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Can Strategic Buyouts Aid Genuine Parts' (GPC) Q3 Earnings?

Zacks Equity Research

Genuine Parts Company GPC is slated to release third-quarter 2019 results on Oct 17, before the opening bell. The current Zacks Consensus Estimate for the quarter to be reported is a profit of $1.47 on revenues of $5.03 billion.

The Atlanta-based automotive replacement parts supplier reported weaker-than-expected results in the last reported quarter due to lower profits from automotive and business product segments. As far as earnings surprises are concerned, the company displays a dismal record of missing estimates in three out of the trailing four quarters.

Genuine Parts Company Price and EPS Surprise

 

Genuine Parts Company Price and EPS Surprise

Genuine Parts Company price-eps-surprise | Genuine Parts Company Quote

The trend is expected to have continued, as our model indicates that Genuine Parts may not beat on earnings in the to-be-reported quarter as well.

Which Way are Top and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for third-quarter earnings per share has been downwardly revised by 6 cents in the past 30 days to $1.47. This indicates a marginal declinefrom the year-ago reported earnings of $1.48 per share. The Zacks Consensus Estimate for revenues is pegged at $5,026 million, suggesting an uptick of 6.4% from the prior-year reported figure.

Factors Setting the Tone

Genuine Parts’ strategic acquisitions to improve product offerings and expand geographical footprint are expected to get reflected in the to-be-reported quarter’s results. The company is expected to have witnessed sales growth in the automotive parts business, especially in the United States, Australasia and Canada. Genuine Parts’ acquisition of PartsPoint and Inenco, completed a few months back, are likely to have contributed to operating margin and consequently the bottom line. Buyouts of Axis New England and Axis NewYork are likely to have positively impacted third-quarter performance of Genuine Parts’ Industrial Parts Group. The acquisition of Alliance Automotive Group in November 2018 is also likely to have contributed to Genuine Parts’ sales.

While solid execution of sales initiatives and sound fundamentals for the aftermarket are likely to have buoyed the firm’s upcoming results, softness in European markets and unfavorable forex translations may have limited profits to some extent.

Key Developments During the Quarter

In July, Genuine Parts acquired the outstanding 65% stake in Australia-based Inenco Group, in which it earlier had a 35% interest. The possession of full ownership in Inenco is a significant addition to the company’s global industrial portfolio, and is likely to lead to various operational and commercial synergies going forward.

In July, the company’s wholly-owned subsidiary Alliance Automotive inked a deal to acquire Todd Group to expand heavy-duty parts and service offerings. The transaction, which is expected to close in fourth-quarter 2019, will boost Genuine Parts’ long-term prospects.

During the quarter, the company announced the decision to divest its wholly-owned subsidiary EIS to Audax Private Equity in a bid to streamline portfolio and use the proceeds to tap into other growth opportunities.

What Our Model Says

Our proven model does not conclusively predict that Genuine Parts will beat the Zacks Consensus Estimate in the quarter to be reported. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%.

Zacks Rank: Genuine Parts currently has a Zacks Rank #2 (Buy). While a Zacks Rank #2 boosts optimism, its 0.00% ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies, which according to our model have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Asbury Automotive Group ABG has an Earnings ESP of +4.53% and is a #2 Ranked player. The partnership is slated to release third-quarter 2019 earnings on Oct 22.

Hawaiian Holdings, Inc. HA has an Earnings ESP of +4.97% and is a #2 Ranked player. The partnership is scheduled to release third-quarter 2019 earnings on Oct 22.

Alaska Air Group, Inc. ALK has an Earnings ESP of +5.81% and is a #2 Ranked player. The partnership is set to release third-quarter 2019 earnings on Oct 24.

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