純正零件 (GPC) 2004 Q2 法說會逐字稿

Before we begin today, please 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, statements of future economic performance and assumptions that are underlying the statements regarding the Company and its businesses.

The Company's actual results could differ materially from any forward-looking statement due to several important factors described in the Company's latest SEC filings. The Company assumes no obligation to update any forward-looking statements made during this call. At this point I would like to turn it over to Larry Prince, our CEO.

Thank you, Carol, and good morning. We thank each of you for joining us today for our second-quarter conference call. With me today on the call are Jerry Nix, our CFO, and Tom Gallagher, President and Chief Operating Officer.

We would like to take a few minutes this morning to comment on our second quarter results, and then we will give you our best thinking on the current picture and our feel for the balance of 2004. Following our usual pattern, I will begin with an overview of our overall performance, and then make a few comments on our 4 business groups. Following that, we will ask Tom Gallagher to cover our automotive operations in more detail. Then Jerry Nix will review the financials, and afterward we will be pleased to open the call for questions and discuss any issues that you may have an interest in.

We released our second quarter results earlier this morning and some of you may have had an opportunity to see them. Our results for the quarter continued the positive direction established in the first quarter with both sales and earnings reaching record levels. We were again pleased to see each of our 4 business segments contribute to our success for the quarter.

Total sales were 2.3 billion for the quarter, up 7 percent compared to the second quarter in 2003. Net income for the period was 101.1 million, up 12 percent compared to 90.1 million last year. And earnings per share were 58 cents versus 52 cents, also up 12 percent.

Looking for a moment at our sales growth of 7 percent for the quarter this follows closely the pattern of our first quarter results which were up 9 percent, but with a benefit of an extra day in that period. We had anticipated sales improvement in the quarter to be in the 5 to 7 percent range as we started the period, and we were pleased to see our GPC team reach the top end of this expectation.

As mentioned earlier, all 4 segments contributed significantly to our results. Sales for Motion Industries, our industrial group, and EIS, our Electrical/Electronics Group were especially strong. Both of these companies served the manufacturing sector, which is currently experiencing a strong recovery from earlier periods. Motion sales grew by 11 percent for the quarter and EIS was up 17 percent. Automotive sales were up 4 percent for the period and S. P. Richards, our Office Products Group, improved by 5 percent.

It is interesting to note over a period of time how the diversity of our various businesses brings us strength and balance. The splendid performance we're now seeing at Motion and EIS is a clear statement to this idea.

Now I would like to comment briefly on our non-automotive operations before turning it over to Tom to cover Automotive. The 11 percent sales increase for our Industrial Group follows a 7 percent increase in the first quarter, so they have continued to exceed our expectations thus far in 2004. When we reported our first quarter results, we felt we should be careful in our expectations for Motion, since we were early in recovery and we had yet to experience any sustained period of growth. With the current picture remaining quite strong, we can't help but gain confidence in the industrial economy in general and Motion's performance. Motion continues to broaden their customer base, and existing customers are just more active today in the manufacturing sector.

Based on what we currently see, we would expect Motion's revenue growth to be in the 8 to 10 percent range in the third quarter and perhaps for the balance of the year. It feels solid, but we just have to take it quarter by quarter as we look ahead. Most of you that have followed GPC for some time will recognize that Motion's historic growth in normal economic times is very much in line with the 8 to 10 percent range. We are encouraged.

EIS, our Electrical and Electronics Group has shown a similar pattern to industrial in 2004, improving sales 17 percent in the second quarter after reporting a 10 percent increase in the first quarter. This is their third consecutive quarter of growth. And we believe their positive results will continue in the last half of the year.

It is probably not realistic to expect sustainable growth at the current level, but much like Motion, we would anticipate growth for EIS in the 8 to 10 percent range for the balance of 2004.

S. P. Richards, our office products company, posted another solid performance in the second quarter, with sales increasing 5 percent, right where we expected them to be when we started the period. Sales for this group have remained steady in the 4 to 5 percent range for the past several quarters now. And for the balance of 2004 we would expect their sales to continue to grow in the 4 to 6 percent range.

Now we'll turn it over to Tom Gallagher to cover the Automotive Group for us.

Thank you, Larry. As Larry said, our automotive sales were up a little over 4 percent in the quarter. While down from the 10 percent increase that we had in the first quarter, it is important to remember that we did have the benefit of one extra sales day in the first quarter this year. And primarily because of this in our conference call back in April we said that we expected sales over the second, third and fourth quarters to be in the 5 to 7 percent range. So with the sales increase of 4.4 percent for the second quarter, we were just a little bit below the low-end of the range.

