GPC - Earnings call transcript Q1 2018

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Operator

Good day and welcome to the Genuine Parts Company, first quarter 2018 conference call. Today's conference is being recorded. At this time all participants are in a listen-only mode. [Operator Instructions]. At this time, I would like to turn the conference over to Sid Jones, Senior Vice President of Investor Relations. ahead. go Please

Sid Jones

I'm thank our Genuine and to joining today Officer for us our President Donahue, Good Chief and and Company, you Chief first the Executive XXXX. outlook current Parts results Carol call with quarter for Paul earnings our Yancey morning and and for here EVP XXXX discuss Officer. conference Financial

involve today's certain be discussion non-GAAP reported Accepted this in also release. mornings' begin measures forward-looking company's the issued this posted that which Release statements call. described we to referred this as update may advised call to our this company's statements any businesses. is Press morning, be of the due is please factors also during SEC and measures, the from results under Today's this assumes financial Accounting website. in section may results to reconciliation filings, Before which Principles. our provided statements actual press during may any company include no of made The morning, earnings in forward-looking obligation call The Generally latest the A differ company its could these Investors materially forward-looking important regarding several of including

call let over turn Now, me the Paul. to

Paul Donahue

both Sid. provide this to off our for announced the week. our a I'll with appreciate and automotive, highlights performance combine outlook Earlier call results you, business today pending and results. will released Chief Motion and on XXXX the an products, you welcome we Yancey, update cover Essendant, be including XXXX businesses quarter including update questions. And us remarks three We Thank make on morning. this which across to we’ll first agreement financial to your open current and our businesses: and Carol taking call. our Officer After on then to our and conference spin XXXX. first our business industrial Financial with EIS the that we EVP time few our our overall our last it an quarter

quarter comp our a first XX.X%, digit by recap lower was record per and $XXX growth. single up $X.XX. and income global acquisitions Net to earnings driven platform, So sales sales across primarily performance $X.X were million total billion, share our

impact the of fourth and with related Group of adjusted XXXX were the Automotive the million, transaction and XX% Excluding share agreement business $XXX spin-off XX%. to of adjusted costs group, the associated earnings Alliance products income per increase an quarter was up $X.XX, net acquisition

more our drive we So sustained global entered initiatives XXXX term revenue in committed and a diversified remain distributor to to as we key growth. growth long order

geographical four Driving existing our their initiatives our our and both adjacencies, greater acquisition customer store are expanding of strategy wallet in-fill aggressive focused reminder, growth a U.S. on base, lastly line and share product with capabilities digital as of and an expansion footprint. employing As follows: further international

in We segments continue core these shareholder our the combine both across with creating pillars to value. ongoing our diversity business and growth operations, geographies, see

in XX.X% in throughout it Breaking with commercial the U.S. up first approximate as the closers, center negative approximate said, down to sales the well X% East that sales. in as first increase, further comp our comp customer slightly. foreign across the and the sales were Automotive the the were winter and well. the X.X% XXXX Care and impact we the storms first as were as benefit acquisitions single our direction we segment, major sales consistent that the low By see shift resulted in for sales to encouraged X.X% Atlantic sales retail account Group, up currency right further, Automotive With of distribution and NAPA our quarter up comps the outpacing This up moved with sales sales. look regions in operations as quarter total is on and sales estimate U.S. the quarter, Easter saw which with including improve we to we digits As quarter, Global North translation. of sales favorable our in during an well store Auto holiday multiple

should combination and the commercial year. the an the the parts winter sales of balance growing of So with coupled of drive includes list more normalized our most a seasons over added expansive which with initiatives value U.S. customers, of in services, the stronger ongoing

stores This impact this has resulted terms our and and continue this NAPA Store retail our These grow look initiatives, with to to Program to positive stores positive as we this a owned modernize stores remain opportunities team to NAPA X.X impact in customers we the play Online sales NAPA of project is our and initiative comps. retail the to we another to in retail layouts. and continues updating through out over and XXX members, strongest our our business, our Rewards sales store on this to of March XXX now DIY roll to sales of project owned refresh and focused out independent we million initiative in continue multiyear produce XXX forward have Turning has company comps the year. our upgrading which many XXXX. Among platform

strengthen aftermarket several overall ultimately U.S. industry the over to XXXX our We reasons. Sales Automotive the of see balance expect for and

pattern, of parts expect We more and to maintenance winter see experienced impact due failure weather the for a normalized two the years. we to haven’t increase for something demand

sales the X% a of in four-tenths after XXXX. relatively for the XXXX increases fuel after ’XX, mils which to January increased increased with stabilize driven among the historically driven expect post of vehicles growing XXXX most miles sweet consumers. available. low falling and and recent new drives number data remains recession up years to aftermarket of X.X% We and Long total stable term to sound, prices, continue the fleet aftermarket the were years drive and the car the despite fundamental the for Total they automotive in another due past few recent spot in

revenues future to Thus automotive XXXX a in with $XX acquisitions accretive our as approximately also additional an expand million to added annual positively tuck-in acquisitions as our We group based in well our expect and Auto sales. ongoing Auto opportunities see U.S. California five Smith other U.S. Fresno, part stores remains footprint. our contribute strategy store far to we network. of to important Smith growth and our we

to our Automotive So in Europe, and Australasia, Mexico. now Businesses turn let’s Canada International

