Genuine Parts Company (GPC) reported a 20% rise in profit to $124.5 million or 78 cents per share in the second quarter of 2010 from $103.6 million or 65 cents in the same quarter of last year. With this, the company outdid the Zacks Consensus Estimate of 71 cents per share.
Sales in the quarter escalated 12% to $2.8 billion. Besides the Automotive Parts segment, Genuine Parts’ Industrial Parts and Electrical/Electronic Material segments performed well during the quarter, driven by a revival in the market conditions. Both the segments have been severely affected by the sluggish economy for the last several quarters.
Sales in the Automotive Parts segment rose 7% to $1.5 billion, Industrial Parts zoomed 26% to $882 million and Electrical soared 32% to $107 million.
However, sales in the Office Products segment slid marginally by 1% to $402 million. This can be attributable to the fall in office employment over the past two years.
Genuine Parts had cash and cash equivalents of $412 million as of June 31, 2010, an increase from $239 million as of the same period a year ago. Long-term debt remained unchanged at $500 million as of that date. Consequently, the company’s long-term debt to capitalization ratio remained unchanged at 2% as of June 30, 2010 compared to the same period of prior year.
In the first half of 2010, Genuine Parts’ net cash flow from operations decreased to $355 million from $489 million in the prior-year period, driven by a decline in favorable adjustments for operating assets and liabilities. Meanwhile, capital expenditures reduced to $28 million from $37 million in the year-ago period.
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.
However, lower consumer confidence is thwarting Genuine Parts’ efforts to drive sales growth in its Automotive Parts segment. The company had a large merchandise inventory, accounting for 51% of current assets as of June 30, 2010.
Moreover, 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. As a result, we maintain our Hold (Zacks #3 Rank) recommendation on the stock in the short term (1–3 months).
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