純正零件 (GPC) 2003 Q2 法說會逐字稿

Good morning, my name is Deborah and I will be your conference facilitator today. At this time I would like to welcome everyone to the Genuine Parts company second quarter 2003 conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star-1 on your telephone keypad. If you would like to withdraw your question, press star-2 on your telephone keypad. At this time I will turn the call over to Carol Yancey, Vice President and Corporate Secretary. Thank you. Ms. Yancey, you may begin your conference.

Thank you. Good morning and thank you for joining us today for the Genuine Parts second quarter conference call to discuss our earnings results and the 2003 outlook. Before we begin, be advised that this call may involve forward-looking statements such as projections of revenue, earnings, 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 statements regarding the company and its business. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings. The company assumes no obligation to update forward-looking statements made during this call. We will begin this morning with brief remarks from Larry Prince, our chairman and CEO and then we'll open the call up for questions. Larry, if you're ready to begin.

Thank you, Carol and good morning. We thank each you for joining us today for this conference call. With us is Jerry Nix, your Chief Financial Officer and Tom Gallagher, president and Chief Operating Officer. After my comments, Jerry will cover our financials in more detail, and all of us will participate in the questions and discussion period later in the call. We will keep our comments fairly brief, in order to allow more time for your questions. For a number of quarters now, we've been able to report small but consistent growth in both sales and earnings. In the quarter just completed, we couldn't quite accomplish this. We released our results earlier this morning and some of you have perhaps had an opportunity to review them. Sales were up just slightly at 1%. But profits were a bit below last year's quarter, with a decrease of 6%.

On a per share basis, we earned 52 cents compared to 55 cents last year. We did manage to make a good bit of profit with net earnings of 90 million. But we're never pleased when our earnings are short of the previous year and not up to our expectations. Our earnings, of course, were challenged by the softness of sales for the quarter. In the distribution business we have a certain amount of fixed cost and it is fairly difficult to leverage a 1% increase in sales in terms of profit. With sales growth in the 2 to 3% range, we've been able to generate profit improvement, but sales were simply slower in the second quarter than we anticipated. And certainly a bit softer than we have seen for a number of quarters now. We also experienced slippage in gross profit margin, much of this is attributable to less rebates earned as we reduce inventory, but some is just a result of competitive pressures. Perhaps our best approach this morning is to talk about sales first for a moment. We will discuss each of our segments and how they looked for the quarter, and the outlook for the balance of the year.

After we work our way through sales, we will then address the profit picture for the quarter, by business group, and give you our feeling for the balance of the year. Let's begin first with automotive which is our largest business segment. Sales for automotive were up 1.7% for the quarter compared to a 2.4% increase in the first quarter of 2003, and a 1.9% increase for all of 2002. So sales were a little softer, but not enough to indicate a significant trend of any kind. Our automotive sales for the first six months of this year are up exactly 2%, and we believe our growth for the balance of the year will be in this same range. We will be doing all we can to move it a little higher, but to be on the safe side, 2% seems to be about the number for us. Through mid July we're actually a little stronger than this, which we are pleased to see. As we have mentioned in earlier calls, we really don't need a lot of additional programs or initiatives in our parts group.

We just need to be more effective in execution in some cases. Our Napa Auto Care Center initiative is going pretty well. We're on plan to increase this group by 900 this year, to a total of 12,600. We're on target with this, and we now have close to 12,000 Napa Auto Care Centers. Sales for this group are up about 6% this year. Sales in our company-owned store group are up 4% this year, with the cash component mostly retail being up 6%. One area where we're falling short is new store openings this year. We now have 904 company-owned stores, which is 13 less than at year end. We have opened and acquired a number of stores, but on the other side of the equation, we have closed or consolidated several redundant locations, and we've sold several to independent owners. On the independent owner side we now have 4,753 stores, which is 27 less than at year end. We have both added and closed a number of these stores, with a net effect being a small decline. We will commit to improving this picture in the last half of the year, and while we may come up a bit short this year, our goal is to add 50 to 100 stores a year on a year to year basis.

