Genuine Parts Overrides Estimates

Genuine Parts Company (GPC) posted a 22% rise in profit to $131.8 million in the third quarter of the year from $107.6 million in the same quarter of last year. On earnings per share basis, the profit improved 24% to 83 cents from 67 cents in the year-ago quarter and the Zacks Consensus Estimate of 76 cents.

Sales in the quarter grew 13% to $2.95 billion, beating the Zacks Consensus Estimate of $2.86 billion. Besides the Automotive Parts segment, Genuine Parts’ Motion Industries/Industrial Parts and EIS/Electrical Group segments continued to perform well during the quarter. Both the segments had been severely affected by the sluggish economy in the recent past.

Sales in the Automotive Parts segment rose 7% to $1.48 billion, Industrial Parts segment zoomed 29% to $921.2 million and Electrical segment soared 31% to $117.3 million.

However, sales in the Office Products segment slipped marginally to $434.5 million from $436.3 million. This can be attributable to the lackluster office employment over the past two years.

Genuine Parts had cash and cash equivalents of $531.7 million as of September 30, 2010, an increase from $363.1 million as of the same period a year ago. Long-term debt remained unchanged at $500 million as of that date. Consequently, the company’s long-term debt-to-capitalization ratio remained almost unchanged at 15% as of September 30, 2010 compared to 16% as of September 30, 2009.

In the first nine months of 2010, Genuine Parts’ net cash flow from operations decreased to $568.4 million from $766.5 million in the prior-year period, despite an improvement in profit. This was attributable to a significant decline in excess tax benefits from share-based compensation. Meanwhile, capital expenditures increased to $58.9 million from $49.4 million in the year-ago period.

Genuine Parts has undertaken various initiatives to boost sales and earnings, such as product line expansion, penetration into new markets and cost-saving activities. The company relies on a diverse product portfolio for top-line and bottom-line growth.

However, lower consumer confidence is thwarting Genuine Parts’ efforts to drive sales growth in its Automotive Parts segment. The company had a large merchandise inventory, accounting for 50% of current assets as of September 30, 2010.

Further, margin improvements in the Industrial Parts and Electrical/Electronic Material segments have been disappointing; despite top-line improvements as both of these segments sell lower-margin products.

As a result, the company retained a Zacks #3 Rank on its stock, which translated to a recommendation of Hold for the short term (1–3 months).

GENUINE PARTS (GPC): Free Stock Analysis Report

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