Morningstar | Asbury Ends 2018 With a Record Quarter
Asbury Automotive Group finished 2018 with a strong quarter. We are not changing our fair value estimate but will revisit our valuation assumptions when we roll the model for the 10-K filing, which is not out yet. Fourth-quarter adjusted EPS grew 22% year over year to a fourth-quarter record $2.20 to help full-year adjusted EPS rise 31% to a record $8.41. These results are impressive given a roughly flat new vehicle sales year in the U.S. for 2018. Asbury's management continues to be one of the best operators in the space in terms of SG&A as a percentage of gross profit as evidenced by full year adjusted operating margin excluding floorplan interest holding flat at 4.6%. This is a high level for a dealership. For the quarter, operating margin declined by 20 basis points to 4.5% on declines in new vehicle gross profit per unit in all three areas: luxury, import, and domestic. New vehicle gross margin fell 50 basis points to 4.3%, which along with a 1% decline in finance and insurance gross profit per unit led to front end yield falling 4% to $3,196. Front end yield is gross profit from new, used, and F&I divided by new and used retail unit sales.Management is in our opinion wisely planning for 2019 new vehicle sales to decline from 2018's 17.3 million. More off-lease vehicles entering used vehicle supply, especially more light truck models which are in demand, along with modestly higher interest rates, and automakers pulling back on leasing, should in our view lead to 2019 sales declining from 2018 levels. We do not find management's assumption of 16.5-17 million new light vehicle sales this year as unreasonable. Continued technology investment should enable some back office headcount reduction over time and management is guiding 2019 SG&A to gross profit at 69%-70%, compared with 68.5% in 2018. Management also thinks it can eventually have its F&I gross profit per unit match the top public dealers, which is lucrative because F&I is a 100% gross profit segment.
Asbury Automotive Group is a holding company. Through its subsidiaries, the company is an automotive retailer. The company's stores provide automotive products and services, including new and used vehicles; parts and service, including vehicle repair and maintenance services, replacement parts and collision repair services; and finance and insurance products, including arranging vehicle financing through third parties and aftermarket products, such as extended service contracts, guaranteed asset protection debt cancellation, prepaid maintenance, and credit life and disability insurance. The company's new vehicle franchise retail network is made up of dealerships operating under locally-branded dealership groups.
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