純正零件 (GPC) 2002 Q4 法說會逐字稿

Good morning. My name is Holly. I will be your conference facilitator today. At this time I would like to welcome everyone to the Genuine Parts company fourth quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. If would you like to ask a question during this time simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, please the pound key. I would now like to turn the conference over to Mrs. Carol Yancey (ph), vice president and corporate secretary. Mrs. Yancey, you may begin your conference.

Thank you. Thank you for joining us for the Genuine Parts fourth quarter conference call to discuss tower earnings results and the 2003 out look. If you haven't received a copy of the press release, please call Janet Kiry (ph) at 770-612-2047. Before we begin, be advised this call may contain forward-looking statements such as projections of revenue, earn, capital structure and other financial items, statements on the plans and objectives of the company or its management, statement of future economic performance and assumptions underlying the business. The company's actual results could differ materially from forward-looking statements due to several important factors described in the company's latest S.E.C. filings. The company assumes no obligation to update any forward-looking statements made during this call. We will begin this morning with brief remarks from Larry Prince, our C.E.O. and then remarks from Jerry and then open the call up for questions. Larry?

Thank you, Carol, and good morning to each of you joining us today. We thank you for your interest in GPC and taking time to be with us this morning. With me today on the call is our usual group, Jerry Nix, whose GPC's financial officers, Thomas Gallagher is also here with us. We would like to take a few minutes to update you on the fourth quarter and for the full year 2000 and then give you our best reading on the current picture and how the outlook is shaping up for 2003. I will take just a few minutes and comment on our four business groups and just give you an overview from a sales and operating standpoint. Jerry Nix will follow with more on the financials. Afterwards we would be pleased to answer your question on any issues you have an interest in. We will comment first on the fourth quarter results and results for the full year 2002 and afterwards we will move to the current picture and try to look ahead to the balance of 2003.

Most of you perhaps had about opportunity to see the press release earlier today and to get a preliminary look at our results. We're pleased to say that the numbers were pretty much in line with where we expected them to be when we had our third quarter call back in October. Total sales were 8.3 billion for the year, which was slightly up about $38 million above the previous year and up about half of 1%. We're still a bit -- we were still a bit behind 2001 when we reported the third quarter, and we said at that time that we believed we would finish on the plus side and we sure are glad that it worked out this way.

Earnings per share were $2.10 before the cumulative effect adjustment to good will, which we made in the first quarter of 2002. Net earnings before the adjustment were $367.5 million, which was up 2%. We said in our third quarter remarks that we felt the full-year earnings would be in the range of $2.10 to $2.13, so we really were not surprised or unhappy with this final number. Actually, we feel our management team operated pretty well to improve net earnings by 2% for the year, with sales just slightly up. This is pretty good operating in a tough environment.

Now we will make a few comments about our fourth quarter in full and business segment. Our earnings per share were 52 cent which was a consensus number compared to 51 cent the previous year. Sales for the quarter were up 2.4%. Here again, when we reported in October, we said we thought revenues would be up in the 2 to 4% range, so we were pretty much on the target. As we moved through the fourth quarter, we initially were encouraged that it could be on the high side of our range.

Our average daily sales in both October and November were up 4%. But December was especially weak with average daily sales down 1%. I'm not sure why. But it seems to have been the same across all business sectors in the economy. For us, it was truly an aberration, as it turns out, because January's sales were up over 3% and February, through mid month, looks at least that good. So while December hurt us a little, we still managed to have a decent quarter and wind up the year about where we expected.

We would like to comment briefly on each of our four business sectors for the quarter. First automotive was able to show some improvement and was up 1% for the quarter in spite of the [inaudible] December. They finished the year up 2% and actually reported an increase each quarter consistently through the year. In January, they were up 3% and they're doing at least that well in February. We will comment further on the outlook for each segment in later remarks. Both office products and industrial showed good improvement for revenue in the quarter and both were up 5% for the period. We were pleased with these results and we have seen a nice, steady improvement in these two businesses over the second half of 2002. For the year, both office products and industrial were up about 1% after trailing by 2 to 3% at mid-year.

So we're pleased with the progress we're seeing in these two large business groups. EIS, our electrical group, was down 6% for the quarter. We had expected a 6 to 8% decrease, so no surprises here. After significant decreases in the first two quarters, they were down 27% at mid-year. They started to improve somewhat in the second half and finished the year down 19%. We still aren't out of the woods on this one yet, but it is looking better. I might add that while I'm covering each segment from a revenue standpoint, Jerry Nix will cover profits by segment later in hills remarks.

