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Why Is Genuine Parts (GPC) Up 6% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Genuine Parts (GPC). Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Genuine Parts due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Genuine Parts Q3 Earnings Top, Up Y/Y

Genuine Parts reported adjusted earnings of $1.50 per share in third-quarter 2019, surpassing the Zacks Consensus Estimate of $1.47. Following the company’s better-than-expected earnings, Genuine Parts' share price moved up 1.23% to close at $98.93 on Oct 18.

Notably, strategic buyouts of PartsPoint, Inenco and Alliance Automotive Group drove the results. The bottom line also improved from the year-ago profit of $1.48 a share.

Genuine Parts reported net sales of $5,015 million, marginally missing the Zacks Consensus Estimate of $5,026 million. The top line, however, increased 6.2% year over year. Net sales included 1.2% comparable growth, roughly 6.7% from acquisitions, partly offset by adverse impact of 1% due to foreign currency translation and 0.7% attributable to the sale of Grupo Auto Todo.

Segmental Results

The Automotive segment’s net sales came in at $2,790 million, up 5.3% year over year. The segment’s comparable sales growth was 1.8% during the quarter. Acquisition of PartsPoint and Inenco drove the automotive unit’s sales. However, the segment’s operating profit declined to $222.1 million in the reported quarter from $226.7 million a year ago.

The Industrial Parts segment’s net sales rose 9.8% from the year-ago quarter to $1,732.8 million, aided by buyout benefits. The segment’s comps growth was 0.9%. Resultantly, operating profit increased to $137.5 million from $119.2 million in the year-ago quarter.

The Business Products segment’s net sales fell to $491.5 million from $495.8 million recorded in the prior-year quarter. Nonetheless, operating profit from the segment rose to $21.6 million from $19.8 million recorded in the prior-year quarter.

Financial Position

Genuine Parts had cash and cash equivalents of $451.3 million as of Sep 30, 2019, up from $359.1 million in the corresponding period of 2018. As of Sep 30, 2019, its long-term debt increased to $2.8 billion from $2.4 billion in the comparable year-ago period. The company’s debt-to-capital ratio stands at 43.2%.

2019 Guidance Updated

Considering the impact of the sale of the Electrical Specialties Group of Motion Industries, the company downwardly revised its guidance. It now 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.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -5.18% due to these changes.

VGM Scores

At this time, Genuine Parts has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Genuine Parts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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