Genuine Parts Company — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report. The company distributes automotive and industrial replacement parts, office products, and electrical/electronic materials through four segments and approximately 2,600 locations.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net sales | $14.08 billion | $13.01 billion |
| Gross profit / gross margin | $4.22 billion / 30.0% | $3.78 billion / 29.0% |
| Net income | $685.0 million | $648.0 million |
| Diluted EPS | $4.40 | $4.14 |
| Operating cash flow | $1.06 billion | $906.4 million |
| Cash and cash equivalents at year-end | $196.9 million | $403.1 million |
| Total debt at year-end | $764.7 million | $500.0 million |
| Current ratio | 1.6 | 1.9 |
Net sales increased 8%; net income and diluted EPS each rose 6%. Income before taxes was $1.04 billion, or 7.4% of sales, versus $1.02 billion, or 7.8%, in 2012. Net margin was 4.9%, compared with 5.0%. Investing activities used $825.6 million, including $712.2 million for acquisitions and other investing activities. Capital expenditures were $124.1 million. Financing activities used $425.1 million, including $326.2 million of dividends and $120.7 million of share repurchases.
Fourth-quarter results: sales were $3.52 billion versus $3.12 billion; net income was $150.5 million versus $160.2 million; diluted EPS was $0.97 versus $1.03.
Segments and changes versus 2012
- Automotive: Sales rose 18.5% to $7.49 billion, with acquisitions contributing approximately 15 percentage points and comparable-store sales up about 4%. Segment operating margin was 8.6%, unchanged. Automotive represented 53% of sales, up from 49%.
- Industrial: Sales declined slightly to $4.43 billion. Volume fell about 1%, partly offset by inflation; operating margin fell to 7.2% from 7.9%.
- Office products: Sales declined 3% to $1.64 billion; operating margin fell to 7.5% from 8.0%. Management cited weak demand, workplace digitization, and elevated white-collar unemployment.
- Electrical/electronic materials: Sales declined 2% to $568.9 million; operating margin fell to 8.4% from 8.7%. Lower volume and copper pricing were partly offset by acquisitions.
Acquisitions materially affected comparability. On April 1, 2013, the company bought the remaining 70% of GPC Asia Pacific for approximately $590 million, net of cash acquired, and assumed approximately $230 million of debt. The acquisition contributed $839 million of reported sales from April through year-end. Total 2013 acquisition and other investing cash outlays were $712 million. Acquisitions contributed approximately 7% of consolidated sales growth.
Outlook, risks, and unusual items
- Management expected automotive sales to grow again in 2014, citing aging vehicles and internal growth initiatives. It anticipated opportunities in industrial and electrical/electronic businesses from acquisitions and internal initiatives, but did not provide quantitative earnings or sales guidance. It expected continued weakness in office products.
- Management estimated 2014 capital expenditures of $140–$160 million and a $51 million contribution to qualified defined-benefit pension plans.
- FY 2013 included approximately $33 million of net positive, one-time GPC Asia Pacific purchase-accounting adjustments, equivalent to $0.21 per diluted share. Components included a $59 million remeasurement gain on the previously held 30% interest and an inventory fair-value charge; the filing reports the net adjustments in different income-statement lines.
- Debt increased primarily to fund the GPC Asia Pacific acquisition. The company reported compliance with debt covenants and said cash and available financing were sufficient for expected needs. Its $850 million revolving facility had $264.7 million drawn at year-end and matures in 2017.
- Risks include economic and end-market demand weakness, intense competition and pricing pressure, vendor dependence and potential loss of inventory-return privileges, acquisition execution and integration, foreign-exchange movements, and litigation and regulatory exposure. A 10% exchange-rate shift was estimated to affect translated sales by approximately $255 million in 2013.
- The company disclosed approximately 3,000 product-liability lawsuits and said their resolution was not expected to materially affect results or financial condition. It also guaranteed approximately $258.7 million of borrowings of independent stores and affiliates; no significant guarantee losses had occurred to date.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The control assessment excluded GPC Asia Pacific, which represented approximately 16% of year-end total assets and 6% of annual revenue.
Important facts for investors to verify
- How much of future growth comes from comparable or organic sales versus acquisitions, especially GPC Asia Pacific.
- The durability of the 2013 gross-margin improvement and the effect of acquisition-related costs, amortization, and purchase-accounting items on earnings.
- Whether weakness in industrial, office, and electrical/electronic markets continues, and how segment margins respond.
- Debt, liquidity, and working-capital trends following the acquisition; cash fell while debt and accounts payable increased.
- Exposure to foreign currencies, pension funding assumptions and contributions, and the potential impact of guaranteed affiliate borrowings and litigation.