 | GENUINE PARTS COMPANY |
NEWS RELEASE | |
FOR IMMEDIATE RELEASE
GENUINE PARTS COMPANY
REPORTS SALES AND EARNINGS
FOR THE SECOND QUARTER ENDED JUNE 30, 2019
- Record Sales of $4.9 billion, Up 2.3% -
- Diluted EPS $1.53 and Adjusted EPS $1.57 Excluding Transaction and Other Costs -
- Updates 2019 Revenue and Earnings Outlook -
Atlanta, Georgia, July 18, 2019 -- Genuine Parts Company (NYSE: GPC) announced today sales and earnings for the second quarter and six months ended June 30, 2019.
Sales for the second quarter ended June 30, 2019 were a record $4.9 billion, a 2.3% increase compared to $4.8 billion for the same period in 2018. Total sales for the second quarter included the contribution of 1.6% comparable growth and 2.7% from acquisitions, offset by the negative impact of 1.5% from foreign currency translation along with 0.5% due to the sale of Grupo Auto Todo in the first quarter of 2019. Net income for the second quarter was $224.4 million and earnings per share on a diluted basis were $1.53. Before the impact of certain transaction and other costs primarily related to the acquisition of PartsPoint Group (PartsPoint), adjusted net income was $230.3 million, or $1.57 per diluted share.
Second quarter sales for the Automotive Parts Group were up 1.4%, including a 1.3% comparable sales increase, a 3.5% benefit from acquisitions and an unfavorable foreign currency translation of 2.5%. In addition, automotive sales were impacted by 0.9% due to the sale of Grupo Auto Todo. Sales for the Industrial Parts Group were up 4.9%, including a 3.1% comparable sales increase, 2.1% from acquisitions and a slightly unfavorable foreign currency translation of 0.3%. Sales for the Business Products Group were down 1.1%, consisting primarily of the change in comparable sales growth.
Paul Donahue, Chairman and Chief Executive Officer, commented, “Our second quarter results were highlighted by positive total sales growth across each of our automotive businesses and in our industrial segment. In addition, we were pleased to generate significant improvement in our gross margin. In the automotive segment, our U.S., Australasian and Canadian operations delivered another quarter of positive sales comps and steady growth, while our business in Europe remained challenged by transitory factors such as the mild winter weather and a softening economic environment. Our industrial business continues to perform well in North America, and we are excited to move forward with the additional growth opportunities presented by Inenco, our new industrial business in Australasia. Finally, the business products segment operated well to maintain their net margin, despite the slight decline in revenues."
(Cont.)
Sales for the six months ended June 30, 2019 were $9.7 billion, a 2.8% increase compared to $9.4 billion for the same period in 2018. Net income for the six months was $384.7 million and earnings per share on a diluted basis were $2.62. Before the transaction and other costs discussed above, adjusted net income was $417.5 million, or $2.85 per diluted share, for the six months.
Mr. Donahue concluded, "While not satisfied with our results in the quarter, we remain confident in our overall strategy and the additional growth opportunities we continue to pursue across our global platform. Our immediate focus is on the execution of our initiatives to control costs and improve our profitability. This is essential in our quest to deliver improved results and create additional shareholder value as we move forward."
2019 Outlook
In consideration of our results thus far in 2019, the continued softness we expect in Europe for the balance of the year, as well as the impact of the PartsPoint and Inenco acquisitions, the Company is updating its full year 2019 sales and earnings guidance. The Company expects sales to increase 4.5% to 5.5%, inclusive of an approximate 2% sales contribution from the PartsPoint and Inenco acquisitions. This updated sales outlook represents a change from the Company's previous guidance for a 3% to 4% sales increase.
The Company expects diluted earnings per share to range from $5.42 to $5.52 and is updating its outlook for adjusted diluted earnings per share, which excludes any first half and future transaction and other costs, to $5.65 to $5.75. This is a change from the Company's prior guidance of $5.75 to $5.90. This updated earnings outlook accounts for an approximate $0.05 contribution from PartsPoint and the additional 65% investment in Inenco. Additionally, the Company continues to expect a tax rate of approximately 25% in 2019.
