Genuine Parts Company — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone Q4 filing; quarterly figures are identified where useful. Genuine Parts distributes automotive and industrial replacement parts. Following the June 30, 2020 sale of its Business Products Group, continuing operations comprise Automotive and Industrial.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales, continuing operations | $16.54 billion | $17.52 billion |
| Gross profit | $5.65 billion; 34.2% margin | $5.86 billion; 33.4% margin |
| Net income from continuing operations | $163.4 million | $646.5 million |
| Diluted EPS from continuing operations | $1.13 | $4.42 |
| Adjusted diluted EPS from continuing operations (non-GAAP) | $5.27 | $5.31 |
| Cash provided by operating activities | $2.01 billion | $832.5 million |
| Capital expenditures | $153.5 million | $277.9 million |
| Year-end cash and cash equivalents | $990.2 million | $277.0 million |
| Total debt | $2.68 billion | $3.43 billion |
| Current ratio | 1.21 | 1.17 |
Sales fell 5.6%; comparable sales declined 5.6%. Automotive sales were $10.86 billion, down 1.2%, while Industrial sales were $5.68 billion, down 13.0%. Segment profit margins improved: Automotive to 8.0% from 7.6%, and Industrial to 8.5% from 8.0%.
Including discontinued operations, the company reported a FY2020 net loss of $29.1 million, versus net income of $621.1 million in 2019. The Business Products Group recorded a $192.5 million discontinued-operations loss, including a $223.9 million loss on disposal.
Q4 2020 net sales were $4.25 billion, compared with $4.28 billion in Q4 2019. Continuing-operations net income was $171.6 million, versus $79.0 million; diluted continuing-operations EPS was $1.18 versus $0.54.
Material changes and unusual items
- A $506.7 million goodwill impairment charge was recorded in Q2 for the European reporting unit, amid pandemic-related market uncertainty and weaker projections. The effective tax rate rose to 56.9%, largely because the impairment was not tax deductible.
- FY2020 restructuring costs were $50.0 million, following $142.8 million of restructuring and special termination costs in 2019. Management reported $150 million of permanent cost reductions in 2020 and approximately $300 million of temporary pandemic-related savings.
- Q4 included a $40 million increase to cost of goods sold to correct an immaterial prior-year vendor-consideration accounting error. Management concluded the correction was not material to prior periods or FY2020.
- Cash from operations benefited from working-capital management and approximately $800 million from the accounts-receivable sales program. Receivables were sold with ownership transferred; the agreement’s maximum outstanding balance was approximately $800 million.
- The company sold its Business Products Group in separate transactions completed by June 30, receiving $387.4 million in divestiture proceeds during 2020. It recorded a $17 million expected-credit-loss charge against its remaining SPR investment.
Liquidity, debt and capital allocation
Management reported $2.9 billion of total liquidity at year-end, including $990.2 million in cash and approximately $1.9 billion available under its revolving facility. It entered a new $1.5 billion revolver maturing in October 2025, issued $500 million of 1.875% senior notes due 2030, and repaid its term loan A and prior revolving facility borrowings. The company said it was in compliance with debt covenants.
FY2020 dividends paid were $453.3 million; share repurchases were $96.2 million. The annual dividend was $3.16 per share, and the company stated it intended to continue supporting dividend increases. Management estimated FY2021 capital expenditures of $275 million to $325 million.
Outlook, risks and contingencies
Management expected positive Automotive sales growth in 2021 and a gradual Industrial recovery, citing improving trends in the second half of 2020. It emphasized that the outlook remained uncertain and did not provide specific revenue or earnings guidance. Pandemic duration, customer demand, supply availability and operating restrictions could affect results.
- Principal risks include COVID-19-related demand and supply-chain disruption, competition including e-commerce, execution and integration of acquisitions, and cybersecurity and information-system risks.
- Approximately $1.8 billion of supplier payment obligations were sold by suppliers through supply-chain finance programs at year-end. The company records these amounts in accounts payable and states that suppliers choose whether to participate.
- The company guaranteed approximately $884.7 million of borrowings for independent automotive stores and affiliates; it reported no significant historical losses on these guarantees.
- There were approximately 1,819 pending product-liability lawsuits. The accrued liability for pending and future product claims was $169.5 million. Management said it did not expect resolution of claims to materially affect the company, while noting litigation uncertainty.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Goodwill valuation and product-liability loss estimates were identified as critical audit matters.
Important facts for investors to verify
- How much of the strong operating cash flow is repeatable, given the $800 million receivables sale and working-capital changes.
- Whether the European business recovers sufficiently to avoid further goodwill impairment, and whether reported adjusted earnings adequately reflect recurring costs.
- Progress toward the stated 2021 sales outlook and the durability of the reported permanent cost savings versus temporary pandemic savings.
- Liquidity and refinancing exposure, including supplier-finance obligations, debt maturities, and guaranteed borrowings.
- Developments in product-liability litigation and the remaining SPR investment and transition arrangements.