Looking back over the quarter our per day sales in April and May were in that 5 to 7 percent range, but then we saw some moderation in June. Still up in the month, but not as strong as April and May, and this pulled us down to the 4 percent increase for the quarter. And the June results are perhaps reflective of the latest figures coming out recently regarding the overall retail sales results for the month. It just seems to have been a little bit softer throughout many sectors of the economy.

Now I should point out that our core NAPA business was actually a bit stronger than the overall 4 percent Automotive increase, which we were pleased to see. But these results were offset by softer sales in the quarter at Johnson Industries and weaker dollar sales in Mexico due to currency translation. We actually had positive sales in local currency in Mexico, but because of the weakness of the peso this converted to $1 decrease.

In prior calls we have discussed the 7 key growth initiatives that the NAPA team is focused on this year, and we continue to be encouraged by the results that we're seeing. Through June we're on target to hit our annual objectives in 6 of the 7 areas. In the quarter we made good progress in the areas of auto care, store resets, adding additional outside salespeople, especially markets of heavy-duty and tool and equipment, connectivity and major accounts.

The one that we did not do as well in during the quarter is new distribution. We did open a number of stores, but we also closed or consolidated some resulting in no gain in new store openings for the quarter. We didn't lose any ground and we are still at plus 18 year-to-date, but we simply did not make the progress that we planned for in the quarter. This will certainly impact our ability to open the 100 new stores for the year that we had targeted, but we still feel that we can get an additional 40 to 50 stores opened over the second half of the year.

In addition to these 7 key revenue initiatives, our Automotive management team has active projects underway in the areas of operating margin improvement, asset management, and working capital efficiencies which Jerry will comment on in a moment. But we continue to feel that we will show year-over-year improvement in all 3 of these important areas over the remainder of the year.

Before closing, I would just add that through mid year the Automotive operations are running 7 percent ahead, which we think is a solid performance. And we continue to feel good about our prospects for the remainder of the year with Automotive sales for the final six months being up in the 4 to 6 percent range. And as a result, 2004 should be the best sales performance that we have seen from our Automotive operations in several years. At this point I will turn it back over to Larry.

Thank you, Tom. At this point we have reviewed sales -- the sales performance of our 4 business segments. So I would like to add a few remarks on our overall outlook for the Company in the third quarter and the balance of 2004.

As we look ahead, we continue to feel that sales growth in the 5 to 7 percent range is an appropriate target for the balance of the year. While there are still some uncertainties in our business environment, we do believe that conditions are improved, and we're blessed to operate in 4 very sound industries for the future.

We should also note that we're pleased to see that sales growth in our current range has positioned us for an even greater profit improvement. Our team will be working hard to keep this pattern in place in the coming months. Given revenue growth of 5 to 7 percent, we would expect to achieve an earnings growth rate that is equal to or greater than our sales growth. With this in mind, we would anticipate our third quarter earnings per share to be in the 55 to 57 cent range compared to 51 cents in the same quarter last year. For the full year, this type of growth would put us in the range of 220 to 228. This is an increase from our early estimates of 215 to 225.

So now we'll ask Jerry to for his comments, and then we'll take your questions. Thank you, Jerry.

Thank you, Larry. Good morning. We appreciate you joining us today. We will first review the income statement and the individual segment information then touch on a couple of key balance sheet items. We will be brief and then open the call up for your questions.

A review of the income statement shows, as Larry stated, total sales were up 7 percent to 2.3 billion, pretty strong results after an excellent start in the first quarter. For the 6 months ended June 30, '04 sales totaled 4.5 billion, up 8 percent compared to the same period last year. Gross profit for the quarter was 30.16 percent to sales compared to 30.26 last year, down 10 basis points. Year-to-date gross profit was 30.7 compared to 30.89, down 19 basis points.

Now although still down on a percentage basis, we made some improvement in our gross margin trends during the year. We're working hard to ensure this continues. Our improved topline growth is certainly helping us, but the strong sales growth in Motion and EIS has actually impacted our overall margin since these are historically lower gross margin businesses.

We're also managing through the usual pricing pressures and shifts in customers and product mix. And of course we continue to feel the impact of lower discounts and vendor incentives, though to go to a lesser degree that we did in 2003.