Now I would like to comment for a moment on each of our segments as we see them currently and looking ahead for the balance of 2003. As best we can first automotive seems to be a fairly steady picture. They were up 2% in 2001 and again in 2002, with quarterly results week up -- being up now for 7 consecutive quarters. As we mentioned earlier, January was up 3%, and through mid February, we're doing well and should be up at least in the 3 to 4% range in February. Right now our best estimate is that automotive for the year will be in the 3 to 5% range. The after-market overall is probably growing in the 2 to 3% Rhames and appears to be pretty stable at this point.

We should be able to generate growth a little greater than the market, given the strength of our initiatives in Napa, both in the U.S. and in Canada. In the U.S., with our Napa operations, our major initiatives continued to be those that we've discussed with you several times before. We plan to increase our number of Napa auto care centers this year from 11,700, to 12,00600 for a gain of about 900. And we will continue to press for higher penetration per bay in these accounts. Our sales to this customer category continues to grow in the double digit range and is approaching $600 million annually.

Our major accounts group and integrated systems group are generated good sales growth for us and will continue to be an area of focus in 2003. On a combined basis, our sales in these groups are approaching $450 million annually, and we expect double digit growth from them also. Our cash business, which is mostly retail, and our company-owned stores, grew nicely again in 2002.

Total sales in our company-owned stores grew by 6% last year with the cash component being up 8%. We will continue to work hard to maintain and grow this part of our business. We did manage to add several new stores and increase our total Napa store count in 2002. We didn't quite reach our objective. But we're moving in the right direction and this will continue in 2003. Our goal continues to be an additional 50 to 100 Napa stores each year as we look ahead. This should be a net number, which means we will actually add a good many more than this since each year we close a number of underperforming or poorly located stores.

We would like to see the store count increase in both of company-owned group as well as independent stores. We actually did pretty well in 2002, and our company-owned group of stores with a net addition of 78 stores for the year, bringing us to a total of 917GPC stores. On the independent side, we closed the year with 4,780 stores, which was down 46 stores from the previous year. So we still have some work to do on this side of the business. So we closed the year with 5,697 total Napa stores for a gain of 32 stores. Not quite up to our minimum target of 50, but this is the first year we've reported a store gain in a number of years.

Again, we will target 50 to 100 additional stores this year in 2003. As we mentioned earlier, UAP in Canada is doing well at this time. Their sales were a little stronger in January than our U.S. sales, and the Napa program is working well up there. They will definitely contribute in a positive way to our sales picture in 2003. In Mexico, we're now showing sound revenue growth in pesos, but the weakness of the peso pushed Mexico a little bit down in January. We believe this company will continue to gain business in Mexico and will have a sound growth picture in 2003.

Finally, Johnson industries is still adjusting to the new distribution agreement from AC Delco that became effective on August 1. We are gradual working our way through this and are making progress. It appears this change will impact our Johnson industries sales a little less than we originally anticipated and we feel their total sales for 2003 will be even to slightly up.

Now I think we will move along with a quick comment or two on our three non-automotive groups. We will begin with Motion industries, our industrial segment. As I mentioned earlier, Motion was up 5% for the quarter, following a 3% increase in the third quarter, so this trend is good. They're continuing in the 3 to 4% range in January and February and a marketplace that remains pretty tough. Industrial production actually perked up a bit in January, but it's still not showing any substantial signs of recovery.

I just have to think that Motion industries is doing a good job right now. As Jerry will mention later, their margins are good and they are continuing to trim and to control costs. Having been our fastest-growing segment for a number of years, we expect Motion to continue to show gradual improvement and grow in the 3 to 4% range for this year. If recovery comes in the manufacturing sector, they will certainly do even better. We are pleased with Motion industries. EIS continues to be down some in the electrical electronics group, but their decreases are smaller. And they're doing a fine job of adjusting costs. They actually made a bit of operating profit in the third and fourth quarter and for the year.