We will the growing our with Group. to addition begin newest Automotive footprint Alliance automotive

the operations one XXXX. aftermarket in automotive recall, Germany will AAG the distributors in leading Poland back of U.K., and acquired France, of As you November we Europe in with

So their quarter family. as full GPC this first was calendar the part of

digit single and in comps We with and full acquisitions for of the several that small pleased to quarter periods line both quite team pipeline and profits. sales in report first are our bolt-on business well, posting is plans performing completed has The additional ahead. acquisitions this sales low the AAG a for

management goal. sourcing synergies our deliver to are transaction in realize primarily hard with will the million we addition, targeted $XX working years. announced next that this synergies to our we relate the remain opportunities confident and three and These we In teams to over achieve the expect

plans team markets. automotive expect we the industry management of on look through we their are is continued by As fundamentals strong across their work and drive very integration solid to this backdrop results our AAG supported well, to at economies AAGs steady positive talented which throughout overall the going impact We growth XXXX. results. forward

a other international review of Now brief our automotive businesses.

Zealand the including first mid a quarter, sales X% currency total these acquisitions. business delivered first benefit with total of in plans stores operated As sales first an X% the by In up Asia-Pac in a quarter equally a sales quarter, and increase and sales digits The in ‘XX the driven for increase business operations currency. further and future. single group, local comp New the expansion increase in in were the in store this local XXX Australia has comp ongoing in of

the ongoing Asia-Pac several areas, investments our a the investment important enhance digital to e-commerce capabilities. in in addition, In to continues strategic team including make business leading

ads low parts. to local an Australian addition the for a for sales drive car NAPA in business. XX up both Supply our XX. solid on single will underline in the stores automotive results back purchased strong and sales duty in comp miles Australasian with market, Australasia after December healthy across sound up of truck acquisition strong low trend currency relatively light driven We Universal fundamentals include economy driven total and sales prices, upward based At initiatives quarter operations, heavy to parts generating Ontario mid vehicle Universal results the digits park expect sales, digits. These Group continued gas the the and our these growing single Canada, remained record overall by in including an sales

remain Finally, industry in economic the general climate and Canada fundamentals positive.

finished base another of for first quarter year to currency. So and NAPA forward digits optimistic we team. balance over our includes before we automotive In from of mix-single footprint XXXX look further Canadian total Mexico The operations impact good the our up with sales favorable stores remain XX Mexico the total the of our the expanding store year.

to this accelerate in other our combined initiatives market. expect in growth Mexico revenue expansion this growth further with large We our

includes Motion. Turning and now results parts to the the which combined group industrial EIS for

conditions of such industrial Following and a our we first and initiatives the serve. in sales first up the and industrial as our indicators economy continue reports major to where fundamentals, industrial growth XXXX, the our as index, of counts of compete quarter U.S. The managers positive XX growth ongoing industries industry major up experience exports. in quarter, sales in including industries well posted purchasing continue categories across sales were X.X% groups from product robust favorable in rate were total product we well. to as comp XX X% increase the benefit gains drive X% These Each growth with the production, acquisitions. the as

consecutive the industry, and and steel, showed products, among the well and Additionally iron aggregate for industries quarter. the and open single rental equipment growth machinery gas serve we and second and sector, sectors, strongest include paper, our extraction. oil especially the lumber performing cement, wood leasing largest Other and equipment

in The that encouraging management EIS strong for are economies at continues add ongoing teams XXXX. XXXX. the business our and to also together combined we in larger position footprint a Technology, equipment, leading of Flow ahead and throughout Zealand, supplier announced are at today earlier generate quite progress solidifying see operating and and organization. HCD industrial industrial group. based industrial further our scale market expand we are further working investment Today look Australia our and performing in would forward also of and partnered be We business within with a we we leading months. This and acquisition opportunities across XX strong group well Inenco closely while this quality will Australian and and efficiencies have addition of the Zealand. in Motion the company growth New to pumping to we a with pleased expect global Inenco; Our industrial improved to is newly in Singapore. to making XX% industrial distribution investing Indonesia New very and the Inenco in great results organization its This XX we hose next the

in the continues on evaluating and while Richards, few continued office challenges group demand and room S.P. by for post offset long which these for comments strategic business This business facilities supply we products, and pressures business the first we for S.P. Now, this sales X.X% reported headwinds and growth. have to in products traditional to been remains decrease term our our partially a challenged the outlook Richards quarter. solid time. for some break safety faced Due total have sales a category the

the my at a spin-off with another announced national last As company to the it to our complementary strategy. to serving business future shared further customers We wholesaler. million stronger, the cultures of Richards options, GPC be and into made talented transaction allocation several on It in higher shareholders core and for our Essendant capital to S.P. payments in in Richards greater the a business after with finally will compete shareholders positioned reasons. we as growth commitment support to higher of customer diversified significant agreement with sense comments, better enhances focus business. stakeholders, review teams week newly industrial This better referenced cash along and comprehensive beginning us S.P. entered believe combination larger, effectively the products that an S.P. merge value it our Essendant, of best space community. automotive and the our This businesses, the newly maximized global XX% The management allows all interest for to to creates participate gain GPC of combined ability upside product with company. $XXX the option will for Together combined and the our will current the margin allowing combined of strengthen the positioned these Richards. and more success. a company, be business ownership of in we

company S.P. in regulatory seamless new look the customer teams is Richards and and the more end approvals to the closing before XXXX other the effectively. employees, will close For transaction compete a subject scale We to supporting facilitating expected forward shareholder integration. to Essendant conditions. depth The and to have and Essendant of

us we a for set taken even segment well another So only and It brighter eventful for XXXX consolidated is the up but the we for the have quarter and steps that future was campaign, sales quarter successful business QX us not results in first XXXX. summary GPC. will of of for our believe an

I’ll that, with for it Carol her hand remarks. to So over Carol.

