Genuine Parts Company (GPC) filed Quarterly Report for the period ended 2009-09-30.
GENUINE PARTS COMPANY is a distributor of automotive replacement parts in the U.S. Canada and Mexico. The Company also distributes industrial replacement parts in the U.S. and in Canada through its Motion Industries subsidiary. S. P. Richards Company the Office Products Group distributes product nationwide in the U.S. and in Canada. The Electrical/Electronic Group EIS Inc. distributes electrical and electronic components throughout the U.S. and in Canada and Mexico. Genuine Parts Company has a market cap of $5.68 billion; its shares were traded at around $35.6 with a P/E ratio of 14.7 and P/S ratio of 0.5. The dividend yield of Genuine Parts Company stocks is 4.5%. Genuine Parts Company had an annual average earning growth of 4.7% over the past 10 years. GuruFocus rated Genuine Parts Company the business predictability rank of 2.5-star.
Highlight of Business Operations:
Sales for the Automotive Parts Group decreased 1% in the third quarter of 2009 and 4% for the nine months ended September 30, 2009, as compared to the same periods in the previous year. The Automotive Parts Group showed continuing improvement in the quarter as compared to a 7% decrease in the first quarter and a 5% decrease in the second quarter. These sales declines reflect weakened demand in the automotive aftermarket for 2009. In addition, for the first, second and third quarters, currency exchange had a negative impact of 4%, 3% and 1%, respectively. We expect another period of gradual and steady improvement for the Automotive Group in the fourth quarter based on anticipated continued improvement in demand. The Industrial Products Group sales decreased by 22% and 20% for the three and nine month periods ended September 30, 2009, respectively, as compared to the same periods in 2008. The ongoing effects of the weakness in the manufacturing segment of the economy continue to impact demand at the industrial customer base, as we continue to see declines in the majority of our major customer categories. The industrial market indices, such as the Industrial Production and Capacity Utilization, showed some early signs of stabilization during the third quarter, which we believe is a positive indicator for the Industrial Parts Group. Sales for the Office Products Group decreased 5% and 6% for the three and nine month periods ended September 30, 2009, respectively, as compared to the same periods in 2008. The third quarter sales decline compares to a 7% decrease in the first quarter and a 6% decrease in the second quarter, indicating modest improvement in the Office Products Group, despite the ongoing decline in service/office employment numbers. Sales for the Electrical/Electronic Materials Group decreased 30% for the three and nine month periods ended September 30, 2009, as compared to the same periods of the previous year. The weakened industrial economy continues to impact this group. The Institute for Supply Managements Purchasing Managers’ Index improved to reflect an expanding manufacturing sector for the months of August and September, which may be a positive sign for the Electrical/Electronic Materials Group.
Cost of goods sold for the third quarter of 2009 was $1.84 billion, a 9% decrease from $2.03 billion for the third quarter of 2008. As a percent of sales, cost of goods sold remained consistent at 70.6% for the three months ended September 30, 2009 compared to 70.5% for the same period of 2008. For the nine month period ended September 30, 2009, cost of goods sold was $5.34 billion, an 11% decrease from $5.97 billion for the same period last year, and as a percent of sales was 70.4% compared to 70.3% for the same period of 2008. The slight increase in cost of goods sold as a percent of sales for the three and nine month periods ended September 30, 2009 is primarily due to reduced volume incentives earned associated with the Company’s lower purchasing levels. For the nine month period ended September 30, 2009, cumulative pricing increased 0.3% in Industrial, 1.5% in Electrical/Electronic, 3.5% in Office Products and decreased 1.9% in Automotive.
Selling, administrative and other expenses of $594.5 million increased to 22.8% of sales for the third quarter of 2009 as compared to 22.1% for the same period of the prior year. For the nine months ended September 30, 2009, these expenses totaled $1.76 billion and increased to 23.2% of sales compared to 22.4% for the same period in 2008. The increase in these expenses as a percent of sales is primarily associated with the loss of expense leverage due to decreased sales for the three and nine month periods ended September 30, 2009, as compared to the same periods in the previous year. In absolute dollars, selling, administrative and other expenses decreased $43.6 million or 6.8% and $141.6 million or 7.4% for the three and nine month periods ended September 30, 2009, respectively, as compared to the same periods in 2008 due primarily to cost saving initiatives by management.