This year, we feel their sales will show gradual improvement with a shot at being even at year end. S.P. Richards continues to do a solid job in the office products industry. The office environment, much like the manufacturing sector, has been impacted by the difficult times in the economy. But S.P. Richards has been resilient. They were up 5% in both the third and fourth quarters with a good job being done. They continue to look for every avenue to grow as a value-added wholesaler in this industry. They have added additional office products dealers to their base of customers and added new products to grow their business. I don't believe their growth is coming as a result of market improvement but they just seem to find a way. We don't expect them to grow by 5% every quarter now, but we do feel in 2003 they will have a shot at 3 to 4% growth. To conclude my reaped remarks, I would like to comment on the first quarter and full year performance for the total company. Having heard our comments on each sector, you've probably gathered that we've -- we're looking for growth in revenues this year in the range of 3 to 4%.

Right now, at the middle of February, this is about how the first quarter is shaping up. There isn't a great deal of leverage in the distribution business with growth at 3 to 4%, but we believe profits should grow in about the same range as sales. With this in mind, our first quarter earnings per share should have been in the 50 to 52% range compared to -- for the year this type of growth would put us in the range of 2.15 to 2.20. Now we will ask Jerry for his comments and then we will follow that with the questions and discussion. Jerry?

Thank you, Larry. Good morning. We appreciate you joining us this morning. First to review the income state and the individual statement information and then we will touch on a couple of key balance sheet items. We will be brief and then open you up to questions.

As we mentioned in the first quarter 2002 release the company recorded non-cash charge of $395 million as of January 1, 2002 related to our testing for good will impairment and recording of number FAS 142. Charge was recorded as cumulative effect of change in kindergarten principle. The company recorded non-can recurring charges in fourth quarter of 2001 of 107.8 million pre-tax or 64.4 million after tax. These are one-time charges related to facilities consolidation, write down of several -- inventory exit costs and other unusual charges. We will review the -- before the charges. This will be more meaningful. The income -- re-- total sales for the year were up half a percent has Larry indicated. We held steady in the gross profit area of gross profit percentage being 30.9 for both years. SG&A as a percent to sales increased only slightly from 23.5 to 23.6. We continue to focus on our expenses and we believe we made some improvements in this area.

It's very difficult to show significant change without better sales profits. As you know in the distribution business so much of the SG&A is fixed but we're always looking for additional savings opportunities. Net income was up 1.7% with -- up 1% from last year. Shares oust standing were up slightly due -- net of our own share repurchase program. Now let's discuss the results by segment for the year. Sales in the automotive group, $4,000,000,335.4 billion million and that represents 53 percent of the total and up 2%. Operating profit of the 381.8 million was up 1% so we had a little margin deterioration from 8.89 to 8.81.

Industrial sales group, 246.1 billionmillion, -- that was up half a percent. Operating profit, 178.0 million up 3.4% so good margin improvement shown had that group from a 7.71 to 7.93. Office products, sales of 1,000,000,396.5 billion.million. 17% of the total. Up 1.2%. Operating profit 140.9 million, down .6 of 1%. Operating margin showed some deterioration but it's still outstanding at 10.9 vts -- the electronic sales group had sales of -- that's 4% of the total, down 19% on the year.

Operating profit of 2.8 million and that's down 15%. So whether our margins are still poor they did show slight improvement there. Add interest expense of the year of a 59.6 million which is basically flat. A review of the income statement for the quarter before last you're unusual charges shows that total sales were up 2.4% and we showed a slight decrease in the gross profit area with gross profit percent going from 33.0 to 32.9. SG&A is a percent to sales increase slightly from 25.3 to 25.4. Net income was up 1.2% with earnings per share of 52 cents up from the 51 correct reported last years. Shares outstanding were up 0.3.1%. Let's look at the data for the quarter. Automotive had revenue of 1,000,000,032.7 billionmillion up .6 of 1%, the operating profit was 81.3 million, up .2 of 1% and margin was flat at 7.9 percent. Industrial group sales 551.0 million up 5.2% operating profit of 52.0 million up 9.8, so a good margin improvement shown by that group from 9.0 to 9.4. Office products 347.5 million up 5%, operating profit of 39.8 million, up 3.5% and their margins are 11.5% for the quarter. The electrical electronic group sales of 74.1 million, that's down 6%, and they had a profit of 1.7 million versus a loss [inaudible] prior year.

While the margins are still low, they are significantly improved to 2.3% margins for the quarter. And interest expense in the quarter of 12.0 million, which is down 18% from the prior year. Decrease was due to reduction in our debt during 2002. Touch base now on a few key balance sheet items. Cash at $20 million is down significantly from 86 million in the prior year due to better utilization in the debt reduction that we just mentioned. Accounts receivables increased to 1.04 billion in line with our 2.4 percent sales increase so we feel good about how we have managed our receivables.

