Genuine Parts Company (GPC) posted a 26% rise in profit to $ 126.5 million in the first quarter of 2011 from $ 100.6 million in the same quarter of last year. On earnings per share basis, the profit increased 27% to 80 cents from 63 cents, surpassing the Zacks Consensus Estimate by 4 cents per share.
Sales in the quarter appreciated 14% to $ 2.97 billion, exceeding the Zacks Consensus Estimate of $ 2.86 billion, driven by improvements in all its businesses. However, operating profit ebbed 10% to $ 656.8 million due to a rise in selling, general and administrative expenses (SG&A). SG&A increased 10% to $ 634.3 million during the quarter.
Sales in the Automotive Parts segment grew 9% to $ 1.40 billion, Industrial Parts segment rose 24% to $ 999.8 million, Office Products Group scaled up 5% to $ 432.7 million and Electrical segment soared 39% to $ 139.8 million.
Genuine Parts had cash and cash equivalents of $ 465.9 million as of March 31, 2011, an increase from $ 333.5 million in the year-ago period. Long-term debt remained unchanged at $ 500 million as of that date. Consequently, the company’s long-term debt to capitalization ratio fell marginally to 14.8% as of the above date from 15.7% in the corresponding period a year ago.
In the quarter, Genuine Parts’ net cash flow from operations declined significantly to $ 53.4 million from $ 139.6 million in the prior-year, despite an improvement in profit. This was primarily attributable to a significant decline in excess tax benefits from share-based compensation and unfavorable changes in operating assets and liabilities. Meanwhile, capital expenditures increased to $ 14.5 million from $ 9.9 million in the first quarter of 2010.
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. Further, the company has a strong financial position with a lower debt and a higher cash balance.
However, the company has been unable to institute meaningful price hikes in its automotive business due to pressure from retailers. 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.
These factors have led the company to retain a Zacks #3 Rank on its stock, which translates to a recommendation of “Hold” for the short term (1 to 3 months) and we reiterate our recommendation of “Neutral” for the long term (more than 6 months).
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