Carol Yancey

review Paul. begin then will information with Thank provide for outlook updated our you, we and We’ll financial the key XXXX. our of

As and X% a Paul first favorable are impact XX.X% in quarter total up the currency foreign before or mentioned, translation. X% up acquisitions of sales

the cost first pricing $X.X our negotiations margin supplier as goods XX.X% gross the a issue AAG’s cost on inflationary this price higher of Richards. business. several to increase acquisitions with reported increased as key enhancing also strong the well gross last other it reflects XX.X% the S.P. that and This globally lower of in supplier customers. industrial as supplier the million were these quarter somewhat first of associated to and profitability. of the continue, there increases At as well the to and items the year. favorable continued especially margin offset on effect able compared We our much aluminum expect quarter margin in quarter in impact around deal gross sold to flexible the Our at incentives includes gross negative remain through would by take in focused to on was operations, said months. benefit margin of was we uncertainty incentives determine initiatives, and potential the too across through if but These primarily it’s early including strategies for higher before, pricing inflation, more is environment and capabilities as and SKU investment really as point our types coming to businesses, impact we’re The this analytic both generally well as ongoing tariffs sophisticated along improved we tariffs pass and remains this our steel

for up Our and increases six-tenths office. cumulative up X% XXXX were of X.X% automotive, quarter price first flat of in industrial for in supplier

amortization for up AAG, interests, as and $X.X quarter. for in $X.X expenses of during Turning are our to million depreciation, as first reflect total quarter year XX.X% reported costs our well incremental SG&A, cost the expenses This billion, sales. is the representing at operating deal including the last from the quarter as

to our such as and increases fuel and will across the and lack initiatives continue well In automotive in experience on comparable would to we said, including and on the costs to our the ongoing support from offset impact profitability. remain payroll, in both, and pressure continue in division, be IT however, savings pressure degree. long long and digital. U.S. saving focused addition, important business areas the also freight incremental SG&A to improve some cost delivery term we business costs these in leverage term enhance To our as area showing rising of cost as can sales this call overall products we that we’re With in certain year positively our ahead. confident will our our end necessary we structure our quarters plan more progress we All-in which outlined that that to other

deleverage from margin billion Now compared up was Automotive up the margin revenue in U.S. expenses first reflects in $XXX operating let’s of was X.X% $X.X XX% to decline in the for and an X.X% results the Primarily XXXX. million with year discuss by operating the operating prior the profit quarter of of automotive XX% the first of margin of business. quarter segment. our

which billion the Operating decline of combination $XXX from lead performance year. million margin profit of of is lower with in said, the due industrial see ahead, a to are of the their X.X% we X% Our up with margin to $X.X X%. an quarters sales net compared expect for expansions strong last motion EIS’s margin. to That year does quarter to industrial in the increase operating slight and is X.X% the

were revenues continues operating business this $XX challenging year $XXX million is their operating last profitability. and in from pressuring is their operate This down and Our X.X%. of business down environment a million profit is XX% product their X% and to margin

up Our increase sales profit and the total profit was X.X% in last year. operating was XX% to XX% our first X.X% margin compared quarter operating on the

We AAG to net are on for be working in the associated With $XX continue in acquisition improve the of results these to debt expense million due quarters in had million in an quarter. expense $XX for that ahead. as interest million million to $XX we the up teams quarter, $XX well increase in the the of with as the net hard the to rate to year. expect range interest increase said, Our

from the AAG. amortization related for total quarter, year, the an million Our $XX amortization due the million primarily to increased last first was $XX to

year amortization $XX be For to million $XX to XXXX we our are updating full million.

range the of to Our quarter million we’re last for be up depreciation our depreciation full million. year expense from year $XXX was the for updating and in $XXX $XX million $XX the to of total million

expect $XXX to million. million approximately a we of now combined amortization depreciation on $XXX basis So and

first includes in million this expense incurred and corporate reflects The $XX the other in the our line approximately costs for which quarter transaction related $XX was typically million quarter.

from $XX Excluding this expense and our is retirement which due to our million the corporate prior these primarily is plan $X million year costs was for valuation. up costs the

For $XXX transaction related costs. expect XXXX $XXX million be we excluding to the expense corporate continue to in million range, our to

enacted tax XXXX. in tax XX% Our rate mainly the Tax quarter was Cuts Act rate due tax the much Jobs to the for year, of XX%, rate the lower prior the lower and than by

In addition mix the favorable in our the U.S. rate impacted positive and foreign by tax earnings was of quarter.

lowest for XX%. our approximate to quarterly are and currently our rates expect quarter we tax first typically rates full rate XXXX year each year Our the

discuss sheet and remains Now balance condition. the strong let’s excellent which in