The Automotive Parts Group’s operating profit decreased 4% in the third quarter of 2009, and its operating profit margin decreased to 7.8% for the three months ended September 30, 2009, as compared to 8.0% in the same period of the prior year. For the nine months ended September 30, 2009, operating profit decreased 2% as compared to the same nine month period of 2008 and operating profit margin increased to 7.9%, as compared to 7.7% for the same period last year. The improved operating results for the nine months ended September 30, 2009 are primarily due to cost reduction initiatives implemented by this group, headcount reductions and certain one-time costs related to the sale of Johnson Industries and consolidation costs in its remanufacturing operations recorded in the first three months of 2008. The Industrial Products Group had a 53% decrease in operating profit in the third quarter of 2009, and the operating profit margin for this group decreased to 5.1% as compared to 8.5% in the same period of the previous year. Operating profit decreased 54% for the nine month period ended September 30, 2009, and the operating profit margin decreased to 4.8%, as compared to 8.3% for the same period in 2008. These decreases are primarily due to the weak conditions in the manufacturing segment of the economy, reduced volume incentives associated with lower purchasing levels and the loss of expense leverage due to the decrease in revenues. For the three month period ended September 30, 2009, the Office Products Group’s operating profit decreased 20% and its operating profit margin decreased to 6.1% from 7.3%, as compared to the same period of the prior year. For the nine months ended September 30, 2009, operating profit decreased 14% compared to the same period in 2008 and operating profit margin decreased to 7.9% as compared to 8.6% for the nine months ended September 30, 2008. The decrease in operating results for this group is primarily due to the loss of expense leverage due to the decrease in revenue for the three and nine month periods ended September 30, 2009. The Electrical/Electronic Materials Group’s operating profit decreased for the third quarter by 34%, and its operating profit margin decreased to 7.6% compared to 8.1% in the third quarter of the previous year. Operating profit decreased 40% for the nine months ended September 30, 2009, compared to the same period of the previous year, and operating profit margin for the Electrical/Electronic Materials Group decreased to 6.9% from 8.0% as compared to the same period of 2008. The operating profit margin decreases for this group are primarily due to weak market conditions and the loss of expense leverage on the decrease in revenues.
Net income for the three months ended September 30, 2009 was $107.6 million, a decrease of 18%, as compared to $131.0 million for the third quarter of 2008. On a per share diluted basis, net income was $.67, down 17% compared to $.81 for the third quarter of last year. Net income for the nine months ended September 30, 2009 was $300.4 million, a decrease of 23% as compared to $387.6 million recorded for the same period of the previous year. Earnings per share on a diluted basis were $1.88, down 20% compared to $2.36 for the same nine month period of the previous year.
Accounts receivable increased $26.1 million, or 2%, from December 31, 2008. Inventory decreased $128.7 million, or 6%, compared to December 31, 2008, which reflects the Company’s reduced purchases and inventory management initiatives. Prepaid expenses and other current assets decreased 11%, or $29.8 million, primarily due to collections on volume incentives accrued as of December 31, 2008. Deferred tax assets decreased $65.7 million, or 30%, from December 31, 2008, primarily due to the tax impact of the reduced retirement benefit liabilities discussed in Note F to the condensed consolidated financial statements. Accounts payable increased $114.9 million, or 11%, primarily due to more favorable terms negotiated with our vendors. Retirement and other post-retirement benefit liabilities decreased $212.9 million, or 42%, from December 31, 2008, primarily due to the remeasurement of plan assets and liabilities as discussed in Note F to the condensed consolidated financial statements. Noncontrolling interests in subsidiaries decreased $61.6 million, or 89%, primarily due to the acquisition of the remaining noncontrolling interest in our consolidated subsidiary, Balkamp, Inc. The Company’s long-term debt is discussed in detail below.
GPC is in the portfolios of Brian Rogers of T Rowe Price Equity Income Fund, Dodge & Cox, Tweedy Browne of Tweedy Browne CO LLC, Richard Aster Jr of Meridian Fund.
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