SG&A as a percent to sales decreased 35 basis points from 23.38 percent to 23.03 for the quarter, and for the six months period in '04 was 23.44, and that is down 43 basis points. We have made consistent improvement in this area over the last several periods, and effectively managing our costs continues to be an important initiative for us.

Net income for the quarter of 101.1 million was up 12 percent, with EPS at 58 cents compared to 52 cents last year. For the six months net income was 201.3 million, up 13 percent, and earnings per share were up 13 percent also to $1.15 a share for the six months. Now let's look at the operating results by segment.

Automotive had revenue of 1 billion 218.7 million. That was up 4.4 percent, representing 53 percent of the total revenue. And operating profit, 109.5 million, up 5.5 percent. So a slight operating margin improvement there. And for the 6 months the Automotive Group is up 7.1 percent in revenue, up 8.3 in operating profit.

For the quarter the Industrial Group had 629.4 million in revenue, representing 27 percent of the total. They are up 11.2 percent with operating profit of 38.2 million, which is up 14.9 percent, again, margin expansion improvement there for the six months. The industrial sector is up 9 percent in revenue and up 10.3 in operating profit.

Office Products had revenue of 372.4 million in the quarter, 16 percent of the total, up 4.8 percent, with operating profit of 32.7 million, up 4.3 percent with -- so their margin remained flat. And for the six months the Office Products segment up 5.5 percent in revenue and 4.90 in operating profit. So their margins remain excellent at 10.1 percent.

The Electrical and Electronics Group had revenue of 85.8 million, representing 4 percent of the total. That is up 17.1 percent. Operating profit of 4.3 million, up 124 percent, so excellent margin expansion to 5.0 there. And for the 6 months that segment is up 13.6 percent in revenue and up 114 percent in operating profit. So an outstanding job being done in controlling their cost as the revenue comes back in that segment.

We had interest expense in the quarter of $9.9 million. That is down about 3.5 million or 26 percent from the prior year due to our ongoing debt reduction program. And for the full year '04, we would expect interest to be in the 35 to $40 million range.

Other category was 10.9 million for the quarter. That is up about $2 million or 22 percent. And that is made up of 9.8 million in corporate expense with the remainder in the amortization of intangibles and minority interests. The increase is partly due to a variety of costs affecting our corporate expense such as pension cost, higher legal and professional costs, much of which relates to the Sarbanes-Oxley requirements, and certain employee benefit costs, such as the expense associated with stock options granted during the quarter. In addition, our 2003 corporate expense was offset by a gain on the sale of some real property.

Now let's touch base on a few key balance sheet items. Cash at June 30 increased to $128 million from 22 million last year. This balance is higher than it should be and reflects our stronger income and improved working capital position, as well as our strong cash input from the exercise of stock options.

We plan to use approximately $125 million to pay down our current debt in November immediately following the expiration of prepayment penalties associated with that debt, and that prepayment penalty exceeds the interest earned on the cash we're holding.

Cash receivables up 3 percent on a 7 percent sales increase. So we continue to maintain our receivables at a level below our growth in revenue. We're also remain confident in the quality of our receivables at this time.

Inventory was up 5 percent from the prior year but down slightly from year-end, a reasonable improvement for us in light of our sales growth in 2004. Inventory management remains an important initiative for us, and we would expect to further improve our inventory numbers as we move through the balance of the year.

Payables were up 24 percent from last year reflecting increased purchases due to the increased sales and the extended terms established with our vendors. Working capital was $2.4 billion a quarter and compared to 2.3 billion at June 30 last year. The change mainly reflects our increase in cash. We continue to focus on improving our working capital efficiency.

The current ratio is 3.0 to 1, and the balance sheet remains in excellent condition. Total debt of $627 million was down 175 million from the same period last year and represents 21 percent of total capitalization compared to 27 percent last year.

Based on our planned debt of about 500 million at year end we would expect that total debt to capitalization to be approximately 15 to 16 percent at December 31, '04. It should be noted that the continued reduction of our debt has been a been a priority for us over the past few years, having reduced debt by 114 million in 2003 and 101 million in 2002.

Capital expenditure of 13.5 million, up $2 million from the second quarter last year. Our year-to-date expenditures are 25.6 million, and we expect our spending to grow a little over the next couple of periods and finish in the 65 to $75 million range, about where we have been in the last two years.

Appreciation and amortization was 17.0 million for the quarter, 33.2 million for the 6 months ended June. And we would expect this to increase slightly with our increase in capital expenditure to approximately 70 to $75 million for the year.

