Asbury Automotive Group, Inc. (ABG) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed sentiment. Financial performance shows positive trends with increased used vehicle profits and strong cash flow, but there are concerns over GPU pressure and weaker-than-expected customer pay growth. The Q&A reveals cautious optimism for 2026, but uncertainties around tariffs, EV sales, and dual DMS costs could hinder performance. Despite a positive outlook for leverage reduction and shareholder returns, management's unclear responses on certain issues introduce uncertainty. Given the market cap, the stock is likely to remain stable, resulting in a neutral stock price movement prediction.
Key Financial Performance
Revenue Fourth quarter revenue was $4.7 billion, a record for the quarter. This represents growth driven by acquisitions and strategic divestitures.
Gross Profit Gross profit for the fourth quarter was $793 million, also a record, with a gross profit margin of 17%, an expansion of 31 basis points year-over-year. This was attributed to operational efficiency and portfolio improvements.
Adjusted Operating Margin The adjusted operating margin was 5.4% for the quarter, reflecting improved cost management and operational performance.
Adjusted Earnings Per Share (EPS) Adjusted EPS was $6.67 for the quarter. Without the noncash deferral impact of TCA, the adjusted EPS would have been $6.98.
Adjusted EBITDA Adjusted EBITDA for the fourth quarter was $250 million, reflecting strong operational performance.
New Vehicle Sales Same-store revenue for new vehicles was down 6% year-over-year, attributed to a tough comparable from the prior year's post-election surge and pull-forward demand earlier in the year. Average gross profit per new vehicle was $3,135, slightly down sequentially.
Used Vehicle Sales Total used gross profit was up 6% year-over-year. Used retail gross profit per unit increased by 18% to $1,749, driven by improved execution and operational strategies.
F&I PVR F&I PVR was $2,335. Without the noncash deferral impact of TCA, it would have been $2,440.
Parts & Service Gross Profit Same-store Parts & Service gross profit increased by 2% year-over-year. Customer pay gross profit rose by 3%, and warranty gross profit increased by 6%. The gross profit margin for Parts & Service was 58.1%, an expansion of 13 basis points.
Adjusted SG&A as a Percentage of Gross Profit Adjusted SG&A as a percentage of gross profit on a same-store basis was 64.1%, reflecting the impact of lower new vehicle profitability.
Adjusted Net Income Adjusted net income for the fourth quarter was $129 million, excluding noncash asset impairments, net gain on divestitures, and other adjustments.
Adjusted Free Cash Flow Adjusted free cash flow for the year was $465 million, reflecting strong cash generation and disciplined capital allocation.
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Operating Highlights
Tekion DMS Implementation: Transitioned 15 additional stores onto Tekion during the quarter, ending the year with 38 stores operating on the new DMS. Added 8 more stores in January, bringing the total to 46 stores.
Geographic Expansion: Acquired $2.9 billion in revenue through geographic expansion and strategic divestitures.
Store Divestitures: Divested 4 stores in the quarter and plan to divest 9 more by the end of Q1 2026, representing $750 million in annualized revenue.
Used Vehicle Performance: Same-store used vehicle gross profit increased by 6% year-over-year, with retail PVRs up 18%.
Parts & Service: Same-store Parts & Service gross profit increased by 2% year-over-year, with customer pay gross profit up 3% and warranty gross profit up 6%.
SG&A Efficiency: Same-store adjusted SG&A as a percentage of gross profit increased by 162 basis points year-over-year, reflecting lower new vehicle profitability.
Capital Allocation: Deployed $186 million in CapEx, repurchased $50 million in shares for the quarter, and $100 million for the full year. Plan to continue share repurchases in 2026 based on economic conditions and strategic opportunities.
Leverage Reduction: Reduced leverage to 3.2x, ahead of the forecasted 3.5x, through disciplined portfolio management and divestitures.
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Risk or Challenges
New Vehicle Sales: Same-store revenue year-over-year was down 6%, reflecting a tough comparable from last year's post-election surge and pull-forward demand earlier in the year. Additionally, disruptions in the DC market were noted.
New Vehicle Profitability: PVRs on new vehicles continue to normalize, with profitability expected to stabilize in the $2,500 to $3,000 range. Lower profitability impacted SG&A as a percentage of gross profit, which increased by 162 basis points year-over-year.
