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Genuine Parts Company Reports Operating Results (10-Q)

August 03, 2012 | About:
10qk

10qk

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Genuine Parts Company (GPC) filed Quarterly Report for the period ended 2012-06-30.

Genuine Parts Company has a market cap of $10.07 billion; its shares were traded at around $64.435 with a P/E ratio of 16.8 and P/S ratio of 0.8. The dividend yield of Genuine Parts Company stocks is 3.1%. Genuine Parts Company had an annual average earning growth of 5.4% over the past 10 years. GuruFocus rated Genuine Parts Company the business predictability rank of 4-star.

Highlight of Business Operations:

Sales for the Automotive Parts Group increased 4% in the second quarter of 2012 and 5% for the six months ended June 30, 2012, as compared to the same periods in the previous year. The increase in this groups revenues was primarily due to the acquisition of Quaker City Motor Parts Co. (Quaker City). In addition, slight pricing deflation and unfavorable foreign exchange rates associated with our Canadian and Mexican businesses negatively impacted sales in the second quarter and six months ended June 30, 2012 by approximately 1%. We expect sales in the Automotive Parts Group to continue to increase at more modest growth rates due to a moderation in the economy coupled with recent declines in consumer confidence indices. The Industrial Products Groups sales increased by 8% and 10% for the three and six month periods ended June 30, 2012, as compared to the same period in 2011, respectively. Price inflation was not a material factor to sales in the second quarter and six month periods ended June 30, 2012. Industrial market indices, such as Industrial Production and Capacity Utilization, remained at healthy levels over the three and six month periods ended June 30, 2012, indicating ongoing improvement in the manufacturing sector of the economy served by the Industrial Parts Group. As a result, we expect sales in our Industrial Products Group will continue to grow. Sales for the Office Products Group decreased by approximately 1% for the three and six month periods ended June 30, 2012, as compared to the same periods in 2011. Sales volume for this group declined by approximately 2% and 3% in the second quarter and six month periods ended June 30, 2012, respectively, which was partially offset by price inflation of approximately 2%. With white-collar employment a leading indicator for this segment, the overall office products industry continues to experience soft market conditions. Sales for the Electrical/Electronic Materials Group increased 9% and 7% for the three and six month periods ended June 30, 2012, as compared to the same period of the previous year, respectively. Sales volume was down by approximately 2% in the second quarter and six month periods ended June 30, 2012. Price deflation, including the impact of copper pricing decreased sales by approximately 2% for the three and six month periods ended June 30, 2012. However, the decreased sales volume and price deflation were more than offset by acquisitions that contributed approximately 12% and 11% to sales for the three and six month periods of 2012, respectively, as compared to the same periods of the prior year. We expect continued growth for this group over the remainder of the year.

Cost of goods sold for the second quarter of 2012 was $2.37 billion, a 4% increase from $2.27 billion for the second quarter of 2011. The increase in cost of goods sold for the second quarter was primarily related to the sales increase for the same period. As a percentage of net sales, cost of goods sold represented 70.9% of net sales for the three month period ended June 30, 2012, as compared to 71.2% for the same period of the prior year. For the six months ended June 30, 2012, cost of goods sold was $4.63 billion, a 5% increase from $4.39 billion for the same period last year, and as a percent of sales decreased to 71.0% compared to 71.4%. Our cost of sales includes the total cost of merchandise sold, including freight expenses associated with moving merchandise from our vendors to our distribution centers and retail stores, vendor income and inventory adjustments. Gross profit as a percentage of net sales may fluctuate based on (i) changes in merchandise costs and related vendor income or vendor pricing, (ii) variations in product and customer mix, (iii) price changes in response to competitive pressures and (iv) physical inventory adjustments.

Total operating expenses of $705.0 million decreased slightly to 21.1% of net sales for the second quarter of 2012 compared to $674.6 million, or 21.2% of sales for the same period of the prior year. For the six months ended June 30, 2012, these expenses totaled $1.40 billion, or 21.4% of sales, an improvement from $1.33 billion, or 21.6% of sales for the same period in the prior year. The decrease in operating expenses as a percentage of net sales for the second quarter ended June 30, 2012 is due to approximately $4 million in cost savings initiatives recognized in the second quarter and $14 million recognized in the six months ended June 30, 2012, as well as the benefit of greater expense leverage associated with our 5% and 6% sales growth for the three and six month periods ended June 30, 2012, respectively. Our operating expenses are substantially comprised of compensation and benefit costs for the Companys personnel. Other major expense categories include facility occupancy costs for headquarters, distribution center and store operations, insurance costs, accounting, legal and professional services, transportation and delivery costs, travel and advertising. Managements ongoing cost control measures in these areas have served to improve the Companys cost structure.

The Automotive Parts Groups operating profit increased 10% in the second quarter of 2012 and its operating profit margin increased to 9.3% for the three months ended June 30, 2012, compared to 8.8% in the same period of the prior year. For the six months ended June 30, 2012, operating profit increased 13% compared to the same period of the prior year, and the operating profit margin increased to 8.5% compared to 7.9% for the same period last year. For the three and six month periods ended June 30, 2012, operating profit margin for this group improved due to cost savings and improved expense leverage on increased revenues. The Industrial Products Group had an 11% increase in operating profit in the second quarter of 2012 compared to the second quarter of 2011, and the operating profit margin for this group in the second quarter of 2012 increased to 8.3% compared to 8.1% in the same period of the previous year. Operating profit for the Industrial Products Group increased by 19% for the six month period ended June 30, 2012, compared to the same period in 2011, and the operating profit margin increased to 7.9% compared to 7.4% for the same period in 2011. The improved operating profit margin for this group is due to the combination of increased volume incentives, cost savings and greater expense leverage on sales growth. The Office Products Groups operating profit decreased 2% in the second quarter of 2012 compared to the same three month period in 2011, and the operating profit margin for this group decreased to 7.4% compared to 7.5% in the same period of 2011. For the six months ended June 30, 2012, the Office Products Groups operating profit decreased 1% compared to the same period of the prior year and the operating profit margin remained unchanged at 8.1% for the same period in 2011. The decrease in operating profit margin for this group is a result of decreased expense leverage on sales in the three and six month periods ended June 30, 2012 that was partially offset by the positive impact of 2% price inflation and ongoing initiatives to reduce costs. The Electrical/Electronic Materials Group increased its operating profit by 41% in the second quarter, and its operating profit margin increased to 8.7% compared to 6.7% in the second quarter of the previous year. Operating profit increased by 29% for the six month period ended June 30, 2012, compared to the same period in 2011, and the operating profit margin increased to 8.4% compared to 7.0% for the same six month period in 2011. The improvement in operating profit and operating profit margin for this group is primarily due to the positive margin impact of decreases in copper pricing, as well as the result of cost savings initiatives for the three and six month periods ended June 30, 2012.

Accounts receivable increased $144.7 million or 10% from December 31, 2011, which is due to the Companys overall sales increase and acquisitions. Inventory increased $71.6 million or 3% compared to the inventory balance at December 31, 2011, due to acquisitions. Goodwill and other intangible assets increased $218.5 million or 78% from December 31, 2011, in association with two acquisitions in the six month period ended June 30, 2012. Other assets increased $183.9 million or 68% compared to December 31, 2011, which primarily reflects the Companys 30% investment in the Exego Group for approximately $165.6 million. Accounts payable increased $158.9 million or 11% from December 31, 2011. This change is primarily due to more favorable payment terms and other payables initiatives negotiated with our vendors in the six months ended June 30, 2012. The Companys debt is discussed below.

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