that kind of you know escalation in rates there's people that jump into the market to take advantage of that and so generally those buyers with the one to two trucks or the owner operators or use truck buyers and that's what's driving that demand and as I mentioned then in my prepared remarks you know we're you know up two thousand sequentially and and year over year so we I anticipate that demand you know continuing as we go in the second half of the year and you know there's going to be customers that you know try to avoid the new new truck price as well because just like on the auto side we've seen price escalation on new and used trucks and you know the used truck especially late model low mileage is a highly desirable unit our challenge as an operator of dealer is going to be sourcing those trucks to keep up with the with the demand I'd also say that we look at PTS we've seen a two to three to four thousand dollar increase or we're getting on our used trucks which is a huge help to us as we as we continue to deplete and that's been one of the areas on daycabs which has been really losers for us and that's turned around so the use truck market is much better and I think it's given us the opportunity to be able to bring our fleet in line from this standpoint when you look at mix and age that's incredibly helpful best of luck going forward thanks thanks your next question comes from the line of Rajat Gupta with JP Morgan your line is open please go ahead thanks Rajat hey everyone here Roger just had a question on SG&A to gross you know pretty nice improvement sequentially this quarter you know with all that you know we are born on the call with respect to you know PTG coming back and generally like stability in other areas of the business is it fair to assume you know for their improvement on the SG&A gross level from here because I think one of the reasons why is Rajat and Sally I think I got most of your question but you're right a nice differential improvement 250 basis points we saw about 400 basis point improvement from PTG quarter one over quarter two so certainly the improvement in their business you know all of the efforts that they made to contain cost while business was in a recession freight recession certainly has helped as they experience better service in parts now and certainly those grosses that Rich talked about you know there's there were some few one cost related to some weather events that we didn't have here in the second quarter but we also had some other headwinds some uncontrollable certainly around fuel costs some employee benefits and then there were other costs that we actively pursued like an investment in information technologies and in other areas like that so I think we're still comfortable in that low 70s range that we've been talking about kind of post-COVID you saw us get back to a pretty nice level here and thank you too and and we still remain comfortable in the low 70s yeah I think when you look at when we look at the PTG which is the Freightliner business our SGA to gross actually went down from 66% to 59% in the quarter and in the US we're at 68% so if you just look at our retail auto business which we can compare with other of our peers yet the UK is at 79% so when you put that mixed together that's where we are still down 250 basis points for the quarter got it got it that's helpful just one quick one you know on the US sorry yeah I was just asking on new GPUs you know could you give us a sense of how the US business did on new GPUs sequentially and any color you could provide on the outlook there thanks yeah Rajat Rich here I think you know use you know demand is it's been good I think similarly you know acquisition continues to be a little bit challenging positive news there I would say is we kind of hit the valley last year on our lease and loan maturities that's continued to improve throughout this year and will continue to get better as we go into the future and and into next year as well so those obviously are cars that we we have a higher chance of bringing back into our dealerships and either converting into another sale of getting the lease that's turned back in even if they go somewhere else and so we saw a high percentage of those in the quarter turning the CPO sale we're 42% in the US and you know and I continue to believe that there's a portion of the market where the new a new car customer five six years ago as a result of the price escalation is now now a use car customer I mean five years ago or actually it's almost seven years ago now a used car sales price is 25,000 it's 41,000 today and that 41,000 is what the new car price was you know seven years ago so I think we see our margin you know holding up there it's been it's been five percent over the last five to seven years and as long as that pricing stays pretty consistent we just got to make sure we're buying right and and holding on to the gross at point of sale yeah rich I think when you look at all in gross on use sequentially we're in the thirty seven to thirty eight hundred dollars all in gross which is which is terrific and driving some of that I think is our premium mix when you think about Toyota do you think about Honda think about Lexus Porsche Land Rover you remember we're not in the high-volume area obviously we are with Toyota but the premium mix gives us a lot more stability because we're at racing for big numbers thanks for all the color and good luck thank you thanks for your next question comes from the line of Daniella Hagen with Morgan Stanley your line is open please go ahead hey Danie thanks hi thanks for taking the question um so I had a question on the the australia power system as you shift units in operation towards this prime power piece over backup power to build that recurring service remanufacturing tail how should we expect that to move segment margins over the next two to three years and how does that shift impact the service opportunity yeah well look I think on the on the product actually selling the engines the margins pretty consistent the big difference is stand by power you know you go do maintenance once a month on the on the engine that's not running and then a prime power obviously it could run anywhere from five to eight thousand hours per year depending on how they want to share load or if it's a you know in front or behind the meter doing any peak shaving so that prime power just gives you that long-term annuity you know these get the cycle of the various maintenance repair and then even you know we do the remanufacturing on those engines um you know that that's where the real annuity is so look at this full change to prime power in this space is it's in the cycle now I would say at the beginning stages of it so this is where we're working on these solutions where our customers and you know we hope to grow that business for sure talk about 40 