Inventory was up to -- 2.1 billion due to favorable buying opportunities in the industrial group which accounted for 134 million of the increase as well as new stores in the automotive group which requested -- requested for 83 million of the question. There will be a concerted effort to bring our inventories down in 2003. We will show progress in all segments throughout the year. We saw a reduction in January of $40 million. Our current ratio at the end of the year was 3.1 to 1, versus 3.4 to 1 the prior year. This reflects sound balance sheet as well as the fact that much of our inventory increase was financed through increased accounts payable, which were up 14%. Our return on invested capital was 13.2%, up from 11.9 in 2001.

We have been and continue to be an excellent cash generator. We generated approximately $272 million from cash flow in operations in 2002 and this cash was used primarily in four areas, paid dividends of -- and we continue to believe that dividends are important. The board authorized increase in dividends to $1.18 a share in 2003 from $1.16 per share last year. This payment represents 56% of prior year earnings. And our goal continues to be to pay out in the 50 to 55 percent change of range of prior earnings. This represents our 47th year of dividend countries.

We paid dividend every year since we went public in 1948 and increased it every year since 1955. As all of you know this record distinguishes Genuine Parts from other publicly traded companies. Capital expenditures for 2002 are 6462.8 million up from 42 million last year and that's due to ongoing projects in our automotive and office project segments and acquisition of various Napa automotive parts stores. Depreciation and amortize ace was -- in 2002 with 17 million in the fourth quarter. Our capital expenditure should be in the 65 to $75 million range for 2003 as we continue to make the necessary investments in our businesses.

In addition we would expect our depreciation amortization to be 70 to 75 million in 2003. During 2002, we reduced our total debt by 101 million, closing the year with total debt of 792 compared to 893 million the prior year. A total debt to ratio is 27.1 compared to 27.6 at the end of 2001. Our goal is to continue using our free cash flow generated in 2003 to release another hundred million dollars or so. As part of our share repurchase program we purchased approximately 400,000 shares in 2002 and have 7.2 left in the current authorization. In 2003 we continue to repurchase shares under this program. But the recent decline in our company, we have been -- we believe our stock is very attractive at these current levels.

For the year, total shares oust standing increased approximately 1.5 million from last year and stock option exercises offset our repurchases. The stock options exercised generated approximately 36 million in cash during 2002. It should be noted that effective 1-1-05 we will get stock options [inaudible]. Our use of free cash flow -- through a strong cash dividend, gradual share repurchase program, and adequate reinvestment back into the businesses. We will be certifying the 2002 year end results when file our 10K prior to march 31, 2032. I will turn the call over to Holly and take any questions that any of you have.

At this time I would like to remind everyone, to ask a question, please star and the number one on your telephone keypad. We will pause just a moment to compile the Q and A roster.

+++ q-and-a.

Your first call is from John Casesso (ph) at Merrill Lynch.

Good morning.

What do you think happened with the market overall in the 2002 calendar year? My recollection is last year at this time you thought there was going to be growth in the market and you could see a 5% revenue growth in the automotive business but what do you feel happened?

John, it feels to us like it followed the same trend it has had for the last four or four years, which is probably somewhere between two and three -- 2 and 3%. You can see some figures what to say it might have been a little bit more than that but our feeling is that is about where it wound up. And here again, we had no price increases, which is another part of it. We had started the year thinking we might wind up with some price increase for the year. But in the final -- when the final bell rang, we were down a little bit actually in terms of automotive pricing, something less than 1%. So I think the market -- the after market is still in that 2 to 3% range.

Larry, then, did you -- mathematically then you didn't gain share this year, if your automotive sales were up 2% or are you using a different definition?

I think that is probably right. We probably just held our own if the after market was truly in that range. I think it's a guess on anyone's part. There have been times when I felt like there was no growth there. But there's no way to truly be sure what is going on, and we're just taking it for granted the market -- the growth is still there on a modest basis, and that -- truly looking back, if that's the case, we about match the market.

Just a follow up from Jackie.

This is Jackie Woods (ph). Some of the companies that we follow the supply of the after market say they have been able to put through limited price increases. Have you been seeing price increases in any part market that are perhaps offset by declines in other areas?