Our accounts receivable the currency. from prior X% impact to first billion XX% increase $X.X our excluding the the at acquisitions, primarily and as at compares X% The are year well as of sales up X% comparable AAG increase quarter. for foreign

have improving receivables. of this pleased quality work we remain with the some do do to on we but our So metric,

foreign businesses, at XX suppliers. to excluding slightly at billion improved capital current automotive especially as AAG focused our XX March as year. which well very billion across our inventory or appropriate AP this up key was reflects $X.X improve in down end and increase is It’s currency. ratio $X.X March the last inventory the Our our initiatives payable at excluding XXX%. was as are the payment At at the is March businesses lower X% last $X.X forward. improvement Working levels with highlights This of the investment compares core Accounts and other core as we by in and March of on approximately move certain offset the levels business from products our U.S. XX of XX% at foreign slightly to we or purchasing positive terms currency. of benefit the inventory acquisitions our $X.X activity of levels maintaining The billion quarter at billion XX% as X% year. acquisitions well was impact of

continues showing the So be in effectively our and one priorities top managing to our improvement look working forward quarters to of capital ahead. we further

XXXX in March $X billion the an quarter to related last year and approximately XX that of to were $X.X acquisition. total $X compares billion debt fourth total AAG the assumed to in it Our of continues at million borrowings reflect in

maturity our in approximately rate interest debt X.XX% on in and was debt March at debt Our arrangements rates. XX the vary average total at $X.X billion with fixed

initiative, have for which balance such creates capacity we’re with comfortable current Group structure sheet and in including significant support our and and Inenco our strong investments Europe debt the as believe to and to growth our fortunate Australia, a the strategic value shareholders. AAG we financial We’re acquisitions in

first So in quarter of has million summary, $XXX balance generated the operations, which from improved the sheet the key remains from strength in year. cash last our company. In we

of has to support priorities our which cash Our believe shareholder we use serves the cash, maximize continued ongoing flow value. for to

$X the For from in of billion XXXX cash we expect $XXX million $XXX and cash free million. range flow to be to operations approximately

share the with spin-off dividend the acquisitions. repurchases Our priorities the reform our savings tax transactions. cash even strategic and changed have for cash pending remain from associated in reinvestment These the not businesses, with and priorities

Regarding the dividend to paid dividend, XXXX marks our shareholders. XXnd consecutive our year of increased

annual quarter represents from in X% a $XX from prior first in the Our the million in capital the expenditures of prior up million year. invested year. is increase $X.XX which dividend $XX We

we any as for of not expenditures we as For in increase XXXX range due our million the year the from with capital stock planning XX.X available an additional are did plan today of shares million, certain and that to savings. our to We quarter repurchase. million purchase tax in AAG anticipated have the and for authorized impact of and associated investments $XXX well of we common the to continue $XXX as

return that our have with and dividend in repurchases expect to to believe We stock to ahead the an attractive and shareholders. active combined for is that set quarters program the provides we our no as these be pattern the best we investment the continue

as be guidance future in excluding for of the the year as full are earnings that the market acquisitions turning total as guidance plus We our growth the for currency. XX% on plus XX% initiatives, the our and and see for guidance of sales be business based for business any range, we continue spin-off until we current to as foreign completion. as to will plus in to X% to minus an the from XXXX future, continue sales segment plans X% our for segment, plus as impact maintaining products sales well transaction included our plus conditions closer sales to now to we continue performance, XXXX, benefit X% So to decrease expect well minus follows: to industrial to total XX% the to which XX% X% By the plus our automotive is expect segment,

associates their I’ll over hard long We’d to our and have of it work operating our the in which last grow sales quarters we the progress with our of for to as several improve have operations On over and Group. of our consistent many turn we continue Business move This Genuine range term. includes future we’re benefit side to $X.XX Richards, guidance that the $X.XX, in although the for us EPS dedication greatest better the earnings expect the earnings long is in we ahead excited initial be are and growth announced of people us, Parts. our excited call. continued our a closing, forward per share performance year like to to you. our the made Paul, the opportunities much we asset ahead work and GPC full Products position for all areas to back S.P. term about we and for prospects thank about In important of in guidance the

Paul Donahue

you, Thank Carol.

we’d back sales to on at a $X.X have accomplishments quarter first record reflect several up like highlight. we We new and billion the XX%. we As established

increased on this plus Our on optimize higher XX%. focus earnings with significant portfolio, with business to steps and global and XXXX. comparable sales enabling of by integration. We well two AAG making XX% our and our higher took continues further quarter completed industrial margin full adjusted We and sales reiterated we XX% from us and businesses. XX% EPS to of per our XX% progress at automotive growth guidance perform to earnings plus our are to plus share $X.XX full first to We year our and

with First, industrial we Motion form to combined $X larger EIS expected a group exceeding stronger and with annually. billion revenues products

improving to new capabilities we enhance improve the our products We our in investments IT XXXX enhance online increased operational company and dividend efficiencies a with entered spin for in to and We and an business XXXX consecutive addition cash our and from XXnd flows In to solid the the Essendant. and Mexico operations our BXC finally off the into productivity form relative agreement we as digital made our group Australasia. generated cash Canada, offerings, quarter well U.S., as significant year.

with infrastructure. enhance to sustained drive gross term move plans to opportunities revenue and to sales maximize initiatives organic cost positioned forward to our our challenges continue cost XXXX address to better our So We we accomplishments growth a long and these margins, growth in and acquisitive available effective the focused on us. remain on will both execute and reduce and build highly and productive

focus performance overall. businesses our core operating our improve in to and these for expect We company areas the in key the

always, XXXX when to report again we in July progress results. look we forward updating you our quarter As on second our

take So it Ashley to your back to and be with will questions. happy Carol and I that, turn we’ll

Operator

Thank Morgan. first Horvers our from you. Christopher Instructions] go Please question We’ll with JP take [Operator ahead.