Consumer Spending in Parts & Service: A pullback in consumer spending in Parts & Service was observed, which could impact the fixed operations business.
Supply Constraints in Used Vehicles: Volumes in used vehicles continue to reflect a supply-constrained environment, despite improvements in gross profit.
Leverage and Divestitures: The company is divesting 13 stores representing $750 million in annualized revenue to reduce leverage. While this provides flexibility, it also reduces revenue streams.
Tekion Implementation: The rollout of Tekion to additional stores involves implementation expenses and operational adjustments, which could temporarily impact efficiency.
Economic Conditions and Share Repurchases: The pace of share repurchases in 2026 will depend on economic conditions, leverage profile, and trade-offs with acquisition opportunities, introducing uncertainty in capital allocation.
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Guidance & Outlook
Revenue Expectations: The company expects to continue its share repurchasing activity in 2026, with the pace dictated by share price, leverage profile, economic conditions, and strategic acquisition opportunities. Additionally, the company anticipates approximately $250 million in capital expenditures for both 2026 and 2027.
Margin Projections: The company expects new vehicle profitability to stabilize in the $2,500 to $3,000 range. Adjusted SG&A as a percentage of gross profit is expected to be managed efficiently over the next few quarters.
Market Trends and Business Segment Performance: The company remains optimistic about the trends in Parts & Service operations, supported by the increasing average age of cars on the road and the growing complexity of vehicle technology. The rollout of Tekion to additional stores is expected to unlock efficiencies and improve operational performance.
Capital Allocation: The company plans to divest 9 stores by the end of the first quarter of 2026, representing $750 million in annualized revenue, to reduce leverage and provide flexibility for share repurchases and strategic acquisitions.
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Shareholder Return Plan
Share Repurchase Efforts: Asbury Automotive Group continued its share repurchase efforts, buying back $50 million in shares for the fourth quarter and $100 million for the full year 2025.
Future Share Repurchase Plans: The company expects to continue its repurchasing activity in 2026. The pace of repurchases will depend on share price, leverage profile, economic conditions, and trade-offs with strategic acquisition opportunities.
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Key Q&A
Q:Can you provide a roadmap for 2026, considering factors like tariffs, EV credits, lease returns, and GPU normalization?
A:David Hult mentioned that they are forecasting a slight backward movement in SAAR, with variations by brand. Stellantis stores, which were challenging in 2025, are expected to improve in 2026. The first half of 2026 is expected to be more challenging, with improvements in the second half. Tariffs and pricing movements are still uncertain. The company is optimistic about its Parts & Service business and expects benefits from the Tekion rollout by 2027, despite some headwinds in 2026 due to dual DMS costs.
Q:Where do you see GPU adjustments coming from, and how will it manifest?
A:David Hult explained that GPU adjustments depend on inventory balance and brand mix. With divestitures, the percentage of luxury brands will increase, benefiting overall margins. If SAAR stretches and inventories grow, it could pressure margins. The company remains conservative with a $2,500 to $3,000 GPU estimate, but high new car costs ($52,000 average) may also pressure margins.
Q:Why was customer pay growth weaker than expected in Parts & Service, and what is the outlook for 2026?
A:Dan Clara stated they are not satisfied with customer pay growth and have a renewed strategy for fixed operations. David Hult added that traffic counts were normal, but consumers spent less in October and November, rebounding in December and January. The forecast remains mid-single-digit growth for customer pay.
Q:What is the progress and impact of the Tekion rollout?
A:Dan Clara mentioned that 125 more stores need to transition, with completion expected by fall 2026. Michael Welch noted dual DMS costs will impact SG&A in the first half of 2026, with savings expected in the second half. Early adopting stores have shown increased efficiency, productivity, and cost savings.
Q:What is the timeline for reducing leverage below 3x, and what are the cash flow deployment priorities for 2026?
A:Michael Welch stated that leverage is expected to drop below 3x by summer 2026, aided by divestitures and free cash flow. Share buybacks may also be considered, balancing leverage reduction and shareholder returns.
Q:What are the benefits observed from the Tekion system in early adopting stores?