scoop yeah well you know we built a supply 16 engines in the northwest of australia in a mining area so this is off the grid by a thousand miles and so these engines run close to eight thousand hours per year and so we installed those engines they started running about three years ago so now we're at a 16,000 hour maintenance in overall cycle and so you know those margins are healthy we're taking care of those customers we have technicians domiciled on site and so this is one thing this happens to be powering various mine sites but it's the same principle as if you're powering a data center and you know you start getting into these like I said 16,000 hour 32,000 hour maintenance and remand remanufacturing cycles and it's a you know it's a strong business we really are the exclusive distributor from the net part of the world correct and we're looking for opportunities here in the u. s. we haven't identified any yet where we could partner with them either on the sale side or on the service side so this is a real opportunity and 40 school is really the one that has that mine and I think the technology there and these engines are amazing when you think about it and if you look at power availability and even when you look at the smaller engines the MCU's which are doing the standby you know ultimately some of those can be on prime power too it's not that they're just built for staying we want numerous on prime power now in different applications and then when you look at the mining we didn't touch that but we've got 800 mine haul trucks running probably the largest fleet in the world with MTU engines in them and those have continued to run they run about 30,000 hours over their first cycle and then we have two other cycles to get to 100 to do the rebrand on those and we're doing maintenance on those as we go forward and I think the technology is there we're looking at hybrid opportunities as we as we go forward and then the defense when I think about defense we're looking at you know patrol boats destroyers all the things that are taking place for the navy plus we're in the process of repowering the Collins class submarines so our expertise and with the 12 locations we have in the capital cities in Australia and with 1,300 people you know we really have a really a massive capability from a technical standpoint on top of that we can service the equipment and with that we end up with single source service contracts on many of the products we're selling so we see that as a growth factor for us as we go forward that is super helpful thank you for all the color there my second question was a little more tactical that segment commercial vehicle and power systems a lot of growth opportunities over time but you're over a year it looks like revenue grew by more than gross profit it was up 40 percent versus grosses up 30 percent so what was the driver of that of a bit of margin compression there was it mixed was there something with energy yeah thank you it's all mixed when you sell these big engines you got the capital product and it just our our after sale service of parks gross grew 10 percent but it didn't grow as fast as the revenue did on selling the engines for energy solution so they're both grow just your revenue grew faster because of the mix thank you appreciate it your next question comes from the line of Jeff lick with Stephen Zink your line is open please go ahead hey Jeff good afternoon hey roger um come along right roger 20 years ago we were talking about the new Lexus uh SUV launch now we're talking about Collins class submarine so definitely moving along I'm not sure I'm not sure what 20 years are now we're talking about movie something I wanted to double back on the the new unit same store sales up 3.7 percent first question is did the long go stores and then also the UK did they perform above that meaning that they were actually added to that number and then you know just given that your peers have not put up new comp positive new comp units if you can really just talk was driving that well I think I think the UK was up for sure they were up what we have what 14 percent I think rich you had talked about it before premium luxury was flat which would include Lexus at long go but on the on the Toyota side divine foreign we were up six percent that's a big number when you think about the vine we're doing with Toyota and Lexus now or Toyota and Honda and in our domestic domestic was up 15 percent but that's really not a big factor so it was really across the board led by the UK which which was powerful when we look at it's not a registration month either which is also good and then just as a follow up you know obviously you guys over index to to the least at least penetration and you know as you know we're now seeing least returns up 20 30 50 percent you know in certain weeks you know could you talk about I'm guessing that's a source of supply obviously but a source of demand as well is that driving up and you know you guys capitalizing on that yeah well we have to I mean so the answer is yes the the least returns you know are are increasing you know Toyota this year it's forecast for us to be 4200 units going to 5600 next year Lexus not quite up as much 2500 this year 3100 next year BMW 9500 this year 10 7 next year you know and you know in an Audi they've got almost 4600 least returns this year for us and 58 percent of those come in the second half of the year so obviously each of the OEMs have retention metrics as a KPI and you know we've certainly got to hit those but I would say our objective is to be higher than than what they want to hold us to because as I said earlier those are good generally good use cars and obviously we want to convert those people into either another new car and the challenge you know for some of them is is the equity position and I think that's where you know we've talked about it in the past you know number of years ago when the market was super hot we didn't sell above MSRP so if there are customers we should be able to get them out of that car without the negative equity equity situation if they're coming to us you know and they bought those vehicles from another dealer we are seeing some challenges with the consumer in a negative equity position and with the rates where they're at the pavement walking can be somewhat challenging wouldn't you say rich that the captain finance guys that have they want to keep that business so we're seeing the finance company tipping in they help us along with a sales company to maintain that customer together we we recruit them to a new vehicle we sell them the vehicle obviously a release one so it's a big focus for us because it's it's a customer already have and again CPO and we CPO those is more parts than service for us and we still have upside with the the lease penetration you know it's 32% for the quarter and historically we've