I would like to take this opportunity to make you aware of a management change in the top position of our Napa automotive parts group. This group represents about 80% of our automotive revenues. A few weeks ago, Bob McKenna, the president of this group, stepped down from this job after about four and a half years in that position. Tom Gallagher, the president of Genuine Parts company has assumed this responsibility, and will be leading this operation for at least a year and perhaps longer. Tom ran this operation at one time and did a splendid job. Our people like working with Tom and he brings aggressive leadership and a sense of urgency to any situation he becomes involved in. We believe he will make a difference. Moving to our other groups, let's look a moment at industrial, which is motion industries. This is our second largest segment, and they did struggle somewhat in the quarter. Their sales were down 1.2%, and this is their first decrease in quite a while. Actually, this decrease follows four consecutive quarters of increases.

They were most recently up 3.3% in the first quarter of 2003, which followed a 5.2% increase in the fourth quarter of last year, so their trend has been rather encouraging. We really aren't sure how to read this quarter for motion. Their marketplace in the industrial sector remains weak, and of course it has been weak for some time now. We just can't be certain when manufacturing activity will start improving. But it's been our feeling that it could not really worsen in a significant way. We continue to believe this, but admittedly it did feel a little worse to us in the quarter based on motion's results. This marketplace remains very fragmented and motion does have the opportunity to improve sales, as they have been doing even in a weak market. The motion team will be assessing what they could have done better in quarter 2 to generate more business, and they'll be actively working on this. Through mid July, their sales are about even, which means there's a little improvement, but until we see a clear picture with industrial, we're inclined to be cautious with our outlook.

Their sales through six months are now up 1%, and with the continued weakness in the economy, we expect their last half to be essentially flat. This is somewhat less than the previous outlook of a 3 to 4% increase. This one could change in a positive way and change quickly quickly, but we would prefer to be conservative until we have evidence otherwise. Our best picture for the quarter was clearly office products. Sales for SP Richards increased by 5.6% for the quarter, following a 3.1% increase in the first quarter this year. For the first six months of 2003, they are up 4.3%. I'm not sure what to say about SP Richards other than they are just doing a splendid job right now. They are experiencing growth in their core SP Richards office products business in the U.S., as well as in Canada. Their computer supply company, horizon, is showing excellent growth. They continue to carefully expand their product offering, which is proving to be beneficial. In the environment of continued job reductions, and an unemployment rate of just over 6%, it is a remarkable job we see at SP Richards. We can anticipate that the remaining two quarters this year will be up almost 6% for SPR, the marketplace just doesn't support this kind of number (we can't) however, we do feel that SP Richards will continue to outperform the overall market with growth of 3 to 5% for the balance of the year.

And finally, EIS was down 9% for the quarter, pretty much in line with our expectation. At their current run rate they will do about 300 million this year in sales. Given the circumstances of their markets, we don't see their sales picture changing to any degree for the balance of the year. We are pleased to see that they continue to reshape and re resize the company from an operating standpoint. Their operating profits are improving each quarter, and we're at 2.6% for the second quarter. We believe this trend will continue. Now let's look quickly at the profit picture. I will give a quick overview of the total and by market segment with Jerry giving more of the details in his comments. As mentioned earlier, our net income for the quarter was 90 million, which was a decrease of 6% compared to the previous year. The results by segment were very mixed. Automotive was 4% down, office products 5% up, industrial 25% down, EIS earned 1.9 million in profit, compared to 600,000 in profit last year. In total, we did a pretty fair job with expenses, which were down 49 basis points. Our shortfall was really more in the area of gross profit margin, which was down about 1%. Jerry will comment on these numbers in more detail as he covers our financials. The margin slippage occurred primarily at motion industries and SP Richards. Automotive gross margins held steady at about the same levels as last year.