Christopher Horvers

Thanks, good everybody. morning

Paul Donahue

Chris. good Hey, morning

Christopher Horvers

easters much focus favorable U.S. coast, the the pretty like weather I the want the on share of and nor I NAPA to same Can that business. all at it January. the March the a seem was by would headwinds but had up first in you understand you came how time with Easter itself impact east

strength Do thoughts call your acknowledge to wanted fair I know to you not you and January? it in is – just out get it think So March there. the weather in

Paul Donahue

second hit tail Easter What the is of that the Where overall and started it was We’ve impact. our too Probably and – in not Chris the certainly question and our quarter, of Chris certainly we half and business. March. a impact. agriculture Northeast Northeast slow the sure. see March, an so you both cadence had well. an store January was fair good seen but now for to that is absolutely of – take in had less we business we and numerous see you it’s Yeah, thing. Ag address helped easters a good much right specifically, know had pretty start, cold The Atlantic winter is in in your began X.X% as specifically pretty shutdowns the Easter that nor off weather that to weather impact, the to month question. a probably out off the business March was DC good February three than

taking the in Our but break parts for are pick in off the into a up into the holes year maintenance take likely come begin play, to weather see business we’ll think and long of which fail, toll. pot We time this as is, QX is on run look a know is their most QX benefit usually we us. soft, cold you

to So longer be positive us. going a term it is for

Christopher Horvers

business, of And with occurred than changed then, you know clearly negative this know a you time, long just positive what comp and and DIY down something for U.S. around DIY like thus a is do-it-for-me very for period the has from better, you’ve business you know been it better slightly time. in the am do-it-for-me think because was long sounds I you curious, it’s what had do-it-for-me do doing different

Paul Donahue

fair Well, groups. to – Chris is be would peer I not and out that our business it our look, again like NAPA point

our is still our initiative our to us improving time. some and stores for But DIY retail upgrade overall than business less are of business. XX% we’ve had We for retail an

commercial largely business DIFM still business. our our and by driven We’re

has low while care saw centers. business business we we’re mentioned, the results quarter, flat. I challenged in from somewhat which single previous and that overall what we business still is Major That improved their have hear our is which we Chris auto XX,XXX As NAPA auto was improved. accounts marketplace much care improving up in pretty digits, overall

on specifically about DIFM So was much in quarter. our flat question the your it pretty business

Christopher Horvers

And one. last Understood. then one

SG&A expectations in acquisitions. and talk your where year. think out as the sort SG&A the structure the dollars dollar growth, this stripping quarter can all you to played, you the the Just the relative of about for growth out on very know you your, Thanks What’s that played core the SG&A rate you about what’s know much. first

Carol Yancey

quarter in Yes where it certainly so in their business was we what SG&A about Paul we quiet then earlier, a little was be, core growth not where bit what saw. our in March look were, so thought mentioned our Chris, expectations than core saw much we our and automotive the products and when division, would U.S. we what worse growth at

having certainly, at basis look we that, and we it’s point So increase. said XXX what QX the

is deal from interests in Looking got the driver increased the you’ve at, amortization payroll costs the The and you rest you about lower growth would AAG, biggest and that core there. the be there, in increase. is half really of got got

but mean and in we So wage fuel, I facing as look organization, flat being look look headcount dollars. are pressures, real an we those at at our are these businesses we increases headcount and at the we

in IT going So to be the that worse that headwinds are and planned in on real additional digital we and mentioned investments for. probably than quarter the certainly wages and making and was fuel are was little we the and thought we a

So deliveries. was and in we pressures additional and lower the increases were seeing and stronger where probably fuel core the wage short then growth

Christopher Horvers

Thank you.

Operator

take our Please go we’ll Goldman next with And from Fassler question Matt Sachs. ahead.

Matt Fassler

appropriately you intrinsic whether that to curious P&L quantifying higher, it based first or good on you. just not gross is much of the driving and smaller you it’s model margin popup why of higher. is AAG QX business couple I know that much we Thank reported question in just ownership to gross for and as about why to morning could talk so of when this had the to so My quarters, saw a the I’m kind sure we but geography. part that that whether over margin of next if and much this degree marginrate just can of the impact only so if that’s you quarter,

Carol Yancey

take happy that. Yeah, to

we acquisition, higher. slightly be reported growth GAAP early driver but they but spoken was are big also AAG automotive margin reason higher gross have mentioned in acquisitions, up much in is revenue offset by is these I $X gross basis. particular that billings have side the for gross XXX we’ve on a and more around an and to AAG amount basis so improvement The that come So points, quarter the remaining business more margin reported Asia-Pac margin and operating – would made in revenue over when and declines was higher margin and growth sometimes and on on will tell billion revenue, the side is The I in this from about improvement AAGs products. stronger that now basis GAAP with The comparable due SG&A, we’ve slight the $X.X to the the AAG like points and you think we industrial XXX billion. is

margin higher lowering you margin SG&A look the you have to So and going when your are sales the number. at gross gross by

Matt Fassler

Understood.

