Genuine Parts Lags on Earnings, Revenues

Zacks

Genuine Parts Company’s (GPC) earnings per share inched up 1% year over year to $1.12 in the third quarter of 2013 from $1.11 reported in the year-ago quarter. However, the reported earnings missed the Zacks Consensus Estimate by 8 cents.

Net income increased marginally by 0.5% year over year to $173.7 million from $172.9 million in the third quarter of 2012. This quarter was very challenging for Genuine Parts owing to the poor performance of the non-automotive businesses, which was partially offset by the better opportunities from the Automotive Group.

Revenues in the quarter grew 9.2% to $3.68 billion, missing the Zacks Consensus Estimate of $3.74 billion. The year-over-year improvement in revenues was due to hike in revenues from Automotive Parts segment, partially offset by decline in demand in non-automotive businesses.

Operating profit increased 4.1% to $300.5 million from $288.8 million in the third quarter of 2012. Selling, general and administrative expenses rose to $794 million from $678.9 million a year ago.

Revenues in the Automotive Parts segment grew 22.1% to $2.02 billion, thanks to the core North American growth of nearly 5% and the positive impact from the Australasian acquisition. Higher sales from North America and GPC Asia Pacific also had favorable impacts on the results. The segment’s operating profit rose 19.6% to $180.2 million in the quarter.

GPC’s other businesses continued to face weak market conditions during the quarter. Revenues in the Motion Industries or Industrial segment slipped 2.5% to $1.11 billion, S. P. Richards or Office Products segment fell 3.1% to $430.5 million and Electrical segment or EIS segment decreased 5.3% to $142.8 million.

Operating profits in the Motion Industries or Industrial segment dipped 15.9% to $79.6 million, S. P. Richards or Office Products segment fell 6.2% to $28.1 million and Electrical segment or EIS segment decreased 6.9% to $12.6 million in the quarter

Financial Position

Genuine Parts had cash and cash equivalents of $320.9 million as of Sep 30, 2013, down from $398.1 million as of Sep 30, 2012. Long-term debt increased to $833.9 million as of Sep 30, 2013, from $500.0 million as of Sep 30, 2012. Consequently, debt-to-capitalization ratio rose to 20.9% as of Sep 30, 2013 from 14.2% as of Sep 30, 2012.

During the first nine months of 2013, Genuine Parts’ net cash flow from operations improved 9.5% to $837.5 million from $764.8 million in the same period last year. Capital expenditures increased to $84.1 million from $71.6 million in the first nine months of 2012.

Our Take

Genuine Parts has undertaken various initiatives to boost sales and earnings. It has adopted cost-saving activities together with operating margin improvement strategies. Strong balance sheet and cash flow will also support the company’s future expansion strategies. However, poor sales in the company’s Industrial, Electrical and Office Products segments are the long-term headwinds.

Genuine Parts Company is a prominent player in the automotive replacement parts industry along with Standard Motor Products Inc. (SMP), LKQ Corp. (LKQ) and Motorcar Parts of America Inc. (MPAA). Currently, shares of Genuine Parts retain a Zacks Rank #4 (Sell).

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