Both SP Richards and motion were down about 1% in gross margin, which relates to a combination of product mix, customer mix and less rebates earned. We can work on all three of these issues to some extent. Perhaps the toughest for the short-term is the rebate issue, as we continue to adjust inventories particularly at motion industries. On an ongoing basis, we just have to work on the best program possible with our vendors, and concentrate our efforts on higher margin products as far as sales are concerned. We will be pushing hard on this. At this point I will conclude my remarks with just a few observations relative to the last half of the year. At the midpoint of the year, we are up 1.6% in sales, with our most recent quarter up 1%. Our feeling at this time is that sales will continue to look about the same for the final half, with an increase of 1 to 2%. From a profit standpoint, our comparable net earnings at mid year are 178.5 million, which is down two and a half percent from last year. Comparable earnings per share are 102, compared to 105 last year. Unless we see more positive developments in the markets we've served, particularly the industrial, we anticipate the final six months will look very much like the first six.

On this basis, our earnings will be in the range of 2 dollars to 2.05. Currently our inclination would be towards the lower end of that range. As each of you know, we will be dedicated to doing better than this, but we're calling it as we see it currently. Now we will ask Jerry to comment on the financials and then we will take your questions.

Thank you, Larry. Good morning. We appreciate you joining us. We'll continue with a review of the income statements and a discussion of segment information and then touch on a couple of key balance sheet items. We're cautiously optimistic entering the second half and continue to make what we believe to be conservative assumptions regarding the economy as we plan for the next couple of quarters. We must continue to focus on tight expense controls while working towards increasing revenues. I know that Larry provided you with a lot of information today and I'm about to do the same, but stay tuned a little while longer and then we'll open the call up to your questions. A review of the income statement shows our total sales were up 1%, bringing us to 2.2 billion for the quarter. For the six months ended June 30, 03, sales total 4.2 billion, which was up up 2% compared to the same period in '02. Gross profit reported for the quarter was up slightly with gross profit percent to sales 30.26 compared to 30.23 in '02. As you may recall in the first quarter of this year we adopted [FAS] EITF 02-16 related to the [inaudible] for cash consideration received from vendors. In addition recording a noncash charge of 20 million dollars as of January 1st '03 under the new EITF, these vendor monies are now classified as reduction of cost to goods sold instead of as a component of SG&A as has been the case in prior years.

Accounting rules do not allow for restatement but we find it more meaningful to compare our gross margin and SG&A excluding the impact of EITF 02-16. In addition we discuss earnings before cumulative [effect] of accounting changes because these figures more accurately reflect our on going operational results. Before the EITF adjustment we showed a gross profit of 29.24, that's a decrease of nearly 1% from the second quarter last year. In the year to date, our gross profit was 29.57 and that's down 81 basis points from last year. After the EITF adjustment, our reported gross profit for the six months is 30.89, which is actually up 51 basis points. As Larry mentioned earlier, much of the actual gross profit decline is due to shifts in the product mix, customer mix and rebates earned. SG&A [as a] percent to sales before the EITF adjustment was down from 22.83 to 22.36 in the quarter, and that's a decrease of nearly 50 basis points and for the six-month period was 22.55, also down half a percent. We're pleased to report continued improvement in this area and our effort to cut, expenses remain important initiative for us.

After the EITF adjustment, our reported SG&A as a percent of sales is 23.38 for the quarter and 23.87 year to date. Net income for the quarter was down 6% with earnings per share at 52 cents compared to 55 last year. Now let's discuss the results by segment. For the quarter, our automotive revenue was 1 billion 167.8 million that represents 54% of the total, that's an increase of 1.7%, the operating profit was down 4.4, so their margin had slight deterioration, went from 9.5 to 8.9. Industrial had revenue of 565.9 million, 26% of the total, that's down 1.2%, operating profit down 25.3, so we have serious margin deterioration in industrial group from a 7.8 to 5.9. Office products we had 355.4 million, 17% of the total, that represents a 5.6% increase in revenue with operating profit up 5%, so their operating margin stayed fairly stable at 8.8%. The electrical electronic group had revenue of 73.3 million, 3% of the total, that's down 9%, and they did show a profit of 1.9 million versus 600,000, same period last year. So their margin is up to 2.6%. Just briefly, we'll look at the six-month numbers, automotive revenue was 2 billion 190.3 million - that was up 2% and their operating profits down 2.9 for the six-month period. Industrial group had revenue 1 billion 135.5 million, and that's up 1% for the six months with operating profit being down 12.2. Office products, revenue for the six months, 719.3 million, up 4.3% and operating profit up 2.8.

