Genuine Parts Company — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with FY2020. GPC distributes automotive and industrial replacement parts through more than 10,300 locations across North America, Europe and Australasia. Automotive represented 66% of revenue and Industrial 34%. The former Business Products Group is reported as discontinued operations.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $18.87 billion | $16.54 billion |
| Gross profit | $6.63 billion; 35.2% margin | $5.65 billion; 34.2% margin |
| Net income from continuing operations | $898.8 million; 4.8% of sales | $163.4 million; 1.0% of sales |
| Diluted continuing-operations EPS | $6.23 | $1.13 |
| Adjusted continuing-operations EPS (non-GAAP) | $6.91 | $5.27 |
| Cash from operating activities | $1.26 billion | $2.01 billion |
- Sales rose 14.1%: comparable sales increased 10.5%, foreign currency and other contributed 2.1%, and acquisitions contributed 1.5%. Management attributed comparable growth to volume recovery and approximately 3% product-price inflation.
- Automotive sales were $12.54 billion, up 15.5%; segment profit margin improved to 8.6% from 8.0%. Industrial sales were $6.33 billion, up 11.4%; segment profit margin increased to 9.4% from 8.5%.
- SG&A was 27.4% of sales versus 26.5%. Higher wages, freight and health-insurance costs, the end of more than $300 million in temporary 2020 pandemic savings, a $77.4 million product-liability charge and a $61.1 million software-project disposal loss weighed on the comparison. Pricing, sourcing and operating initiatives supported gross margin and segment profitability.
- FY2020 included a $506.7 million European goodwill impairment, among other adjustments, making the large GAAP earnings increase an uneven comparison. Adjusted continuing income was $997.0 million in 2021, up 30.3% from $765.0 million in 2020; this is a company-defined non-GAAP measure.
- Fourth-quarter 2021 sales were $4.80 billion and continuing-operations net income was $256.0 million; diluted EPS was $1.79.
Cash, debt and liquidity
- Year-end cash was $714.7 million, down from $990.2 million. Cash from operations declined 37.5%, principally because 2020 benefited from approximately $800 million of cash from the receivables sales arrangement.
- Year-end debt was $2.41 billion, down approximately 10% from 2020; weighted-average borrowing cost was 2.35%. GPC reported $2.2 billion of total liquidity, including $1.5 billion available on its revolving credit facility, and a current ratio of 1.18 versus 1.21.
- FY2021 uses of cash included $465.6 million of dividends, $333.6 million of share repurchases, $266.1 million of capital expenditures and $284.3 million for acquisitions and other investing activities. GPC had raised its annual dividend for 65 consecutive years through 2021.
- Accounts payable increased 16.4% to $4.80 billion; inventory rose 10.9% to $3.89 billion. Suppliers elected to sell $2.7 billion of outstanding GPC payment obligations through supply-chain-finance programs at year-end, compared with $1.8 billion a year earlier; these amounts remain reported in accounts payable.
Outlook, commentary and material risks
- Management expressed confidence in continued sales growth and further margin improvement in 2022, citing recovery in consumer activity and industrial indicators, vehicle age and miles driven, and ongoing growth and cost initiatives. The filing does not provide clear numerical full-year 2022 revenue or earnings guidance.
- On January 3, 2022, GPC acquired Kaman Distribution Group for approximately $1.309 billion in cash. Kaman had estimated annual revenue of approximately $1.1 billion and about 220 locations. Preliminary pro forma FY2021 diluted EPS, as if acquired January 1, was $6.01; it excludes potential synergies. The acquisition was funded with revolving-credit borrowings, receivables-facility proceeds and cash.
- On January 6, 2022, GPC issued $1.0 billion of senior notes due 2025 and 2032, using proceeds to repay part of the revolving-credit borrowings related to Kaman. The receivables sales facility was also increased to $1.0 billion in January 2022.
- Key uncertainties include COVID-19 effects, supply-chain and labor constraints, inflation and freight costs, demand volatility, competition and e-commerce execution, acquisition integration, cybersecurity, foreign-exchange and interest-rate exposure, and potential future goodwill impairment.
- A Washington Supreme Court decision reinstated a product-liability damages award; GPC recorded approximately $77.4 million including statutory interest and insurance coverage, and paid the award and interest by year-end. The company accrued $180.7 million for pending and future product-liability claims and reported approximately 2,018 pending lawsuits.
Most important facts for investors to verify
- Whether 2021 sales and margin gains persist after pandemic recovery and price inflation, and how wage, freight and other costs affect margins.
- Cash-flow comparability, including the prior-year receivables-sale benefit, and the scale and presentation of supplier-finance obligations.
- Kaman’s final purchase-price allocation, integration progress, realized synergies and effect on debt and returns.
- Developments in product-liability claims and the adequacy of the $180.7 million accrual and insurance coverage.
- Whether management’s qualitative 2022 outlook is supported by subsequent results; the filing gives no clear numerical annual guidance.