We're pleased with our results for the second quarter and 6 months. We look forward to continued improvement over the balance of the year. Our initiatives to grow sales remain very important to us, as do our initiatives to continue to control costs. As always, we also intend on managing our balance sheet and generating excellent cash flows, which support our future plans for maximizing shareholder value.

Now we will take your questions. Lyn (ph), I will turn it back to you.

(OPERATOR INSTRUCTIONS). Jonathan Steinmetz, Morgan Stanley.

I had a few questions. On the Auto side can you talk a little bit about -- you do have some do-it-yourself business. Can you talk a little bit about trends there versus what you saw in the do-it-for-me side, particularly in June?

Jonathan, this is Tom Gallagher. What we saw over the quarter is that our do-it-for-me sales were a little bit stronger than our DIY sales, but the increase was -- the difference was a little more pronounced in June. We saw more of a spread in the month of June that we did in April and May.

And was there any fluctuation either product-wise or geographically of note?

The only thing we would say is you have seen some of the releases come out that the temperature control business was not as strong thus far this year as it has been in some prior years. So we did experience that as well. Geographically our business is reasonably well balanced.

And, Jerry, you talked a little bit about extended terms on the payables. Is a lot of that on the Automotive side, or is that across the board?

No, more of it is Automotive, but it is across the board. We're working in all segments trying to get additional terms from the vendors.

Darren Kimball with Lehman Brothers.

A couple of questions. At the 4 to 6 percent rate of revenue growth in Automotive, how much expense leverage might you expect at that level?

We will be all right there, Darren, as normally about 3 to 4 we can hold our margin flat. And so if it is at 4 percent, we will be able to hold our margin. If it is at 6 percent, we will be able to show some margin expansion.

Darren, I think the quarter we just had is a pretty good indication of that. You know we're up 4.4 and managed to -- our operating margins and profit improvement were pretty good.

Secondly, could you just comment on what you think a reasonable margin expectation for EIS might be now? Jumping up to the 5 percent range, is that sustainable in the second half?

I believe so, Darren. You know at one point when they had strong revenue growth they were at 5.5 percent, and that was the highest they had been. We believe we can get to the 5 to 5.5 percent.

Darren, I would just add to that. It is going to be interesting to watch. I think what Jerry says is right. I think the 5 to 5.5 percent is a very realistic number for those guys. But what we're seeing is this rise in revenue coming pretty rapidly. And if we look back to the point in time when they were generating 5.5 percent, I honestly don't think they were operating as well then as they are now. They were in a little bit of a different mode at that point in time, making some acquisitions and doing various things. But I think right now they are operating extremely well. And maybe leverage will even come a little easier than it did in earlier times. But the 5 to 5.5 percent is pretty much our target.

Well, that is optimistic. And on the industrial business, if your sales are now growing at the pace that you described in the 8 to 10 percent in the second half, can you just update us on what that means in terms of the volume rebate issue and when that kind of flip-flops? And really the heart of my question is how big could the year-over-year margin improvement be in the second half of the year? You turned the corner in the second quarter. You're up 20 basis points year-over-year. I have always thought that the comparisons would be even better in the second half, but I wasn't using any kind of revenue growth like that.

Darren, I believe the comparisons will continue to be better in the second half. Now we still are up against it on the volume incentive because we are still going to try to bring our inventory levels down in the industrial segment. But at the same time, it is a good benefit that we're getting from the increased revenue, because since it is volume driven, we're probably going to be someplace between where we originally projected to be and where these -- this revenue growth right now will get us. But we will see some margin improvement over their and bring the inventory down for the full year. So I can't give you an exact number simply because I just don't know it.

That's good color. And lastly, your comments about your debt to capital ratio getting down the 16 percent or something, you are really starting to harken back to the mid-90s when about the biggest problem people had with GPC as an investment was that you are under-levered and weren't maximizing your returns, etc., etc.

I'm just wondering if you guys are thinking about that. I guess it is a high-class problem. What are you going to do with all that financial flexibility?

You're right, it is a good problem to have. We have that $500 million of fixed rate debt, that 250 million of it expires in 2008, and 250 million expires in 2010. We're going to continue to pay a good dividend and increase or dividend first and foremost. And then we are going to be buying our shares in with it. But we continually discuss and review how low to take that debt, but it wasn't too bad looking back on it not having that debt at the time.

John Casesa with Merrill Lynch.