Not really. We haven't -- we -- in the last half of the year, we just saw very little and saw a few decreases. So we wound up on a net basis, we were down a little bit. So I don't see anything pushing -- pushing prices up at this point in time.

Okay. Also, could you just expand on the store opening environment? You said you guys are expanding your stores and then there was a net decline in independent stores.

Yeah. We actually -- we actually looked a little better the last time we reported to you than we finally wound up. And I think in the last quarter of the year, we must have, both on the independent and the company-owned side, we probably closed more weak and under performing stores. But my feeling is that we're going to show that net gain some in the 50 to a hundred dollars a year. If we have to step up a little bit our openings or our acquisitions on the company-owned store side, we will have to do it. But we feel we need to have a little bit of growth in store population over time: It doesn't have to be big. But our goal is to do the 50 to 100. We think we do it. We actually opened a lot of stores on both sides of the ball, both independent and company-owned, but we close add lot of weak stores. So it's an ongoing effort on our part, both independent and company owned, to maintain some positive action. And we will just push a little harder this year. And I feel certain we will get at least that 50 to 100 number.

Okay.

Thanks very much.

Thanks.

Your next question comes from David Cino, Gabelli and Company.

Good morning.

How are you, David?

First, you went through the auto model for '02. The numbers that you gave implies that the wholesale business -- or the installer business was kind of weak, or perhaps Johnson -- the [inaudible] Johnson industry. I mean, is that the case and does the growth model for 2003 ka call for cash business to outperform?

You know, I don't know how to expect it to shape up. I think perhaps it was a little bit stronger 2002, as a part of the total than we may see it in 2003. We can only track that really in our company-owned store group, and that's the group that is -- as we mentioned, that was up 6% total low and up 8% in cash. I would look for it to be more of a balanced growth this year maybe with both of them growing at about the same rate, cash and wholesale. But that's just a guess at this point in time.

Okay. I guess, Larry, conceptually there's been talk in the industry regarding paying on scan pertaining to the vendors. Some of your competitors have floated the idea, I guess. Conceptually what are your thoughts on that and how would it impact the industry?

You know, all we're doing at this point is watching that closely. Our position, of course, is perhaps like every other player in the business, if this happens with the one company that 1 asking for it, we're going to be expecting something equally as valuable to Genuine Parts company. And frankly, it would be -- it would be a struggle for me to know how to manufacture -- how the manufacturers could afford to do this. Because we see they're having a tough battle now. So I'm surprised that someone would step out and ask for something like this. It's a very significant issue. We're watching it closely. And all I can say is that you could -- you could just expecting something equally as valuable if you're one of the other companies. That's where we're leaving it. We're very interested in how it develops and we just hope for the best.

Okay, thanks. Jerry, one last question. You mentioned the stock option expense -- what is the impact in 2003?

Well, we're not expecting anything. It would be 1 to 2 cents as we go forward, probably, David, at this point. We don't anticipate granting any options in 2003, so the expense would be zero in 2003.

Thank you very much.

Thank you.

Your next question comes from the line of Wendy Natum, Credit Suisse First Boston.

Hello.

Hello, Wendy.

On the inventories, I'm sorry, Jerry, could you just go through that again, what you stead about what happened to inventories in the year and then I have a follow-up question.

Sure, the inventories up 13.5%, most in industrial and the automotive group. They were up a 134 million in the industrial group as well as 83 million in the automotive side. And in total, it was only up 254 million. So that's where basically the increase was.

Okay. And then you said, what, you were prebuying in industrial, is that it?

Yeah, there's vendors come along and they over special opportunities at the end of the year, on top of your rebates that you earn, and that was of the reason for that. It was good inventory, salable inventory. As you can tell, in January, we're off $40 million in inventory.

Then what do you think you can take out of inventory overall in 2003?

I would guess that we're shooting for a hundred million dollars, you know, and we will have that as a target. But, you know, depending on what sales do, if we have a pickup in sales, we can take more out than that.

Wendy, this is Larry. I think that's conservative number. I just have to put my two cent in here. I think 100 million is certainly achievable but I would expect we're going to take more than that out as the year goes along. We already are down $40 million at the end of the January. It will depend somewhat on sales but we'll gradually work it down. I think it's a case in 2002, a lot of the vendors were pushing hard for business, and there was some good buys available. We just went out and did it. to a certain extent and maybe had too much of a good thing, I don't know. But we decided to gradually trim it back, and we will do it gradually over the course of the year. But I think we're determined to bring inventories down and a hundred million may be okay, but we're going to strife to bring it down more than that.

