Genuine Parts Company (GPC) recently announced that its Electrical/Electronic Materials arm, EIS, Inc., has acquired a certain number of shares of Cobra Wire & Cable Inc. from Merit Capital Partners and Fulton Capital for an undisclosed amount.
Hatboro, Pennsylvania-based Cobra is a specialty wire and cable distributor serving a wide range of industries including aircraft, telecom, battery automotive, alternative energy, uninterruptible power supply (UPS) systems, marine aftermarket , oil refiniries and harness assemblies. Cobra’s sales and distribution centers are located in Plano (Texas), Tukwila (Washington) and Hatboro (Pennsylvania).
Genuine Parts expects to benefit immensely from the broad customer base that Cobra possesses throughout the country. Accordingly, the company expects the acquisition to generate annual revenues of approximately $43 million.
In the last reported quarter, Genuine Parts witnessed a 22% rise in profit to $151.8 million from $124.5 million in the year-ago quarter. Earnings per share were 96 cents, up 23% from 78 cents per share delivered in the comparable quarter last year. Total sales in the quarter grew 12% to $3.18 billion, driven by improvements across all its businesses and favorable conditions in the aftermarket.
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.
In the Automotive Parts segment, the company expects annual growth of 2%–5% going forward, with NAPA representing about 10% of the market share. Demand is expected to remain strong given that the average age of vehicles on the road has risen to almost 10 years.
However, lower consumer confidence and higher competition are thwarting Genuine Parts' efforts to drive sales growth in its Automotive Parts segment. The company’s key competitors include Advance Auto Parts Inc. (AAP), AutoZone Inc. (AZO) and W.W. Grainger Inc. (GWW). Moreover, it has been unable to institute meaningful price hikes in its automotive business due to pressure from retailers. These factors can put pressure on margins going forward.
Taking into account the above conditions, we have a long-term Neutral recommendation on the stock.
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