Analyst Note| David Whiston, CFA, CPA, CFE |
Group 1’s third quarter continued to show improvement from rising demand and cost cuts following the pandemic, so we see no reason to change our fair value estimate. Adjusted diluted EPS of $6.97 was a company record and beat the Refinitiv consensus of $6.07. Adjusted diluted EPS in third-quarter 2019 was $3.02. A gradual return of some personnel from furlough, others not returning because of digital investments, and demand improvement from the second quarter’s pandemic-induced low enabled selling, general, and administrative costs as a percentage of gross profit to fall below 60% for the first time ever to 59.7%. This 10.3-percentage-point decline year over year in adjusted SG&A to gross profit may never be repeated, but we feel all six dealers we cover have used the pandemic to accelerate cost reductions into 2020 that may have occurred over several years if no pandemic.