Genuine Parts Company — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This 10-K reports full-year results; fourth-quarter figures are also summarized below. Genuine Parts distributes automotive and industrial replacement parts, office products, and electrical/electronic materials through four segments and approximately 2,650 locations.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $15.280 billion | $15.342 billion |
| Gross profit | $4.556 billion | $4.594 billion |
| Income before taxes | $1.124 billion | $1.118 billion |
| Net income | $706 million | $711 million |
| Diluted EPS | $4.63 | $4.61 |
| Net cash from operations | $1.159 billion | $790 million |
| Cash and cash equivalents at year-end | $212 million | $138 million |
| Total debt at year-end | $625 million | $765 million |
Gross margin was 29.8%, versus 29.9% in 2014; net margin was 4.6% in both years. Selling, administrative and other expenses were $3.277 billion, or 21.4% of sales, compared with $3.314 billion, or 21.6%. Income before taxes was 7.4% of sales versus 7.3%. The effective tax rate rose to 37.2% from 36.4%.
Cash provided by operations rose 47%, primarily because working-capital movements provided $312 million of cash, compared with a $34 million use in 2014. Investing activities used $264 million, including $110 million of capital expenditures. Financing activities used $806 million, including $368 million of dividends, $292 million of share repurchases, and net debt repayments. The current ratio was 1.4, compared with 1.6 a year earlier.
Of $625 million total debt, $375 million was classified as current, including $250 million of notes due November 2016 and $125 million drawn on the revolving credit facility. The company had a $1.2 billion unsecured revolving facility, with approximately $125 million drawn at year-end; it reported compliance with debt covenants.
Segments and changes versus 2014
| Segment | FY2015 sales | Change | Management-reported operating margin |
|---|---|---|---|
| Automotive | $8.015 billion | Down 1% | 9.1%, up from 8.7% |
| Industrial | $4.647 billion | Down 3% | 7.3%, down from 7.8% |
| Office products | $1.938 billion | Up 7.5% | 7.3%, down from 7.4% |
| Electrical/electronic materials | $751 million | Up 1.5% | 9.3%, up from 8.8% |
Consolidated sales fell 0.4%, following 9% growth in 2014. Management attributed an approximately 3% negative sales impact to currency translation; sales volume increased 1.5% and acquisitions contributed 1%. Excluding currency, management said sales and net income increased. Net income declined 1%, while diluted EPS rose slightly as diluted weighted-average shares fell to 152.5 million from 154.4 million.
Automotive core sales grew approximately 3.5%, but currency reduced reported sales by 5%. Industrial sales volumes declined approximately 4%, with weakness worsening during the year. Office growth reflected volume, acquisitions, and business from a primary customer; its fourth-quarter sales declined 2%. Electrical/electronic results benefited from acquisitions but faced lower volume, copper prices, and price deflation.
Fourth-quarter net sales were $3.682 billion, down from $3.822 billion in Q4 2014; net income was $161.3 million versus $165.6 million, and diluted EPS was $1.07 in both quarters.
Outlook, risks and notable items
- Management expected sales growth in 2016, while noting continued foreign-exchange headwinds. It expected challenging industrial conditions well into 2016 and difficult electrical/electronic end markets at least through the first half. No specific consolidated growth or earnings guidance was provided.
- Estimated 2016 capital expenditures were $140–$160 million. Management expected its increasing-dividend trend to continue and said it expected to remain active in share repurchases, with amounts varying.
- Foreign-currency exposure was significant: a 10% exchange-rate shift was estimated to affect translated sales by approximately $252 million. Canadian and Australian currencies, and to a lesser extent the Mexican peso, were key exposures.
- Key disclosed risks include competition and pricing pressure, demand sensitivity to economic and industry conditions, vendor concentration and loss of supplier return privileges, acquisition execution and integration, cybersecurity and system disruptions, regulatory and litigation exposure, and retention of key personnel.
- The company was involved in approximately 2,550 product-liability lawsuits, principally personal-injury claims. Management believed resolution of pending and reasonably anticipated claims would not materially affect the company, while acknowledging litigation uncertainty.
- Guarantees on borrowings of independent stores and affiliates totaled approximately $333 million. The company reported no significant historical losses on these guarantees and stated that collateral may be available if it must pay.
- 2015 acquisitions included businesses across all four segments and automotive store groups; acquisition cash outlay was approximately $120 million, net of cash acquired. The 2013 GPC Asia Pacific acquisition had produced a one-time net positive purchase-accounting benefit of $33 million pre-tax, or $0.21 per diluted share; it was not a 2015 item.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether underlying organic growth can offset currency effects, particularly in Automotive, and whether Industrial demand stabilizes.
- How much of operating cash flow growth reflects sustainable earnings versus working-capital timing and supplier payment terms.
- The refinancing or repayment plan for the $375 million of current debt, including the 2016 note maturity.
- Whether segment margins, especially Industrial and Office, recover as sales conditions and expense leverage change.
- Potential exposure from the $333 million of guarantees, product-liability cases, pension funding needs, and approximately $768 million of future operating lease payments.
- Acquisition returns and integration progress, and the impact of planned capital spending, dividends, and share repurchases on liquidity and per-share results.