But then, you know, we could get to the end of the year and some of the customers could have these great deals on again. How do you sort of think of that at this point in the year?

Well, at this point in the year, our plan would be keep our eye on what our total purchases are to be sure we hit significant -- we have significant rebates built in to achieving certain purchase levels and, of course, that we renegotiate every year so. We keep our eye on that. And we try to be sure that we achieve the maximum rebates on that basis. And then the special buys, we really can't anticipate until that time comes. I would have to say right now in general, we don't particularly like doing that. But we have to take a look, if it's attractive enough at the time to do it and particularly if we have the cash flop that we've got. And when you do this, I think the typical approach is you're only buying the very fast-moving products that you know you can move out quickly and it gives you the flexibility to that that. In the case of industrial, I would say most of what we bought was bearings and would be fast moving bearings. We're not going to get ourselves trapped in the long run of continuing to see our inventories build to a level that we're not comfortable with.

Okay, great. Thank you.

Your next question comes from the line of Saul Reuben, UBS Warburg.

Good morning.

Good morning, Saul.

I'm sorry to keep on about the inventory but just as follow up here, outside of what Motion, they were up in automotive, as company stores continued to rise. Could you just talk a little built generally about the fact that the trend in automotives seems to be inventory rising as company stores rise and that presumably -- there you would continually expect revenue to rise in those three yet margins seem to be not improving. Is that a problem for the business then?

I will take it one piece at a time. In terms of the inventory in automotive, we did see our inventory go up somewhat, and some of it weakened, I directly relate to the new stores. But I would like to go beyond that and say just in general we probably have too much inventory in our automotive group, and we're working to bring that inventory down some. And we're going to be diligent about it. I think we have a good opportunity to trim our inventories in automotive without impacting service in any respect. You know, we have 57 automotive distribution centers and over 900 stores, and certainly we're not operating at maximum efficiency throughout all of those operations, so we're going to be -- try to be on top of that. We're going to add the -- we're going to add some company owned stores. It will be a reasonable amount. And that might cause us to add some inventory. We will just look for other ways to take inventory out. So it will be a job that we work hard on this year. In terms of margins, in automotive, you know, we may -- we were down just slightly, I guess. And I think that is just attributable to the fact that we're still only growing in about the 2% range on the top line. Our gross profit margins, I think, are holding pretty well, but we just need a little bit more growth than that 2% to bring the margins up beyond where they are now.

Okay, thanks. Actually just to follow up -- I'm sorry. Can you hear me?

Yes, we can.

I'm sorry. In terms of the stores, your independent store count went down. I know your cutting underperformers but are you seeing any deserters, are you seeing any store owners leave for other franchises?

No, really that's not a problem. You know, we may lose very few. But it would be a minuscule number, if any. And then, you know, on the other hand, I think we're at this point maybe picking up a few changeovers from the other side. I think we would be a net winner in that situation right now.

Okay, and finally, for 2002 in general, you saw revenues relatively flat and margins flat. In 2003 you're expecting revenues up 3 to 4% and yet margins to remain flat. Can you just talk generally to that, why you're novelty expecting something slightly better?

Well, we had hoped for something better but we're trying to be realistic and still maintain that growth in three -- in the three to 4 percent range is still not the kind of growth that's going to leverage a lot of additional earnings. I still think you're in the arena in the three to four percent range, if you can grow earnings about the same as those sales you're doing a pretty good job. Soy wouldn't want to say that we can take the 3 to 4% growth and leverage it into higher margins but hopefully we can maintain the margins and at least grow our earnings in the same range.

Okay, thank you.

Your next question comes from the line of Jonathan Steinmitts, Morgan Stanley.

Good morning, everybody.

Good morning, John.

A few questions. On the automotive side you said pricing was slight think down in the second half of the year. I was wondering if you feel that outlook is likely to continue throughout 2003?

Well, of course, it's so early. We can't see. We don't have much visibility right now on pricing for the year. I have no idea -- of anything I see, to say that it's going to be much different this year. We would certainly hope that we wouldn't have prices down, but at least we could hold our own in pricing. But that's a competitive issue, you know. We just have to think that competitive circumstances are still tough at the moment. And unless we see some sort of change in that regard, there's no reason to think prices are going to go up.