Electrical electronic group had revenue of 148.7 million for the six months, down 8%, and they did show a profit of 3.5 million for the six months versus a slight loss the prior year. One area that's affecting the operating margin in all of our segments is pension expense. Along with most companies today we are experiencing a large swing in pension income. Overall we recognize income of 3 million dollars in '02 and we expect to record 15 million in expenses this year. And 18 million dollars [in] cost that will impact each quarter throughout the year. We have interest expense in the quarter of 13.4 million, down 19% from same period last year. And this decrease is mainly due to lower interest rates. Other category of 8.9 million dollars made up of corporate expense of 7.6 million amortization expense of 600,000 and minority interest of 600,000, and that other category is down 6%. Now we'll touch base on a few of the balance sheet items. Cash at 22 million dollars, that's consistent with our cash on hand for the same period last year and at year end. Accounts receivable up 2%, basically in line with our sales increase, so overall receivables are moving in line with sales and we continue to feel good about the quality of our receivables. Inventory levels continue to improve but we are up 6% from the prior year and down 100 million dollars of 5% from year end, of which 33 million of that decrease is due to the cumulative effect of the accounting change discussed earlier. [inaudible] we've actually reduced our inventory levels by 67 million in the first six months of this year.

We'll continue to target a decrease of 100 million for the year, and expect to reach that goal, and that would include [inaudible] 100 million dollars excludes the accounting change. Working capital was 2.3 billion at quarter end compared to 2.2 billion last year and 2.3 billion at 12/31, so our working capital level has been quite steady. Our experience shows that the changes in inventory that we discussed are [commonly] offset by accounts payable holding our total working capital to only minimal variation. Our current current ratio of 3.4 to 1 versus 3.3 to one for the prior year - so again very steady for us - an indicator that our balance sheet remains sound. Continue to be a strong cash generator as you'll see in the next few balance sheet comments. Our total debt of 803 million dollars was 27% of total capitalization that’s up slightly from 26% last year but consistent with year end. Looking forward, we expect to reduce our total debt in '03 and close the year with a net decrease from the 792 million outstanding at December 31 '02 and we think we'll [meet] that reduction and right now it looks like it will be 40 to 50 million decrease for the year. In addition to our continued reduction of debt, our priorities for any excess cash remains at a dividend and opportunistic share repurchase. We're pretty active with the repurchase in the first quarter but had done no purchasing in the second quarter. We have purchased [approximately] 600,000 shares year to date and that leaves us with 6.6 million shares remaining in our current authorization. Capital expenditures were 11.5 million for the quarter, and a 37.2 million year to date.

Despite the decrease in expenditures for the first quarter to second quarter we feel it's just a matter of timing and we continue to expect to see our capital expenditures for the year be in the 75 to 85 million dollar range and that’s up from 65 million in '02. Appreciation and amortization was 18.7 million for the quarter 35.8 for the six months. We expect this to be in the range of 70 to 75 million for the year. Shares outstanding decreased by about 900,000 one half percent from June of last year mainly due to share repurchase mentioned earlier. In summary, I'd say again we end the second half of '03 dedicated to improving our performance and as always we'll continue to maintain a quality balance sheet, strong cash flow, and report quality earnings.

Asset management's tight expense control is the main key for us in a challenging sales environment. No doubt we continue to operate in a difficult economy, but we are a determined group with our goals set on the return to sales and earnings growth. Now we'll take your questions. Deborah, I'll turn it back to you.