A:Dan Clara and David Hult highlighted increased efficiency, productivity, and transparency between departments and with consumers. Early adopting stores have lower costs and higher productivity, though there is an initial adjustment period for employees.
Q:How does the demand environment look for New and Used vehicles?
A:Dan Clara noted that January started strong but was impacted by weather. Used car strategy focuses on maximizing gross profit rather than chasing volume, with opportunities expected in the second half of 2026 as lease turn-ins increase.
Q:What are the assumptions for SAAR and Used vehicle affordability in 2026?
A:Michael Welch mentioned a slight increase in SAAR assumptions to 15.9 based on third-party projections. Dan Clara emphasized maintaining discipline in Used car gross profit while addressing affordability challenges, with inventory opportunities expected in the second half of 2026.
Q:What is the outlook for EV inventory and sales in 2026?
A:Dan Clara stated that overall EV inventory is rightsized, though some regions like Colorado have excess inventory. EV sales dropped from 5% in Q4 2024 to 2% in Q4 2025, and this trend is expected to continue in 2026.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the financial impact of dual DMS costs in the first half of 2026, stating they would quantify it in the first quarter. Additionally, they did not fully explain the October and November pullback in consumer spending in Parts & Service.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Asbury plan
Asbury size
CEO release
Chamber store
DMS portfolio
DSI end
Finance discussion
Finance today
Group PVRs
New Vehicle
New Vehicles
Officer Senior
PVR TCA
PVRs ground
PVRs update
PVRs vehicle
Parts Service
Relations presentation
SAAR contraction
Service age
Service customer
Service outlook
Service store
Service trend
TCA Chamber
Tekion store
Used
area
condition
effort
investment
luxury brand
path
record
release Asbury
share repurchase
store end
strength
surge
ABG Transcript
Asbury Automotive Group, Inc. (ABG) Q4 2025 Earnings Call Transcript
Unknown2-5
The earnings call presents a mixed sentiment. Financial performance shows positive trends with increased used vehicle profits and strong cash flow, but there are concerns over GPU pressure and weaker-than-expected customer pay growth. The Q&A reveals cautious optimism for 2026, but uncertainties around tariffs, EV sales, and dual DMS costs could hinder performance. Despite a positive outlook for leverage reduction and shareholder returns, management's unclear responses on certain issues introduce uncertainty. Given the market cap, the stock is likely to remain stable, resulting in a neutral stock price movement prediction.
Asbury Automotive Group, Inc. (ABG) Q3 2025 Earnings Call Transcript
Positive10-28
The earnings call reveals strong financial performance with an 8% increase in revenue and a 7% rise in parts and service gross profit. The company is optimistic about luxury vehicle sales in Q4 and expects accretive effects from the Chambers acquisition. While there are some concerns about the timeline for achieving $5 EPS, the overall sentiment is positive due to strong cash flow, share repurchase priorities, and expected cost savings from the Tekion rollout. Given the company's market cap, the stock price is likely to see a positive movement of 2% to 8%.
Asbury Automotive Group, Inc. (ABG) Q2 2025 Earnings Conference Call Transcript
Positive7-29
The earnings call summary and Q&A indicate a positive outlook. The company reported strong financial metrics, with record revenue and EPS, and positive same-store sales growth in new vehicles and parts/services. The acquisition of Herb Chambers is seen as a strategic opportunity. Although used vehicle sales declined, the focus on maximizing gross profit is reassuring. The Q&A revealed some uncertainties, but management's strategic focus and positive guidance on parts and services support a positive sentiment. With a market cap of $4.56 billion, the stock is expected to react positively, within the 2% to 8% range.
Asbury Automotive Group, Inc. (NYSE:ABG) Q1 2025 Earnings Call Transcript
Positive4-30
The earnings call highlights strong financial performance with a 6% revenue growth and robust gross profit margins. The pending acquisition and divestitures are expected to positively impact the company's financial health. While there are some concerns about tariffs and weather impacts, management's optimistic guidance and focus on deleveraging are reassuring. The market strategy with Techheon and steady growth in parts and service further supports a positive outlook. Given the market cap, a 2% to 8% stock price increase is likely over the next two weeks.
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