Okay. And on the automotive side, it sounds like current conditions have perked up somewhat in the last few weeks. I was wondering which geographic regions have been stronger?

Well, I see our sales pretty much throughout the country right now looking good. We have -- I think the -- I think the cold weather in some areas is driving a good business. But we don't have any strong swings up and down in terms of where our growth is coming from. And, you know, we have so many product categories, and I can't pick one or two out and tell you that we're showing great growth in some and not in others. We're pretty much seeing a nice picture, a little bit of an improving picture throughout.

Okay. And finally, as you start to work these inventories down, just to be clear, are you saying there will be no gross margin impact in terms of how you crew for your expectations for volume rebates?

I'm not sure, Jonathan, that we can make that estimate. I think we feel like that we have to take the inventory levels down. And we'll continue to earn the volume rebates. We're not saying we're giving those up. I think there's waives to manage through this thing and take the inventory levels down and still get the volume rebates that we earn.

Okay, so that's just a renegotiation process that happens each year and you can sort of go vendor by vendor type of thing?

That's correct.

Great, thank you very much.

Thank you.

Your next question coming from -- comes from the line of Darren [inaudible] of Kimbell Brothers (ph).

Hey, Darren, how are you doing?

Value line versus your premium line, what kind of mix did you have in 2002, and is that one of the issues that, you know, is at issue in terms of the gross margin and profit opportunities in.

Darren, we're not seeing an extraordinary growth in the value linear right now. We pretty much reached the peak in terms of valve-line coverage some time ago so we're not adding a lot of new value-line product at this point in time. And the mix in value line sales as a part of the total is about what it has been. So we haven't seen any -- that hasn't got really anything to do with our margin at the moment.

Is that percentage of a number you disclosed?

No, we never have done that. I think we would like to stay away from that for competitive reasons.

Okay. And I was just curious on the forward buys, you mentioned that a lot of it was paid for in payables, so to speak. Was that representative of sort of a one time thing or were you able to sort of make a permanent change in payable terms?

No, Darren, that's a one-time thing. We're continuing to push our payable daily outstanding out. But having payables improve 14% is a one-time thing but we will continue to strife to push them out.

And could you review the pricing by segment numbers?

Sure. The automotive group was down less than 1%. The stream group was plus two, office products was plus .7 and EIS was down less than 1.

Anything special going on in industrial there to get that kind of pricing?.

Not that I'm aware of. I think this is pretty much within the industry. It's not anything special to us.

Okay. And just curious, are you guys okay with the BWD merge?

Yes. Yes, we are. We are all right with that. We see that as, at this point in time, not a really negative, or not a negative at all. It -- we already do -- we already do a good bit of business with standard. We know them well. We have for many years. And we trust them on this. And if Dana really wants to move out of it, then, you know, we're better off having someone who is enthused about it and will get behind it. So we feel okay about it

Okay. And this will be the last one. When you guys come up with your sales forecast for 20003, is it based at all on sort of an economic framework? Is there sort of a GDP estimate out there you guys are thinking about when you throw out these numbers, and can you share that if so?

No, I don't think we do. I'm pretty much basing that on what we see our guys doing right now, what they tell us they see in the business. And most of it -- I mean all of it, frankly, is based on the economy staying about like it is at the moment. If we saw some -- if we saw some improvement, I think we would see our numbers become perhaps stronger. If we go into some kind of huge negative, then, you know, it could impact the number that we're using right now. We basically have to call it the way we see it at the moment.

That's helpful. Thanks very much.

All right, thank you.

Your next question comes from the line of Tim Culler, Barrell Hanley (ph).

Good morning.

Good morning, Tim.

Just out of curiosity, of the opportunity to pre-buy the chief merchandise, was that -- would you describe that more of as a margin enhancer or a sales enhancer that you would pass the lower prices on to goose your sales a little bit?

I think it's more of a margin enhancer the way we have done it because we didn't do it to be able to get out in the marked and -- market and do something with pricing. We see it as -- we try to be competitive, and I think we R are in industrial, where most of this happens. So it's a margin enhancer. It's real money.