relates have question in the The automotive operating second leverage quick to business. I

about automotive ex-acquisitions, kind you you think underlying talk unit the can breakeven you you margin? about business think of need intrinsic to of growth sales terms that If the in

Paul Donahue

Paul. is take this about Matt, Yeah generally X%. We

few covered line the mired some in of to comp I row kind growth. been now flat growth have got growth this in to X%, quarters earlier. our X% for top We generate you pillars here we with and

is focused can top look on leverage growth we we team X% generally as that line fixed must. at Our we a expense that so driving have, but that laser

Matt Fassler

X% take backdrop investments that is still, some both still of above is wages the obviously also discretionary or leverage you about higher and something coping today, and is that Does with. And is making everyone terms the breakeven that you spoke at... in that number X% that fright are that of given

Paul Donahue

committed number to our good a we good is X% investments a X% and the that Matt Carol No, mentioned. absolutely number. are is But

Matt Fassler

finally. quickly very then And

P&L other the of think items, line you related in dealer understand just I costs. the geography to said So

your margin, line item. understand I in million exactly cost, other SG&A, I I about own exclude, just you $XX in broke where we want to $XX be that $XX make initial think gross in that you million that out my disclosure. sure, like in resides of and I’m confusion part in also just part your comments. in million of it saw Then of

Carol Yancey

segment deal segments. there the no information operating are in so Yeah, costs in any of the

and at the sold line $XX put SG&A. in cost other then had we So goods look and million cost million $X.X income $X.X net statement, of you deal million the we of in when the

Matt Fassler

you. Got

just you where P&L, it broke it and So divisional consolidated that’s articulated it the P&L shows very up that you on on helpful. out

Carol Yancey

the $XX all same Correct, million. but it’s

Matt Fassler

Thank so Perfect. guys. you much

Paul Donahue

Matt. Thank you,

Operator

our from next with question And Scot Markets. we’ll RBC take Capital Ciccarelli

Scot Ciccarelli

morning guys, Scot Ciccarelli. Good

Paul Donahue

Scot Hi,

Scot Ciccarelli

is figure I structure of hard in had given two is variable? questions. versus Hi, it’s much wage occurring, the to first how know I the us out etc. auto consider you an your changes what Can the idea cost just you give expense, fixed business probably is,

Carol Yancey

and and Well, fixed, I it and a on payroll what our at look when would SG&A tell the fixed, would leverage, would XX%-ish we when said our payroll are SG&A at being to we costs portion you we’ve two-thirds always say Having probably you in related. we facilities about that, talk when that of look payroll growth as need cost X%ish we said are that least why of in at be and we order keeps to leverage. that at

Scot Ciccarelli

Alright, so XX%...

Carol Yancey

all in delivery, cost these we at optimizing sure help some be hard lower to Now our rationalization things to to are having fixed we these are make base improvements, whether facilities, that and we basis. working productivity could that take costs fright investments our look of address said that, of and

Scot Ciccarelli

the understood. regarding can price performance in U.S. given merchandise on just Got comment auto it, the concerns place And margin the business then you also transparency? market secondly, out in

Carol Yancey

we not and transparency. to gross are got I just flat always automotive on. we’ve margin our relates it seeing business was on to think talked looking gross impact about slightly dollars, margin our to this second our so maybe price and trying quarter seen gross margin we U.S. margin going up where We Yes, the is flat. on gross several initiatives Having said optimize that, we are we’ve actually, as

– part commercial gets back mentioned, not versus retail So that that have being too. of we really next Paul what of the again

Scot Ciccarelli

Understood, lot thanks okay guys. a

Paul Donahue

Thanks Scot.

Carol Yancey

Thanks.

Operator

we’ll Jordan question And next from take Bret our with Jefferies.

Bret Jordan

guys. morning good Hey,

Paul Donahue

Good morning.

Carol Yancey

Morning.

Bret Jordan

on a hare performance auto late. market? talk Did was the I in U.S. regional you about

Paul Donahue

to We so points from across but We narrow eight grouped a our up, couple together five it. they divisions U.S. did of a Bret, well got of point happy I’m the not a and down to talk pretty very that a – are band. range about about

would outliers, Our expect. outliers, might be the a as we’ve and got Northeast you certainly couple of one

As a Chris has business Despite the well. interruptions asked nor earlier, business performed that easters our Northeast the quite performed weather that and boon Northeast well. with has quite has for been winter certainly business

closures. country. mid-Atlantic a Richmond On snow area had businesses, not of the Northeast. part we’ve the include DC the equipped the got our one winter They’ve with hit Memphis, they store that and like again They of our flip would of we’ve are disruptions hard been one the in in are handle that number closers of divisions to

much So that’s seen we’ve pretty through what QX.

Bret Jordan

the the for hearing obviously and in then half And auto. quarter more seeing is inflation, to in year? first the bias you comment great. lot suppliers? cost some labor Okay, I think expectation on guess your inflation of factoring the of not in and Do Asian second What’s the more a about material inflation the your

Carol Yancey

We year of going for at a I is do. a of even consecutive in are year. a the maybe just we In or around talking full so we lot as And to the do the uncertainty a percent our still the I to having are think maybe be our that and on part think mentioned, as of percent half suppliers, we merchants years deflation. waiting coming far there but we as, five tariffs still off are of later

we that slightly, flat fact think the So that we’ll do with up half year? see we to the come the of can back up in

Bret Jordan

of now sales Okay company have and of you and the and Smith little that deals of the are Merle's the owned done, Auto versus percentage stores independent? some then one auto on last What’s acquisitions. question,

Paul Donahue

a on me just for let minute. perhaps It’s think a question, good that

still the would fairly acquire are than when in our independence holding four we’ve to business. You better you had two-thirds three of and or past others look stores, for company right point versus overall Smith at It’s Merle's out steady and quarters. of independent number

Bret Jordan

great, you. thank Okay,

Paul Donahue

is stores the And the mix staying much pretty of same.