At this time I would like to remind everyone, if you would like to ask a question, press star then the number 1 on your telephone keypad. Your first question comes from Mark Doehla from UBS.

How are you?

Good morning, Mark.

Quick question here on inventory. You mentioned in a prior call that you plan on taking inventory down by, I think at least 100 million this year. You're there now, so you made good on that promise. Any thoughts on where that trends in the back half, especially considering the industrial parts sort of slipped up this past quarter? Are we going to have a bit of backtracking or can we squeeze a bit more out of this?

Mark, I point out again of that 100 million reduction, 33 million of that is due to the new EITF so we've actually taken inventory down 67 million.

Okay.

The way it looks and because of purchasing patterns last year, we might see that reduction change go down some between now and third quarter but we still feel fairly confident by the end of the year that we will have taken 100 million dollars out of our inventory.

Okay, fair enough. And I guess my next question is more macro-oriented and maybe Larry can touch on this. At this stage in the game, I wonder whether you should be expanding or contracting here with the macro conditions the way they are. Do you think it's more advantageous for you to be opening up new stores or do you think it's more prudent to be cutting the work force, getting your costs down by dropping some stores and warehouses?

Well, I think we can eliminate some weak stores which we have been doing, and we'll probably continue to do. But if you look at our total store base and you think in terms of opening 50 to 100 new stores, that's not a huge commitment on our part. But I think that keeps us moving in the right direction, it shows a little bit of agressiveness on our part and we actually have markets where we need new stores, so I think we need to stick with this idea that we are going to open a few stores, but we're going to continue to close weak ones as we do so. I think your comment of course about expenses is something we can accomplish without really impairing any sales initiatives that we might have, including opening a few new stores. We're on the expense reduction track. We across the board, in all of our industries, including automotive, we're probably more aggressive right now in industrial than any other group. But we're not out to explode with a lot of new stores. This is a fairly small number when you take it in context to the total.

Yep, okay. Finally and then I'll get out of your hair. This rule of thumb on operating leverage that you're talking about, you needing 2 to 3% sales growth to push income. Does that translate to individual business units, in particular the industrial parts business? I'm trying to get a sense of what that rule of thumb on leverage would be.

Yeah, I think it's true of any of our businesses, we just can't make it with a flat sales picture. We're not going to improve earnings. However, we can do it if we have two or 3% sales increase and if we hold our margins. You've been seeing that happen for, you know, a number of quarters. We're attacking the expense thing pretty seriously now at motion. And we're also working hard on the margin side at motion. That 1% gross profit margin that we saw decline at motion and at SP, is something we take pretty seriously. We have to have that and a minimal sales growth in order to make the profit.

Is there any other kind of big factor that you can do to cut your expenses besides eliminating some work force?

Well, you know, at motion, for example, we've closed 20 to 25 non-producing branches. That reduces -- and we just accomplished that recently. When we see -- it's pretty easy for motion to open and close branches as they see they need to do it to serve a particular customer or customer base in an industry. So they just identified some of their very weakest branches that don't show any promise at the moment, and they've closed a number of branches. Well, of course, that eliminates some people, some jobs, but it also eliminates other expenses relative to running those branches. So there are other expense items we can attack but I will tell you at least 60% of our SG&A is payroll-related. So that's the main target in terms of expense reduction.

Gotcha. Okay, thank you.

Thank you.

Your next question comes from David Siino, Gabelli & Company.

Hi, good morning.

Hello, David.

Hi, I guess first, Jerry, can you go through the price for the quarter?

Yeah, hold on just a moment, David and I'll get that for you.

Sure. I guess maybe while Jerry is looking for that, Larry, just to clarify, the 50 to 100 new stores is net of closures.

Right, that's exactly right. Right.

And those are predominantly company-owned stores?

