Recently, Georgia-based Genuine Parts Company (GPC) announced the 52-year old Paul D. Donahue as the new President of its Automotive Parts Group – the largest division of the company. Donahue replaces Larry Samuelson.
Donahue had joined Genuine Parts in 2003 as the Executive Vice President of sales and marketing of S. P. Richards Company – Genuine Parts’ office products group.
As President, Donahue will now look after the entire U.S. Automotive network of 58 distribution centers and 1,100 company owned stores. Further, he will develop and strengthen relationships and growth opportunities with the nearly 4,800 independently owned NAPA AUTO PARTS stores.
However, Donahue will face several hurdles that overhang on Genuine Parts’ prospects. Product improvements by original equipment manufacturers (OEMs) and other technological advancements are pulling down revenue growth in the replacement parts sector of the Auto unit. Moreover, OEMs are favoring in-house repairing by dealers rather than remanufacturing, which is dampening the demand for replacement parts.
A lower consumer confidence thwarts Genuine Parts’ efforts to drive sales growth in its Automotive Parts group. The company has a large merchandise inventory accounting for almost 60% of the current assets. Additionally, the company has been unable to institute any meaningful price hikes in its automotive business due to pressure from retailers.
In the first quarter of 2009, Genuine Parts reported a 28% fall in net income to $89.2 million. Net sales were down 11% to $2.4 billion. Revenue in the Automotive Parts segment fell 7% to $1.2 billion.
In light of the above conditions, we continue to recommend GPC as Hold with a six-month target price of $33.00.
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