Non-GAAP Information
This release contains certain financial information not derived in accordance with United States generally accepted accounting principles ("GAAP"). These items include adjusted net income and adjusted diluted earnings per share. The Company does not, nor does it suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. The Company believes that the presentation of adjusted net income and adjusted diluted earnings per share provides meaningful supplemental information to both management and investors that is indicative of the Company's core operations. The Company has included a reconciliation of this additional information to the most comparable GAAP measure following the financial statements below.
Conference Call
Genuine Parts Company will hold a conference call today at 11:00 a.m. Eastern time to discuss the results of the quarter and the future outlook. Interested parties may listen to the call on the Company’s website, www.genpt.com, by clicking “Investors,” or by dialing 877-407-0789, conference ID 13691973. A replay will also be available on the Company’s website or at 844-512-2921, conference ID 13691973, two hours after the completion of the call until 12:00 a.m. Eastern time on August 1, 2019.
(Cont.)
Forward Looking Statements
Some statements in this press release, as well as in other materials we file with the Securities and Exchange Commission ("SEC") or otherwise release to the public and in materials that we make available on our website, constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Senior officers may also make verbal statements to analysts, investors, the media and others that are forward-looking. Forward-looking statements may relate, for example, to the anticipated strategic benefits, synergies and other attributes resulting from acquisitions, as well as future operations, prospects, strategies, financial condition, economic performance (including growth and earnings), industry conditions and demand for our products and services.
The Company cautions that its forward-looking statements involve risks and uncertainties, and while we believe that our expectations for the future are reasonable in view of currently available information, you are cautioned not to place undue reliance on our forward-looking statements. Actual results or events may differ materially from those indicated as a result of various important factors. Such factors may include, among other things, the Company’s ability to successfully integrate acquired companies into the Company, including the challenges associated with the integration of processes to ensure the adequacy of our internal controls in regard to the Alliance Automotive Group business, and to realize the anticipated synergies and benefits; changes in the European aftermarket; the Company’s ability to successfully implement its business initiatives in each of its three business segments; slowing demand for the Company’s products; changes in national and international legislation or government regulations or policies, including new import tariffs and the unpredictability of additional tariffs and data security policies and requirements; changes in general economic conditions, including unemployment, inflation (including the impact of potential tariffs) or deflation and the United Kingdom’s referendum to exit from the European Union, commonly known as Brexit; changes in tax policies; volatile exchange rates; volatility in oil prices; significant cost increases, such as rising fuel and freight expenses; labor shortages; uncertain credit markets and other macroeconomic conditions; competitive product, service and pricing pressures; the ability to maintain favorable vendor arrangements and relationships; disruptions in our vendors’ operations, including the impact of tariffs and trade considerations on their operations and output, as required to meet product demand; failure or weakness in our disclosure controls and procedures and internal controls over financial reporting; the uncertainties and costs of litigation; disruptions caused by a failure or breach of the Company’s information systems, as well as other risks and uncertainties discussed in the Company’s Annual Report on Form 10-K for 2018 and from time to time in the Company’s subsequent filings with the SEC.
Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-K, 10-Q, 8-K and other reports to the SEC.
About Genuine Parts Company
Genuine Parts Company is a distributor of automotive replacement parts in the U.S., Canada, Mexico, Australasia, France, the U.K., Germany, Poland, the Netherlands and Belgium. The Company also distributes industrial replacement parts and electrical specialty materials in the U.S., Canada and Mexico through its Industrial Products Group. S.P. Richards Company, the Business Products Group, distributes a variety of business products in the U.S. and Canada. Further information is available at www.genpt.com.
Contacts
Carol B. Yancey, Executive Vice President and CFO – (678) 934-5044
Sidney G. Jones, Senior Vice President - Investor Relations – (678) 934-5628
(Cont.)