I just have a couple of questions. A short one is, what is driving the flat operating margin in Office Products even though you're getting a bit of growth?

And then I also wanted to ask about the store openings, Tom, and why were you not able to get these stores open? What kind of stuff happened that prevents it from occurring and what kind of stuff would happen that would get you to do 40 to 50 in the second half?

Let me answer the first question about the operating margins in Office Products. We have stated for some time that we would be happy with Office Products if we could just maintain their operating margin. For the six months it is 10.1 percent, and if they can continue to grow sales at 4 to 6 percent and keep that margin there, we would be happy with that. It is a fixed leverage type situation and it is just a function that that margin is very good, and our struggle is to maintain them.

So you would need faster growth, 6 percent plus to get any margin expansion there?

I think so, right.

And then on the store openings?

John, I will take that one. This is Tom. First of all, we did open a number of new stores in the quarter, but unfortunately we either closed or consolidated an equal number. And that is partly why we wound up even.

Additionally, there were several stores that we had planned to get open in the quarter, but we ran into delays for various reasons, and they will open in July and August. Regardless of the reasons, I guess what we would say is that we could have and should have done a little better job in new store openings in the second quarter, and we're a little disappointed with results. But we have reviewed the plans with our Automotive management team and they have given as their updated plans and their commitments. And we feel that we will get that additional 40 to 50 new stores over the second half of the year, which will put us back close to that 100 run rate on an annualized basis.

So, Tom, it is fair to say the consolidations or closings were not a surprise? Like I would imagine you knew those were coming. It was just the rate of openings?

The rate of openings. That's right.

And just following up, Jerry, you said -- you again alluded to operating margin improvement initiatives in Automotive. Is there anything new there or just a continuation of the kind of stuff you guys had been working on?

No, it is a continuation in the SG&A side of things, but we do have some new things that we're working on in the gross margin side that I don't think we are going to get into. But that is the first step is that we can improve our gross margins there. But it is an ongoing thing of becoming just more efficient in some of the systems that we rolled out in the last 2 to 3 years becoming more comfortable in using those.

So there are some new gross margin initiatives, you just want to get into the specifics?

That's right.

That's right.

David Siino, Gabelli & Co.

Jerry, my usual question, if the prices increases or decreases for the quarter?

Yes, David, we are flat in the Automotive through the six months. If you'll recall we were a negative 0.3 percent through the first quarter. So that obviously should -- indicates a little improvement in the quarter. And we still probably going to be 1 to 1.5 to 2 percent for the year we think, because of some of the price increases that we hear that are coming. And then in the industrial side, they are 4.4 through the 6 months, with Office Products being 0,2 of a percent, and the Electrical Group, .5.

Okay. And given that sort of price increase on industrial, are there any costs in there that are worth mentioning? You did get some operating leverage but given the volume increase and that kind of price increase -- not to nit-pick, it was a great quarter, but what is costing?

It is a function of the volume incentives and what we put in the quarter versus what we had last year, because we still are bringing that inventory down. And so it is our projection based on purchases at the industrial group.

And lastly, as far as buying in existing stores versus opening up a new store, and given that the excess cash and capital that you had -- that you have -- that you will have is that more of an option now? And how do you weight that versus building new stores?

David, this is Tom. Our first choice I think would be to continue to work on opening new stores with independent owners. And then in the markets where we already have groups of stores, to fill in those markets with Company-owned stores in those markets. So it is a two-pronged approach, and we've got an equal degree of focus on both of those.

Frank Brown with SunTrust.

We should have a steady release -- a stream of releases from the auto aftermarket players on some of your sluggish sales comparisons. Would you guys be willing to hazard a guess as what part of that might be attributable to weather or economy as opposed to competitive conditions?

Frank, I don't know that we could offer a real scientific guess on that. Certainly the weather had some impact in certain parts of the country. The fact is that we have not had -- I don't know that many, it any in the industry have had a very strong season in temperature control. And I think most people are experiencing that. But it is a combination of factors. I saw this morning that gasoline sales were down in June just slightly. Frankly, we think with our results in June, while not up to April and May, but still up, we think that it was a pretty good indicator that some of the things our folks are working on generating some positive results.

I think I have a sale side analyst calculating that -- our gas sales number. Can you tell me -- just tell us little bit of color about the auto care center business? How is that going?

This is Tom again. We continue to make good progress. We're on track to hit our number for the year. We feel good about that particular initiative and think that at year-end we will be right where we said we would be both in terms of the number of auto care centers as well as some of the increased purchases from existing auto care centers.