Thanks. Just one other question. This may be obvious and I may be missing something really easy here but as I just glanced throughout income statement for the quarter, you have sales up about 2.5%, you have operating profits, about $175 million versus 163, up about 7%. Your interest is down. Your other is up only slightly, the share account is off a bit. I'm missing something. Why is the EPS flat when you have basically operating income coming in at 7% and none of the below the operating line numbers are jumping out as having cause add problem here?

I'm not sure, Tim. With shares outstanding up about 600,000 shares. And maybe that's where it is. I see what you're saying, but the numbers awful work. I don't know.

Well, I will have to go through it again. And I will call you back off line on this. Thanks Jerry. And one last question if I could. Are you going to release a cash flow statement with this release or is that coming later?

We will get you one. It's not with this release.

Thank you.

Your next question comes from the line of --.

Hi, good morning.

Good morning.

How are you guys doing?

Good.

Just a couple of questions. Jerry or Larry, you guys talked about the investments you're making in the automotive business and I know they have been with regard to systems and et cetera. Could you give us some sort of sense of the time line of when, you know, these will be usable or operational, and the benefits that we might see in the coming years, perhaps 2004?

Sure. We have been doing this for two or three years now, and we have seen some of the benefits. That's why we're able to keep our margins flat with basically 1 or 2% sales increase. So we have been at this for 2 or 3 years now and we probably have another two or three to go. This is ongoing. Some of these are major infrastructure type of projects that are involved here. So, you know, we will continue to invest where we need to in the businesses and hopefully see the benefits show up in our SG&A as a result.

Okay. Can you talk a bit about, you know, UAP, hither to as I understand had not been a growth contributor. You did make some comments that, you know, with the whole rebranding and it seems like the integration -- you know, is there any potential for UAP to do significantly better than the overall automotive line? What are you guys seeing there up in Canada?

Well, we had -- from a sales standpoint, we didn't have much growth up there last year. We grew very nicely on the profit side with margins coming up nicely during the year. But I think what's happened at UAP is they've been laying the groundwork with the Napa change, with some new products, with can -- with the computer system that we use here for stores, with a lot more flexibility. So they have done a lot of things to create the situation they're in there today. I think looking at the last month or two and looking certainly at January and February, these guys are starting off on a strong basis. And, yes, I would say their numbers are probably going to be at the high end of what we do in the automotive this year.

Okay. Could you also comment on Dow, Kemp, and Rayloc, what their trends are? They have been well over the past few years. Would these be -- or do you expect them to grow in line?

First of all, they're major -- our major customers are still it Napa distribution centers. But they have managed to generate some business outside of Napa of one kind or another. Both of those companies. Interestingly, BALCAMP (ph) has developed a promotion for Motion industries which is turning into a nice surprise and safety supplies and mill supply type of items. So they're generating better growth, I think, than the automotive group because they've got this outside business. Rayloc sells new alternators now under the diehard brand. It's a new product. It's not a remanufactured product. And it's developed to be quite a nice piece of business for them. So these two underlying companies are doing well.

Last question, if I might, on the national accounts. I mean, it seems like with these other BIY guys getting potentially into the professional installer as well as servicing the national accounts, I mean, what is -- in terms of strategy to make sure that you keep growing that segment of your business as well as retain your existing market share there, anything you can share with us? Also the landscape as all of these,, you know, these guys are still much smaller than you but as they get more aggressive into that would be helpful.

I don't know that there's much I can tell you. It seems like we compete with those guys for all types of business. For cash and commercial and national account or whatever. So we just look at them as competitors across the board. And we try to look at our strengths and our strength certainly seems to much up with the ability to serve supply accounts better than anyone. We focus on those and try to use our strengths. But as we talked about earlier, those are the growth areas. And the guys you just named are serious competitors for all of our business. And we just view it that way.

Thanks a lot.

Okay, thank you.

Your final question comes from James Fracturely, Sendar Capital. Mr. Fracturely, your line is open.

What effect have you guys seen on the -- of daisy tech?

This is Tom Gallagher. At this point, we haven't seen any impact (impact) (. It's something that we watch closely. We monitor on an ongoing basis but we haven't noticed any effect at this point.

Okay. Thank you.

Thank you. Holly, you indicated that's the last caller; is that correct?.

Yes, sir at this time there are no further questions

Thank you for joining us. We appreciate your interest in Genuine Parts Company. And if any of you at any time have any questions or concerns, the number that we have is on the prose release so feel free to call us at any time. But we appreciate your interest.

Thank you for joining today's conference call. You may now disconnect.