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net sales | $ | 4,934,260 | $ | 4,822,065 | $ | 9,671,093 | $ | 9,408,359 | ||||||||
Cost of goods sold | 3,335,679 | 3,300,479 | 6,564,344 | 6,450,966 | ||||||||||||
Gross profit | 1,598,581 | 1,521,586 | 3,106,749 | 2,957,393 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, administrative and other expenses | 1,216,913 | 1,148,217 | 2,414,133 | 2,281,988 | ||||||||||||
Depreciation and amortization | 66,154 | 58,451 | 128,131 | 116,814 | ||||||||||||
Provision for doubtful accounts | 5,962 | 3,666 | 9,931 | 6,367 | ||||||||||||
Total operating expenses | 1,289,029 | 1,210,334 | 2,552,195 | 2,405,169 | ||||||||||||
Non-operating expenses (income): | ||||||||||||||||
Interest expense | 23,296 | 26,476 | 47,179 | 50,585 | ||||||||||||
Other | (15,873 | ) | (15,495 | ) | (6,266 | ) | (27,951 | ) | ||||||||
Total non-operating expenses | 7,423 | 10,981 | 40,913 | 22,634 | ||||||||||||
Income before income taxes | 302,129 | 300,271 | 513,641 | 529,590 | ||||||||||||
Income taxes | 77,699 | 73,299 | 128,961 | 126,042 | ||||||||||||
Net income | $ | 224,430 | $ | 226,972 | $ | 384,680 | $ | 403,548 | ||||||||
Basic net income per common share | $ | 1.54 | $ | 1.55 | $ | 2.63 | $ | 2.75 | ||||||||
Diluted net income per common share | $ | 1.53 | $ | 1.54 | $ | 2.62 | $ | 2.74 | ||||||||
Dividends declared per common share | $ | .7625 | $ | .7200 | $ | 1.5250 | $ | 1.4400 | ||||||||
Weighted average common shares outstanding | 146,075 | 146,748 | 146,029 | 146,738 | ||||||||||||
Dilutive effect of stock options and non-vested restricted stock awards | 661 | 512 | 684 | 548 | ||||||||||||
Weighted average common shares outstanding – assuming dilution | 146,736 | 147,260 | 146,713 | 147,286 | ||||||||||||
(Cont.)
GENUINE PARTS COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales: | ||||||||||||||||
Automotive | $ | 2,774,808 | $ | 2,736,201 | $ | 5,397,153 | $ | 5,300,460 | ||||||||
Industrial | 1,681,721 | 1,602,665 | 3,317,144 | 3,150,609 | ||||||||||||
Business products | 477,731 | 483,199 | 956,796 | 957,290 | ||||||||||||
Total net sales | $ | 4,934,260 | $ | 4,822,065 | $ | 9,671,093 | $ | 9,408,359 | ||||||||
Operating profit: | ||||||||||||||||
Automotive | $ | 228,385 | $ | 243,611 | $ | 407,613 | $ | 428,317 | ||||||||
Industrial | 136,334 | 125,191 | 257,362 | 237,382 | ||||||||||||
Business products | 20,896 | 21,422 | 42,116 | 43,023 | ||||||||||||
Total operating profit | 385,615 | 390,224 | 707,091 | 708,722 | ||||||||||||
Interest expense, net | (22,514 | ) | (25,525 | ) | (45,543 | ) | (48,832 | ) | ||||||||
Intangible asset amortization | (23,917 | ) | (21,806 | ) | (46,501 | ) | (43,209 | ) | ||||||||
Corporate expense (1) | (37,055 | ) | (42,622 | ) | (101,406 | ) | (87,091 | ) | ||||||||
Income before income taxes | $ | 302,129 | $ | 300,271 | $ | 513,641 | $ | 529,590 | ||||||||
(1) | Includes $4,108 and $38,222 of expenses for the three and six months ended June 30, 2019, respectively, from realized currency losses and transaction and other costs. The realized currency losses of $27,037 for the six months ended June 30, 2019 resulted from the March 7, 2019 sale of Grupo Auto Todo. |
Includes $9,105 and $22,114 for the three and six months ended June 30, 2018, respectively, in certain transaction and other costs related to the acquisition of Alliance Automotive Group ("AAG") and the attempted Business Products Group spin-off.