been with the premium luxury in the mid-40s so thanks very much for taking my question and best of luck in Q3 thank you thank you Jeff your next question comes from the line of Joe Spak with UBS your line is open please go ahead Hey Joe thanks good afternoon um hey um you know like I used to sort of at a high level think about you know ppg new and use trust and pps as as somewhat of a almost sort of natural hedge in the in the business to that that that part of the market but in listening you speak today it actually sounds maybe a little bit more pro cyclical and I'm wondering if that's what you guys are seeing as well based on sort of how you're currently positioned in each of those markets for each of those businesses I'm not sure I completely understand that the question Joe but I would I would say you know they're definitely if I look at both of those businesses and we look at where the freight environment has been the last three and a half four years it's definitely been a more challenging environment you know as you as we came out of covid you had you know a v-shaped recovery and you know people moving away from good durable good spending to more services it doesn't require a truck to move them and that is had a fairly long down cycle so we're definitely I think turning the corner now into you know an environment where the freight should improve capacity is tightening the DOT and FMCSA are taking the necessary measures to get you know the non-CDL not in this English speaking CDL holders legal CDL holders out of the market which is is definitely helping I think there's still some upside if the housing market improves you know and and obviously if a lot of this manufacturing spend comes to fruition that the administration's been advertising then that's going to drive a lot of freight demand as well for sure when you think about it the fixed coverage today at at PGG is about between 125 and 130 percent yeah so and these are vehicles that are people running five six seven hundred thousand miles so the parks and service help us through the peaks and valleys there's no question don't you think any kind of any kind of tailwind you can see what it's doing on new trucks we could see used truck values as they've gone up and when you think about PTS really got to break PTS down probably in three buckets you know first you have your lease bucket which is your lease again that's probably I don't want to hope my numbers right somewhere probably around 60 to 65 percent would be leasing and these are three four five year contracts with economic escalators on an annual basis so these are tied together and of course they're not you can't break them without paying a penalty and then of course you have your logistics business which is about three billion out of the thirteen billion then you have rental and the rental is what's been is we drove that rental up much bigger than any other company in the country and that came down like a bomb and we had to you know really deflate that's where we took out probably 20 or 30 thousand more units but our flexibility is really key we can take off lease units as we go forward they're lower mileage and put them into rental too I think that's advice versus so I think the key thing is on our consumer which is a rented here leave it there those units are now available but be run locally rather than just one way so I think the flexibility is good and again when we finance these where was there was long five five six seven year bonds so we're getting some pretty good rates on that from the standpoint of financing so this is just about this truck market and the freight market and the whole CDL situation allowing now our customers to run more because of the new plants being built and I think the PTS future we think is good and you can see their number they did two hundred and I think two hundred and seven million in the quarter now you can't just take that time for but still that's a big number for us as we go forward okay thank you um and this is the second question you know with you guys are already pretty tight on Toyota and Lexus volumes but with the earthquake over in Japan and some Lexus Alpha getting disrupted you know I guess that sort of maybe helps you know pricing but like the net of pricing would maybe a little bit softer volumes is that is that at all material or or or you don't expect any sort of impact from from that event based on what we know right now Joe we don't think it to be material the latest information we have is that the plant will only be shut down through this Friday I think I think it's for precautionary measures they were they were 93 miles away from the epicenter of the earthquake but obviously they want to do the appropriate inspection of their facility to make sure it's safe for their employees and so that's what we understand the the disruption to be appreciate it thank you you back your next question comes from the line of David Wiston with a Morningstar your line is open please go ahead hey David thanks good afternoon hey Roger hey everyone um I guess just looking at the external environment uh in all your end markets and the macroeconomic environment um can you talk at all about what is your preference in the second half of the year between acquisitions versus buybacks well I think from an acquisition standpoint you know we're going to continue the same cadence as we have you know through this you know first six months I don't know that we're doing anything any different I mean to me it's the same business right now we got to run it appropriately David we're going to follow the consistent process of having a flexible approach to allocating capital across all the different markets we've been doing that for a very long time I think it's worked well for us and we will continue to do that as we approach the future and we'll have we've got certain CAPEX requirements that we have to do you know across the entire enterprise right okay and on the rebound in class eight demand is uh on shoring from tariffs at all helping um truck demand I think it's too early to tell I mean I would say if there is if some of the the projects that have been advertised come to fruition that's going to drive significant uh you know freight volume and freight uh uh weight that needs to be moved so I think uh manufacturing housing and consumer spending at three big drivers of of the freight environment housing is is muted uh manufacturing is it's been pretty good if you look at the PMI manufacturers index and uh and consumer spending is it's not as robust as it has been but it continues to be um healthy okay thanks you guys David there are no further questions at this time I will now turn the call back to Roger Penske for closing remarks thanks everyone we'll talk to you soon thanks Leah thanks everyone this concludes today's call thank you for attending you may now disconnect