Genuine Parts Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; compared with Q1 2012 unless otherwise noted. Genuine Parts distributes automotive and industrial replacement parts, office products, and electrical/electronic materials. The interim statements are unaudited.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net sales | $3.199 billion | $3.181 billion | +0.6% |
| Gross profit | $921.7 million | $919.1 million | +0.3% |
| Operating profit | $243.6 million | $248.4 million | -1.9% |
| Net income | $144.4 million | $146.3 million | -1.3% |
| Diluted EPS | $0.93 | $0.93 | Unchanged |
| Operating cash flow | $116.4 million | $172.3 million | Down $55.9 million |
Gross margin was approximately 28.8%, versus 28.9%; operating margin was 7.6%, versus 7.8%. Operating expenses increased to 21.9% of sales from 21.7%, which management attributed primarily to weaker expense leverage from slower sales growth. The effective tax rate declined to 35.0% from 35.9%, reflecting favorable adjustments related to uncertain tax positions.
Operating cash flow included a $52.6 million use of cash from changes in operating assets and liabilities, compared with a $6.7 million source in Q1 2012. Investing used $19.7 million, including $12.9 million of capital expenditures; Q1 2012 investing used $205.8 million, largely reflecting acquisitions. Financing provided $337.4 million, principally from debt proceeds. Cash was $841.9 million at March 31, up from $403.1 million at December 31, 2012.
Segments and changes versus prior year
| Segment | Sales change | Operating profit change |
|---|---|---|
| Automotive | +3% | +6% |
| Industrial | -2% | -6% |
| Office products | -1% | -11% |
| Electrical/electronic materials | -5% | -13% |
Automotive growth benefited from the Quaker City Motor Parts acquisition, partly offset by one fewer sales day. Industrial and office sales were pressured by lower volume. Electrical/electronic materials volume fell approximately 7%; copper-related price inflation contributed about 1% to sales, and acquisitions contributed about 1%.
Financial position, outlook, and risks
Total debt was approximately $914.7 million at March 31, 2013, up $414.7 million from year-end. This included $414.7 million outstanding on the $850 million unsecured revolving credit facility, which matures in September 2017, and $500 million of fixed-rate notes due November 2013 and November 2016. The company reported compliance with debt covenants. Its current ratio was 1.8, compared with 1.9 at year-end. Management said cash and available credit, together with operating cash generation, should fund anticipated operations for the foreseeable future.
On April 1, 2013, the company acquired the remaining approximately 70% of Australia-based Exego Group for approximately $655 million and assumed approximately $160 million in net debt. It funded the purchase with cash and existing credit facilities. Exego had annual revenue of approximately $1 billion and more than 430 company-owned locations. Purchase accounting valuations were not yet available when the filing was prepared.
Management expected stronger automotive sales growth for the remainder of 2013, opportunities for industrial and moderate electrical/electronic materials growth, and continued cost-control efforts. It gave no numerical full-year earnings or sales guidance. Risks cited include weaker demand or economic conditions, vendor disruptions or unfavorable terms, competition and pricing pressure, execution of business initiatives and acquisition integration, and litigation. The company also described foreign-currency exposure, principally to the Canadian dollar, and guaranteed borrowings of certain independent stores and affiliates; guaranteed borrowings totaled approximately $248.1 million, with no significant guarantee losses reported to date.
Other notable items: the company contributed $57.2 million to its pension plan during the quarter; dividends declared were $0.5375 per share, up from $0.495; and comprehensive income fell to $147.9 million from $174.8 million, mainly reflecting less favorable foreign-currency translation. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification points
- Track Exego’s post-acquisition results, integration, final purchase-price allocation, and financing impact.
- Assess whether automotive growth accelerates and whether weaker volume and margins in other segments persist.
- Monitor debt levels, the November 2013 note maturity, revolving-credit usage, and covenant headroom.
- Review operating cash conversion and working-capital movements, including inventory and vendor payment terms.
- Evaluate the $248.1 million guaranteed borrowing exposure and pension funding and benefit obligations.