Automotive Parts Group (50.33% of operating income in 2010)
The automotive group distributes replacement parts and accessories. The company owns 95% of the National Automotive Parts Association (“NAPA”). The company stocks over 420,000 parts and offers complete inventory, cataloging, marketing, training, and other programs in the automotive aftermarket. The company also owns 15% of Mitchell Repair Information which is a subsidiary of Snap-on Inc. (SNA). Mitchell is the leading automotive diagnostic and repair information company.
The automotive group accounted for $5.6 billion in revenue and posted an operating margin of 7.5% in 2010. This is the most recession-resistant group that the company operates. From 2007 to 2008 sales were flat. From 2008 to 2009 sales dropped only 2% before rebounding 7% from 2009 to 2010.
Industrial Parts Group (30.62% of operating income in 2010)
The Industrial Parts Group is operated as Motion Industries. Motion distributes industrial replacement parts and related supplies to MRO and OEM customers.
The Industrial group accounted for $3.5 billion in revenue and posted a 7.3% operating margin in 2010. As would be expected this group was hit hard during the recession with sales dropping 18% in 2009. Sales were up 22% in 2010.
Office Products Group (15.34% operating income in 2010)
The Office Products Group is operated as S.P. Richards Company. S.P. Richards is a wholesale distributor of a broad line of office and other business related products to business product resellers. Products include computer supplies, imaging precuts, office furniture, office machines, general office products, school supplies, cleaning and break room supplies, and healthcare products.
The Office group accounted for $1.6 billion in revenue and posted an operating margin of 8% in 2010. The Office group showed some resiliency during the recession with sales only declining by 5% in 2009 before flattening out in 2010.
Electrical/Electronic Material Group (3.72% of operating income in 2010)
The Electrical/Electronic Material Group operates as EIS Inc. The group distributes materials to over 20,000 North American electrical and electronic manufacturers. Products include wire and cable, insulating and conductive materials, assembly tools and test equipment, and custom fabricated parts.
This is GPC’s smallest division earning $450 million in revenue with operating margins of 6.9%. This group was hit hardest during the recession with sales dropping 26% in 2009. In 2010 revenue rebounded and was up 30%.
Competition and Comparables
Major publicly traded competitors in the autoparts segment include Autozone (AZO), Advanced Auto Parts (AAP), O’Reilly’s (ORLY), and to a lesser extent Peboys — Manny, Moe, and Jack (PBY). Major competitors in the industrial and office supply segment include W.W. Grainger (GWW) and MSC Industrial Direct (MSM).
The table below shows how GPC stacks up by various price and quality measures.
Nothing about GPC seems to stick out. It’s not significantly cheaper than competitors nor is management running the company any better than competitors. But when one examines the history of the company, specifically the dividend record, the predictable nature of the business comes into focus.
The company has paid a dividend every year since going public in 1948. Furthermore the dividend just announced in February marks the 55th consecutive year the company has increased its dividend. That is a longer streak than some luminaries such as Procter & Gamble (PG), 3M (MMM), Coca-Cola (KO), and Johnson & Johnson (JNJ). The consecutive increase streak also means the company didn’t engage in any of $.01 dividends in 2008 or 2009 some companies did to preserve their consecutive dividend streak.
This chart from the company’s website shows how consistent those increases have been.
GPC’s current dividend is well covered. Over the last twelve months the company paid $271 million in cash dividends out of free cash flow of $517 million.
From the following charts we can see why the company has been able to maintain such a stellar dividend record.
EPS has steadily increased save for a blip during the latest recession.
Margins have been steady over the past decade, although gross margins have begun to slip. Investors may want to keep an eye on this measure going forward.
Finally returns on capital and returns on assets have been steadily, if unspectacular over the past ten years.
Genuine Parts Company certainly won’t be a multi-bagger over a short period of time but investors looking for steady performance and a nice dividend might want to give GPC a look. The aftermarket automotive parts industry in general has some attractive features and investors may also want to give Autozone (AZO), Advanced (AAP), or O’Reillys (ORLY) a look.
Disclosure: Long GPC
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