Bret Jordan

great, Okay Thank appreciate it. you.

Paul Donahue

welcome. You’re

Operator

And take question Wolfe from Bottiglieri our Research. Chris with we’ll next

Jacob Moser

guys, Hey this Jacob Chris. is Moser for

Carol Yancey

morning. Good

Jacob Moser

involved with for months. that been you now almost So X AAG have

will be then how mostly markets And for thinking Will opportunistic there European and sort Europe you’re that driven. market. what differences you is the M&A about in going the growth Greenfield see or semi growth in in the of existing – of outlook. related, think at mature most to terms curious We’re do like

Paul Donahue

supplier at Yeah, I’ll European early. we place and the AAG we’ve stores we got Bosh, SchaefflerKYB, The both here its very U.S. US. and supply us again in you take they in stores. company like of are a, the suppliers have world. large between a that around one. base, Look market similar, and NGK about have like found, and They think folks the oriented, same folks NGates global it’s the independently What the when difference our owned of commercially the blend But they it’s many more much are

So the differences are really very subtle.

of But If well. things part as that the that are outlook, you we be will Europe our consolidation. in intent at to seeing, is the growth only are think certainly us accelerate AAG same and growth good taking that on that are store time place the to comp in now drew seeing we AAG the opportunities one at the very to of folks and growth about is think our bullish we future consolidation and Europe

very So partners. European our with we bullish on and future our are

Jacob Moser

Great. Thanks the talking question. for

Paul Donahue

You’re welcome. you. Thank

Operator

take ahead. we’ll question our And Greg from MoffettNathanson. Melich next with Please go

Mike Montani

Greg. guys good for on Hey morning, Montani Mike its

Carol Yancey

Mike. Hey

Mike Montani

if some a little I ones. talk quick thus date of that the had acquisitions a bit you One ask to to other wanted was, made if could you the year besides of Just could couple far about AAG.

make accurate the model. to incremental we in sure have want revenue total Just contributions

Carol Yancey

Auto Paul quarter. acquisitions, acquisitions that in but store was was So the Europe quarter earlier. in single that bolt about mentioned really In we talked one it its the was small really Smith that eight minimal We Smith Auto are on just there the that mentioned.

Paul Donahue

last Mike, reminder a was know late year. AAG as just And you actually

not So that a was XXXX acquisition.

Mike Montani

Yeah, got it.

optimism looks two I the guys the seeing and industrial mentioned Okay follow a had was if thought I is there am and like? comps U.S. around will towards just automotive there then here, we the I same margin fair the for improving as bit; least expansion could through at year. some range you work little guess division it that give just the that to wondering, three be sentiment up

Paul Donahue

on make are first be you Mike certainly right, optimistic. very well different we Yeah, touch I’ll two industries. are industrial and

You year know first Last have last were we X%. quarter year each year quarter up X%, Motion quarter. the terrific we up first we with seen were that we and on year a continue in this had

mentioned will in the remain most offset different earlier Manufacturers they see this I industrial. I fundamentals right QX, so somewhat QX, automotive think as although and see production, again, I being the are beyond business So to in in weather that think numbers, are our industrial bullish business a of rock Automotive, along, don’t We continue now well. industry, about all with in slowdown U.S. positive. certainly optimistic winter are the disruptions PMI business, experienced that positive. automotive rig counts, U.S. benefit any and QX think we we as it’s but we about in differ we and

no and grow U.S. reason get X% we automotive back to we have continue business shouldn’t comps X% into those So our it that historically to there is posted.

Mike Montani

to if just the out from for that sourcing about I countries buy of and of ask a to what the us you other a well all just lot in I all work come light in Can past kind you think will divestiture? on S.P. minute, sourcing could of Okay Asia. up? source know have about if be of just of How done update the doing especially you percentage the there, Richards ability as to were

Paul Donahue

we Europe our really across office will. that souring now as base, and we expand, you business. is, if XX businesses. that of our and office of and of services New have bit you The all comment Mike our so rolling four sources Yeah, to in would look over for amount volume in have I was years Zealand our a small well percentage continues products you into percentage a What as through on our a had office and supplier a total of it that China, Mike sourcing as different is still know we’ve we move Australia

then which have just your I’ve already you have suppliers, course suppliers, mentioned. got of suppliers number Asian you’ve European those and you as sourcing of have exclusive U.S. exclusive a global you of listed You

us We to and closely our Europe to working opportunity there that model build with are all think global continue for through synergies to and is working team of we and very base in across and drive businesses. that sourcing real suppler our

Mike Montani

you. Thank Great.

Paul Donahue

you. Thank

Carol Yancey

Thank you.