Well, we're looking at it on the basis of a mix. We think we can open -- we can open 50 to 100 totally and you're going to have some of both. Of course, we can control the company-owned store number more easily than we can the independent store count, but I'd say you could look for some increase in both those numbers.

Okay. And then the operating profit reduction at both automotive and industrial, were rebates the single -- the biggest factor in both of those?

I'd certainly say it would be in the case of industrial. It had a lot to do with it. And did you say automotive?

Yeah, it looks like you went from 108 to 103.

It had something to do with automotive as well, and I would say probably the largest impact.

Does that happen pretty much every time you reduce your inventory, you just buy less so that the rebates are less?

Yeah, it's -- it happens that we have certain bogeys to reach certain rebate levels, and when we're watching inventories and when sales are not increasing any more than they are right now, you know you're sort of caught in that trap. You want to keep your balance sheet in good shape, you don't want to let your inventories get out of control. And if your sales are not there, you know, one thing feeds on the other. So it does impact your rebate levels.

And that has nothing to do with vendors being less generous or --

No, it really doesn't. They're agreements that we've made, and so we can go back and work with our vendors and -- in special ways to target opportunities that we're both interested in, and perhaps improve the rebate a little as you go along. But essentially we have a program that is set each year, and we operate on that year to year.

Okay, and I guess my last question, Larry, you you've mentioned for a little while now that new store openings haven't gone as smoothly as you would have liked. What's the -- what seems to be a recurring mention on your part. What's the biggest obstacle that you're facing?

You know, as I mentioned in my remarks, Tom Gallagher is now running the parts group.

Right.

He's been in it pretty closely for a few weeks now, he may have a comment to make on, that because I think that's one of the areas that he's jumping into pretty aggressively. Tom, do you want to do --

I sure will Larry. Thank you. David, I think the primary reason, really, is the focus on the part of our team on this important initiative. We have done historically a reasonably good job of getting new stores open but over the last couple of years we have not done as good a job as we're capable of doing. And in looking back, in 1999, in the period from 1999 to mid year this year, we're actually down about 55 stores, and Larry mentioned earlier about 40 of those are thus far this year. I think by putting the intensity back in this new distribution initiative, we can end the year with a positive number on new stores. We won't won't be able to get to the 50 to 100 that Larry has charged the organization with, but I do think that we will open 40 to 50 new stars stores in the second half of 2003 and that then will set the stage for the 100 new stores we're look to go open in 2004. So I think it's a matter of us putting the right priority on it.

Great, thanks, guys.

David.

Yeah.

On your pricing, the automotive was 3 tenths of 1%. Office products 7 tenths of 1%, industrial 5 tenths of 1% and nothing in the electrical/electronic group.

Okay, thank you very much.

Thanks.

Your next question comes from John Casesa, Merrill Lynch.

Thank you. Good morning everybody.

Hi, John.

Hi, three quick ones. Just following up on that pricing question. I take it from the data, that your margin pressure broadly for the whole company is more related to nonprice factors than it is to deflation, that it seems like it's more a lack of sales leverage and some mix issues. Is that correct or do you think that there's still pricing has gotten wildly worse?

John, I don't think we can make a statement that pricing has gotten worse. Our gross margins are under pressure because of the customer mix and product mix, not so much because of pricing. Of course the offset to that is go out and negotiate better on the buying side to help offset that gross margin pressure but I don't think it's a deflation issue.

Okay. Then my second question is auto-specific and maybe Larry or even Tom might have a view on this. With what may or may not happen with Dana and ARVIN, do you have any reason to believe that you should see more vendor consolidation or deconsolidation, given that all these after-market businesses are stuck on these - part of these conglomerates like Federal [Mogul], Dana, ARVIN and other companies. What's your general view on the structure of the vendor base?