(Cont.)
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data) | June 30, 2019 | June 30, 2018 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 562,551 | $ | 355,141 | ||||
Trade accounts receivable, less allowance for doubtful accounts (2019 – $31,280; 2018 – $25,329) | 2,836,875 | 2,669,649 | ||||||
Merchandise inventories, net | 3,750,778 | 3,484,949 | ||||||
Prepaid expenses and other current assets | 1,034,466 | 1,013,630 | ||||||
Total current assets | 8,184,670 | 7,523,369 | ||||||
Goodwill | 2,329,325 | 2,142,822 | ||||||
Other intangible assets, less accumulated amortization | 1,517,842 | 1,356,149 | ||||||
Deferred tax assets | 27,698 | 25,480 | ||||||
Property, plant and equipment, less accumulated depreciation (2019 – $1,341,918; 2018 – $1,117,925) | 1,089,763 | 918,578 | ||||||
Operating lease assets | 961,975 | — | ||||||
Other assets | 528,199 | 600,124 | ||||||
Total assets | $ | 14,639,472 | $ | 12,566,522 | ||||
Liabilities and equity | ||||||||
Current liabilities: | ||||||||
Trade accounts payable | $ | 4,064,547 | $ | 3,831,274 | ||||
Current portion of debt | 1,011,334 | 686,415 | ||||||
Dividends payable | 111,380 | 105,661 | ||||||
Other current liabilities | 1,310,967 | 1,033,544 | ||||||
Total current liabilities | 6,498,228 | 5,656,894 | ||||||
Long-term debt | 2,871,106 | 2,490,552 | ||||||
Operating lease liabilities | 724,682 | — | ||||||
Pension and other post–retirement benefit liabilities | 208,008 | 200,137 | ||||||
Deferred tax liabilities | 212,308 | 174,564 | ||||||
Other long-term liabilities | 437,165 | 482,048 | ||||||
Equity: | ||||||||
Preferred stock, par value – $1 per share; authorized – 10,000,000 shares; none issued | — | — | ||||||
Common stock, par value – $1 per share; authorized – 450,000,000 shares; issued and outstanding – 2019 – 146,078,369 shares; 2018 – 146,752,732 shares | 146,078 | 146,753 | ||||||
Additional paid-in capital | 83,949 | 72,211 | ||||||
Retained earnings | 4,630,480 | 4,236,359 | ||||||
Accumulated other comprehensive loss | (1,195,179 | ) | (943,351 | ) | ||||
Total parent equity | 3,665,328 | 3,511,972 | ||||||
Noncontrolling interests in subsidiaries | 22,647 | 50,355 | ||||||
Total equity | 3,687,975 | 3,562,327 | ||||||
Total liabilities and equity | $ | 14,639,472 | $ | 12,566,522 | ||||
(Cont.)
GENUINE PARTS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Operating activities: | ||||||||
Net income | $ | 384,680 | $ | 403,548 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 128,131 | 116,814 | ||||||
Share-based compensation | 13,081 | 9,035 | ||||||
Excess tax benefits from share-based compensation | (3,986 | ) | (2,599 | ) | ||||
Realized currency losses on divestiture | 27,037 | — | ||||||
Changes in operating assets and liabilities | (247,568 | ) | (71,723 | ) | ||||
Net cash provided by operating activities | 301,375 | 455,075 | ||||||
Investing activities: | ||||||||
Purchases of property, plant and equipment | (106,712 | ) | (65,146 | ) | ||||
Acquisitions of businesses and other investing activities | (357,286 | ) | (82,545 | ) | ||||
Net cash used in investing activities | (463,998 | ) | (147,691 | ) | ||||
Financing activities: | ||||||||
Proceeds from debt | 2,973,236 | 2,320,906 | ||||||
Payments on debt | (2,359,975 | ) | (2,367,284 | ) | ||||
Share-based awards exercised | (7,371 | ) | (4,851 | ) | ||||
Dividends paid | (216,724 | ) | (204,649 | ) | ||||
Net cash provided by (used in) financing activities | 389,166 | (255,878 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 2,461 | (11,264 | ) | |||||
Net increase in cash and cash equivalents | 229,004 | 40,242 | ||||||
Cash and cash equivalents at beginning of period | 333,547 | 314,899 | ||||||
Cash and cash equivalents at end of period | $ | 562,551 | $ | 355,141 | ||||
(Cont.)
