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Genuine Parts Vends SP Richards Canada to Optimize Portfolio

Zacks Equity Research

In a bid to streamline its portfolio, Genuine Parts Company GPC divested its wholly-owned subsidiary S.P. Richards Canada to the Canadian multichannel operator, Novexco Inc. While the financial details of the deal are kept under wraps, Genuine Parts intends to utilize the cash proceeds of the transaction in compliance with its capital allocation strategy.

S.P. Richards Canada is a nationwide wholesaler of office products that had generated sales of $50 million in 2019.The firm distributes around 16,000 products of both branded and private label business supplies. The acquisition by Novexco will offer its customers access to a broader selection.

The deal bolsters Novexco’s prospects and Canadian presence. The buyout complements Novexco’s distribution channel. Notably, S.P. Richards’ warehouses in Western Canada will serve Novexco’s customers in the West and Novexco’s warehouses in Eastern Canada will reduce delivery time to S.P. Richards’ Canada customers in the East.

Notably, in 2018, Genuine Parts had entered into an agreement to spin off S.P. Richards, as part of a merger with Essendant Inc. However, the deal did not work out as Essendant received a better offer from Staples Inc. and Genuine Parts chose not to make a superior counter offer.

Genuine Parts, one of the leading U.S. automotive replacement parts distributors, constantly focuses on optimizing its portfolio through strategic deals. Genuine Parts’ acquisition of PartsPoint and Alliance Automotive Group is bolstering the company’s growth. Further, Alliance Automotive’s deal to acquire Todd Group for expanding heavy-duty parts and service offerings also bodes well. Moreover, buyouts of Axis New England and Axis New York are fueling Genuine Parts’ Industrial Parts Group. 

However, declining sales in Europe, especially in the United Kingdom, amid the effects of Brexit and softer economic environment remain a headwind. The company’s escalating SG&A expenses remain a major headwind. The Zacks Rank #4 (Sell) firm has downwardly revised its 2019 guidance. It expects sales to increase 3.5% versus the prior view of 4.5-5.5% growth. The company currently expects adjusted earnings per share within $5.60-$5.68 compared with the previous forecast of $5.65-$5.75.

Interested in Auto Stocks? Check out These

Some better-ranked stocks in the Auto-Tires-Trucks sector include Tesla, Inc. TSLA, Visteon Corporation VC and SPX Corporation SPXC, each carrying a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tesla has an estimated earnings growth rate of 1,951.8% for fiscal 2020.

Visteon has a projected earnings growth rate of 69.8% for fiscal 2020.

SPX has an expected earnings growth rate of 8.1% for fiscal 2020.

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