We were surprised with the Dana-ARVIN situation, we certainly weren't looking for a consolidation right now of that magnitude. We don't know, of course, whether it will happen or not. I don't know that we have a take on what might happen. Certainly, if -- certainly, if this doesn't work out and Dana were to be a target of a financial investor of some type, I suppose they would look to break up Dana to some extent. Sell off some of the pieces. That would result in some deconsolidation, as you say. On the other hand, I think if it happened with ARVIN and Dana, that ARVIN, would probably as a result of insistence from the regulator’s, they'd probably have to spin off some of the pieces. So that might also result in some deconsolidation. So in this one particular instance, if it happened, I think you'd wind up with some breaking up, either way you look at it. At least it appears that way to us. We don't know – of course , Dana is tremendously important to us and they're our largest single vendor, we have a good relationship with Dana. We don't have any business relationship with ARVIN, although we consider them a fine company, but we're just kind of sitting and waiting. We don't know that it would necessarily affect us if it did happen, but of course we're highly interested. If you look beyond that, I mean, John, I don't have a take on it. I don't know that we're going to see any more action after this one or not. I just have to pass.

Okay. And just last question, Jerry, can you repeat what the cap ex number is for this year, your estimate?

We're still looking for 75 to 85 million dollars for the full year.

Okay, thank you.

Thank you.

Your next question comes from Ashish Hunt, Faralon Capital.

Good morning, how you doing?

Good.

Just a couple questions, Larry and Tom perhaps. The initiative that's been embarked upon by some other auto part distributor’s on [inaudible] issues-- you know, are you all looking at -- if that were to indeed to become a reality in a pervasive way, would you be able to participate in a similar sort of arrangement with your vendors? That's my first question.

Ashish, this is Tom, I'll take that one. I would say that anything that happens has a value associated with it. And it would be our position that whatever that value is certainly we're going to expect an equivalent value to Genuine Parts and to Napa.

Okay, fair enough. Tom, another question related to the national accounts business. You know, there's a certain portion, if I recollect correctly, correct me if I'm wrong, close to maybe 400 million or so of annual sales from sort of national accounts that Genuine Parts does. How's the competitive pricing in that market? Have you, you know, seen that worsen a bit with some sort of new entrance in that area?

I don't think we could say that we've seen any significant decrease in the pricing there. The national accounts are all big important customers and they're going to negotiate the best program that they can negotiate from their vendors. So I don't think that we see any significant change there.

Great.

Our national account business is good this year, it's quite good.

Quite good.

Great, thanks a lot.

Okay, thanks.

At this time I would like to remind everyone, if you would like to ask a question, press star-1 on your telephone keypad. Your next question comes from Jonathan Steinmetz, Morgan Stanley.

Good morning everybody, I have a few questions on the automotive side. The first one is were there any categories or regions in the quarter that were particularly strong or particularly weak?

Jonathan, this is Tom. Yes, we did see some geographic difference, and our strongest area would be throughout the northeast, and where we seem to have the most challenge right now would be out in the western part of the country. And then the other regions would fall in between the results of those two.

Jonathan Steinmetz; Okay. Second question has to do with automotive margin. You sort of talked about the increase in pension expense as a factor, and rebate as a factor. Were there any other significant factors in that margin compression?

No, there weren't.

Keep in mind there's not much compression with that automotive margin. And the most of that was in the pension category. We will have some work to do in every business segment we've got but that would not be at the top of the list.

Okay and the last one is if you look automotive side, if you look at some of the competitors' gross margins, it might suggest that there's some opportunity, Jerry, to do what you talked about, which is go out and negotiate better on the buying side. Do you think that's a fair characterization, should we expect anything there sort of going forward?

I'll answer that one. Again, I think that you can expect us to negotiate hard, fair but hard on what we consider to be the important vendors, and we're going to do everything we have to do to keep the Napa store owner competitive in the marketplace.

Great, thank you.

Thanks.

At this time there are no further questions.

if there's no further questions, we'll terminate the call. We appreciate all of your interest in and support of Genuine Parts company and we appreciate you joining us today. Thank you.

This concludes today's Genuine Parts company conference call. You may now disconnect.--- 0