GENUINE PARTS COMPANY AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME
(UNAUDITED)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
GAAP net income | $ | 224,430 | $ | 226,972 | $ | 384,680 | $ | 403,548 | ||||||||
Diluted net income per common share | $ | 1.53 | $ | 1.54 | $ | 2.62 | $ | 2.74 | ||||||||
Adjustments: | ||||||||||||||||
Realized currency losses | $ | — | $ | — | $ | 27,037 | $ | — | ||||||||
Transaction and other costs | 4,108 | 9,105 | 11,185 | 22,114 | ||||||||||||
Tax impact of adjustments | 1,727 | (2,524 | ) | (5,423 | ) | (5,650 | ) | |||||||||
Adjusted net income | $ | 230,265 | $ | 233,553 | $ | 417,479 | $ | 420,012 | ||||||||
Adjusted diluted net income per common share | $ | 1.57 | $ | 1.59 | $ | 2.85 | $ | 2.85 | ||||||||
GENUINE PARTS COMPANY AND SUBSIDIARIES
CHANGE IN NET SALES SUMMARY
(UNAUDITED)
Three Months Ended June 30, 2019 | |||||||||||||||
Comparable Sales | Acquisitions | Divestitures and Other | Foreign Currency | Total Net Sales | |||||||||||
Automotive | 1.3 | % | 3.5 | % | (0.9 | )% | (2.5 | )% | 1.4 | % | |||||
Industrial | 3.1 | % | 2.1 | % | — | % | (0.3 | )% | 4.9 | % | |||||
Business Products | (1.0 | )% | — | % | — | % | (0.1 | )% | (1.1 | )% | |||||
Total Net Sales | 1.6 | % | 2.7 | % | (0.5 | )% | (1.5 | )% | 2.3 | % | |||||
Six Months Ended June 30, 2019 | |||||||||||||||
Comparable Sales | Acquisitions | Divestitures and Other | Foreign Currency | Total Net Sales | |||||||||||
Automotive | 2.2 | % | 3.2 | % | (0.7 | )% | (2.9 | )% | 1.8 | % | |||||
Industrial | 3.6 | % | 2.0 | % | — | % | (0.3 | )% | 5.3 | % | |||||
Business Products | — | % | — | % | — | % | (0.1 | )% | (0.1 | )% | |||||
Total Net Sales | 2.4 | % | 2.4 | % | (0.3 | )% | (1.7 | )% | 2.8 | % | |||||
GENUINE PARTS COMPANY AND SUBSIDIARIES
RECONCILIATION OF 2019 FORECASTED GAAP NET INCOME TO FORECASTED ADJUSTED NET INCOME
(UNAUDITED)
(in thousands, except per share data) | Low End | High End | ||||||
Forecasted GAAP net income | $ | 794,500 | $ | 809,000 | ||||
Forecasted diluted net income per common share | $ | 5.42 | $ | 5.52 | ||||
Add forecasted after-tax adjustments: | ||||||||
Forecasted transaction and other costs | 32,799 | 32,799 | ||||||
Forecasted adjusted net income | $ | 827,299 | $ | 841,799 | ||||
Forecasted adjusted diluted net income per common share | $ | 5.65 | $ | 5.75 | ||||
(Cont.)