Genuine Parts (GPC)

Q2 2011 Earnings Call

July 15, 2011 11:00 am ET


Jerry Nix - Vice Chairman, Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance

Carol Yancey - Senior Vice President of Finance and Corporate Secretary

Thomas Gallagher - Chairman, Chief Executive Officer, President and Member of Executive Committee


Michael Montani - ISI Group Inc.

Anthony Cristello - BB&T Capital Markets

Michael Ward - Ticonderoga Securities LLC

Matthew Fassler - Goldman Sachs Group Inc.

Christopher Horvers - JP Morgan Chase & Co

Elizabeth Lane - BofA Merrill Lynch

Keith Hughes - SunTrust Robinson Humphrey, Inc.

Scot Ciccarelli - RBC Capital Markets, LLC



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Good morning. My name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Ms. Carol Yancey. Ma'am, you may begin your conference.

Carol Yancey

Thank you. Good morning, and thank you for joining us today for the Genuine Parts' second quarter conference call to discuss our earnings results and the outlook for 2011.

Before we begin this morning, please be advised that this call may involve forward-looking statements regarding the company and its businesses. The company's actual results could differ materially from any forward-looking statements due to several important factors described in our company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. We will begin this morning with comments from Tom Gallagher, our Chairman, President and CEO. Tom?

Thomas Gallagher

Thank you, Carol. And I would like to add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. As we customarily do, Jerry Nix, our Vice Chairman and Chief Financial Officer, and I will split the duties on this call. And once we have concluded our remarks, we will look forward to answering any questions that you may have.

Earlier this morning, we released our second quarter 2010 results, and hopefully you've had an opportunity to review them. But for those who may not have seen the numbers as yet, a quick recap shows that sales for the quarter were $3,185,000,000, which was up 12%. Net income was $151.8 million, and this was up 22%. And earnings per share were $0.96 this year, compared to $0.78 in the second quarter of 2010 and EPS increase was 23%. These are all record results for us, so we feel that we had another good quarter with solid contributions from all 4 of our business segments, and we're proud of the job that is being done by the GPC team. Through their continued efforts, we feel that we're positioned to have another good year in 2011.

A review of the second quarter results by business segment shows that our Industrial and Electrical operations continue to produce the largest sales increases. Motion Industries, our Industrial distribution business, was up 19% in the quarter, and they went over $1 billion in quarterly sales for the first time. Acquisitions added about 3% to the Industrial increase in the quarter, but importantly, the ongoing operations generated a very healthy 16% increase, so the underlying Industrial business continues to perform well.

And as we look a bit more closely at the detail of the results, we continue to be encouraged by the strong performance that we see across the broad base of the Industrial business, as evidenced by the fact that 11 of the top 12 product categories were up double-digits in the quarter, and as a group, they were up 19%. And then each of the top 10 industry segments had double-digit increases in the second quarter, and as a group, they were up 26%.

A review of the top 20 customers shows a combined 25% increase for this group. And one final point is that every geographic region was up double-digits in the quarter. So as you can see, the Industrial business remains quite strong and healthy, and they end the first half up 22%. And with the Industrial production and capacity utilization indices each continuing to look favorable, we remain optimistic about the prospects for our Industrial business over the remainder of the year.

Moving on to the Electrical segment. EIS had another strong performance with sales being up 28%. Acquisition revenue added 10% to the quarterly increase. Copper pricing had a positive impact of 4%, which means that the ongoing operations were up 14% in the quarter, which we feel is a solid performance. As with our Industrial business, the increases across the EIS product categories and customer segments are broad-based and consistent, which is indicative of a healthy end market, as well as a good job being done by the EIS team. They closed out the first half up 34%, and with Institute for the Supply Management Purchasing Managers Index remaining above 50 through June, we're encouraged about EIS's prospects over the second half of the year.

Office Products was up 4% in the quarter. This follows a 5% increase in the first quarter, so a fairly consistent sales pattern through the first half of the year, despite the continued moderation and demand in the Office Products industry. As has been the case for a number of quarters now, our sales to the independent Office Products channel have outpaced our sales to the Mega Channel. The independent business was up 7% in the quarter, and this follows an 8% increase in Q1, so a steady progress is being made with this customer segment. But then, this is being offset by continued decreases with the Mega Channel, which was down 10% in the quarter.

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