Genuine Parts Company — Q1 2010 Form 10-Q
Reporting period: Three months ended March 31, 2010. Unaudited consolidated results; amounts below are in millions except per-share data. Genuine Parts distributes automotive and industrial replacement parts, office products, and electrical/electronic materials across approximately 2,000 locations.
Financial results and key metrics
| Metric | Q1 2010 | Q1 2009 / comparison |
|---|---|---|
| Net sales | $2,602.1 | $2,444.5; up 6% |
| Gross profit | $760.5 | $732.2 |
| Gross margin | 29.2% | 30.0% |
| Net income | $100.6 | $89.2; up 13% |
| Diluted EPS | $0.63 | $0.56; up 13% |
| Operating cash flow | $139.6 | $200.4 |
| Cash and equivalents | $333.5 at March 31 | $336.8 at December 31, 2009 |
| Long-term debt | $500.0 | Unchanged from December 31, 2009 |
Cost of goods sold was $1,841.6 million, or 70.8% of sales, compared with 70.1% a year earlier. Selling, administrative and other expenses, including depreciation and amortization, totaled $598.4 million, or 23.0% of sales, versus 24.0%. Management reported consolidated operating profit margin of 7.0%, compared with 6.8%. The effective tax rate was 37.9%, down from 38.4%. Dividends declared were $0.41 per share, versus $0.40.
Operating cash flow was lower year over year. Investing used $75.6 million, including $65.8 million for acquisitions and $9.9 million for capital expenditures. Financing used $70.3 million, primarily for $63.5 million of dividends; the company also repurchased shares. Cash declined $3.3 million during the quarter.
Current assets were $4,146.2 million and current liabilities were $1,514.1 million, a 2.7-to-1 current ratio, compared with 2.9-to-1 at year-end. Accounts receivable rose 12% from December 31, which management attributed to higher sales; inventory was nearly unchanged. The company had a $350 million unsecured revolving credit facility, with no borrowings outstanding at quarter-end. Its fixed-rate debt matures in 2011 and 2013.
Material changes and business performance
- Automotive sales rose about 6%; currency movements contributed approximately 3% to the group’s results. Operating profit increased 2%, but margin declined to 6.9% from 7.2%, mainly due to competitive pricing.
- Industrial sales increased about 9%, including approximately 4% contribution from acquisitions. Operating profit increased 43%, and margin improved to 6.1% from 4.6%.
- Office products sales declined slightly, less than 1%. Operating profit fell 6%, and margin declined to 8.9% from 9.4%, amid soft market conditions.
- Electrical/electronic materials sales increased about 16%; acquisitions contributed approximately 3% and rising copper prices approximately 8%. Operating profit increased 20%, with margin improving to 6.8% from 6.6%.
- Two companies were acquired in the Industrial and Electrical groups for approximately $66 million. The company recorded about $33 million of goodwill and other intangible assets; purchase-price allocations remain preliminary.
Management attributed improved expense leverage to cost-saving initiatives and sales growth. It also cited improving industrial indicators and gradual sequential improvement in office products, while noting that office products markets remained soft.
Outlook, risks and unusual items
The filing provides no numerical earnings or sales guidance. Management said it believed cash generation and existing credit lines would fund anticipated operations, including any voluntary share repurchases, for the foreseeable future. It cautioned that volatility in credit and capital markets could increase borrowing costs or impair access to financing.
The company guarantees borrowings of certain independently controlled stores and affiliates. Guaranteed borrowings totaled approximately $200.2 million at March 31, 2010; the company reported covenant compliance and no significant historical losses on these guarantees. It has recorded guarantee-related liabilities that it describes as immaterial.
Other risks identified include economic conditions and demand, supplier relationships, competition and pricing pressure, financial-market changes, promotional effectiveness, regulation, litigation, and foreign-currency movements. Currency movements positively affected Q1 results. Management noted that interim estimates—including bad-debt, inventory and LIFO adjustments—may change at year-end and could be significant. Results for the quarter are not necessarily indicative of full-year results. Disclosure controls were reported effective, with no material change in internal control over financial reporting identified.
Important facts for investors to verify
- Whether sales growth and improved industrial performance persist, and whether office-products weakness continues.
- How competitive pricing affects automotive and company-wide gross margins.
- Whether operating cash flow recovers from the year-over-year decline as working-capital needs and acquisition spending evolve.
- The final purchase-price allocations and subsequent performance of the two acquisitions.
- The company’s exposure and potential losses under the $200.2 million of guaranteed borrowings, along with debt maturities and access to credit markets.
- How year-end inventory/LIFO and other interim estimate adjustments affect reported results.