Operator

question take from Suzuki We’ll with our Bank America. Elizabeth next of

Jason Haas

for the for question. is talking Suzuki. this you Haas Jason Hi, Elizabeth Thank

best your have provide power in comments we that any might see? a regarding pass pricing position color follow-up inflation. might be you Can product So I inflation categories on to on and just what best the along got the you

Carol Yancey

half and of flat actually, year we right around have, have mean Well we those passed to the point, comments for increases that customers. I now do would automotive a in a look we the along the half back if we inflation would are what to be some in

categories such specific pass broad something this to us So it the how product wouldn’t that and these necessarily along supplier. in increases be to there not that or are a is market; we be different along. a passed Because is of would certain

related. any changes market it based. So tariffs broad that broad the be honestly, is or how And with of would would they be those that’s would potential be quite

in on what much categories think color sense. about of are exactly it come a those but got we’ve So as going broader we out in, to we

Jason Haas

and follow-up. as a then Thanks,

been year. the seen weather last a we’ve than April has So colder lot in

those or to later maybe any seen sales May think is of do have or into the of kind you if quarter-to-date just sort you in curious I’m So June? demand pickup weather going push

Paul Donahue

week its, is our I some you I up there Midwest, tell just comment to what not over on winter it’s we had business. know Midwest, would but a get we the parts weather We snow with spring. I still of last of for – many getting Jason need in great you mean that, that’s the on foot had Well early in to are northeast. the guys

being season; the in snow. season is really field with in This where fields farmers year the are with now and out time we delayed. got are business We the of of ton covered do to break break is get the agriculture, a frozen,

will think late business but So out in April. unseasonably cold weather because a come winter of it’s this getting look pushed March bit that I and

Jason Haas

Thanks.

Paul Donahue

You are welcome.

Operator

We��ll next from take Basham our question Seth Wedbush Securities. with

Seth Basham

Thanks a lot and good morning.

Carol Yancey

Good morning.

Seth Basham

I those a follow-up lines. question have along

sensitive in the non-weather your sensitive the versus about provide thinking business, how categories color in Just weather you performed auto overall? can U.S. on quarter performance

Paul Donahue

good our batteries even had key a we good were it’s guess in severe surprisingly Seth. some a business a because question growth think not batteries and I bittersweet have little interruptions -- the at quarter number we a one would could I we had it’s really little more weather, you good product winter quarter Yeah, that When our categories, a early look I been you tell service it better. had in and with

in our business. of quarter. categories and as quite performed good, good, business strong the was some so we well, tool would equipment business Our around was you under was hydraulics underperformers Where all saw chemicals those expect were car our

kickoff of month had as get the March to with the that’s So mentioned bit. you to of when the earlier, March what again break get season going we had back consider think a the generally U.S., I weather of out we across going into that I some pushed and

Seth Basham

difficulties into being focus, season. With a you, in work that? Got cars it cars your but taking outside, to how so their the I play to wasn’t fixed. break DIY-ers beginning to on can weather a follow-up it get March does commercial on shop created that, not customer understand bad that able

Paul Donahue

categories off certainly it it also relates as to wouldn’t relates when failure. but Seth it to, putting and consumers just are directly certainly No, look you performing just it think well the that I at batteries

regardless going think and some to whether are a just I just maintenance delayed, So to of get categories bit, DIFM. out it’s DIY that’s or your get pushed going of

that’s think the case. I

Seth Basham

about have or housekeeping U.S. before, can may us Got you item, you you. business, how and compares addressed Thank the seasonality then the Auto remind business? but thinking this it Global you the one of AAG to

Paul Donahue

got very similar report U.S. The the weather business. that hit two as Europe and I days impacted similar, shutdown can was hard. to AAGs talk and now QX Very Seth that for I across U.S. well UK about we the in as on basically note the give

would stronger similar seen think we of numbers I I I the very weather even would think – team don’t without have patterns know we have the are that out very, but that, U.S. seen,

Seth Basham

you. Thank

Paul Donahue

welcome. You’re

Operator

we for one from last And more question We’ll Gabelli. Carolina question. have our with time take Jolly

Carolina Jolly

in. me thanks for fitting Hi,

give weakness another to business? other one business. Just quarter you do in be I This question any factors affecting that account seen where some they of weather is might your guess. your you When national outside talk customers, have you those

Paul Donahue

of major Well, to business losing made the always try and parts I our their from better But look to partners. seeing any do I are you of as directly to bounce key continue isn’t major with of think failure. believe We’ll customers. the our are we conversations some grab account have run days. quality spend. the the are account and this I vehicles share didn't of just glean Carolina greater made, much are don’t let’s it, vehicles to, be with these would better believe mean a back. top long certainly in But are going Vehicles less this will near I you list. headwinds, market and you seeing drive the failure We weather much But less to face across share

in foremost pillars share mentioned greater of As is first a that our wallet. I our and is grab key absolutely growth

that execute got better. to we So teams. got the our promise to there business We for a bit is just

Carolina Jolly

a thanks Alright, lot.

Paul Donahue

welcome. You’re

Operator

conclude turn back And to would for to our comments. like conference for any that call management or question-and-answer additional over does the session today. I closing

Carol Yancey

to We’d second conference to quarter thank at your in first you forward with today’s like We Company our support call. Thank look you we results. thank for for you quarter talking you. to Genuine Parts participation and your

Operator

concludes And you you now for today's disconnect. participation your all that and conference. thank may We

Genuine Parts (GPC) 19 Apr 182018 Q1 Earnings call transcript