Matt Stover (ph), Wellington Management.

Most of my questions have been answered, but I was just wondering if you could give a little more color on jobber number, Jerry, what was the number at the end of the quarter?

Hold on just a minute, Matt, and I will get that for you.

And then I think, Larry, you mentioned that in terms of the use of cash that maybe a priority or use might be repurchase. And I'm wondering if that is just repurchase to offset any dilution that exists or if you anticipate reducing the share account?

Matt, this is Jerry. On your store count I have that now. As of the end of June we had 5,701 stores. Of course you know that number changes daily in total. And 4,751 of those were independently owned stores.

And on your question as far as the share buy back, yes, we would like to buy back enough shares to cover the options that were granted, but that doesn't indicate though we're going to stop at that point, because if we think the stock is attractive and we do it with the excess cash, we feel like that is a good place to put the money. So just because we buy enough in to cover the options that were granted doesn't mean that we would stop buying at that point.

So what kind of leverage level would you feel is comfortable?

We're not comfortable with any leverage. But I think the 15 percent or so is about where we will end up settling.

Jerry Marks, Raymond James.

Just a follow-up on, I believe it was David's question in terms of the NAPA Auto Care Centers. I believe you had 600 at the end of the first quarter. Have how many have you signed up in total now year-to-date?

We're adding a couple of hundred per month on a consistent basis, Jerry.

And then you mentioned that NAPA was a bit stronger over Johnson Industries -- kind of hold your results down for Automotive. Could you break out how your Company-owned stores performed relative to filling in the independent channel?

Yes. The Company-owned and the independents performed at about the same level, and we were pleased to see that, frankly.

And then just one last question in terms of -- I'm sorry, two last questions. In terms of Motion can you give a little bit of flavor of where you're seeing some of the strength in the under demand markets? Is it automotive manufacturing plants or like that? And also with regards to S. P. Richards, just wondering if you are also seeing some mix issues, if you're getting some larger accounts that tend to run at lower margins and that is why with the higher sales growth around seeing it flow to the bottom line?

Jerry, this is Larry. We are seeing pretty much across the board improvement at Motion. I think what happened -- the planned activity picked up pretty much across most industries and across the country. All the way from the West -- we're seeing strong activity in California. It is a -- it is the kind of thing where I think they had squeezed and squeezed in terms of working out of inventories that they may have had in their own locations -- just getting by any way they could. But when activity really started to turn and they burned that kind of thing off, I think all of a sudden you just got a lot of great demand that is absolutely in line with the activity that is out there. They are busy.

And so we are enjoying business pretty much across the board. It would not be -- I don't think I could tell you in any particular industry that outshines the others. They are all actually looking pretty good. We're back on the thing of what this leverage -- what kind of leverage we're going to get. And I think Jerry alluded to that earlier.

The leverage is strong. And I think the difference in the incentives that we're able to include in our earnings quarter by quarter puts a little bit of a damper on it. But you can see based on this quarter that we just had, even with some difference there we still managed to have nice improvement at Motion Industries. You're going to see that in the third and fourth quarter, maybe an even a little stronger if the revenues continue to look like they are currently, or even in the 8 to 10 percent.

All I can say is we have got a very bright outlook at Motion. We're happy and pleased with it, and of course the same thing with EIS.

And just to follow-up in terms of S. P. Richards of leverage, are you seeing any differences in terms of your mix of larger customers versus smaller customers?

This is Tom. Jerry, the customer mix is fairly constant. What we are seeing change is some product mix with the IT type product taking a greater share of the overall volume. And that does carry a little bit lower margin to it.

Forgive me, the IT type product?

The information technology.

Okay, thanks.

Jeff Gates with Gates Capital Management.

This is actually Dack Selastics (ph). I was wondering for the full year do you expect working capital to be a source or a use of cash? And if it is a use, how much?

We expect it to be a source of cash.

Source of cash for the full year?

Right.

(OPERATOR INSTRUCTIONS). Darren Kimball, Lehman Brothers.

I think everything I wanted to ask was pretty much answered except maybe the stock buy back threshold. You guys had previously talked about kind of $30, maybe not as a magic number, but you look to be pretty aggressive on your buy back below $30. And now your stock is sustaining a price at a much higher level. Is there a new magic number there?

No, Darren, we don't have a magic number. Once the stock rises and stays and stabilizes at a certain level, and we see that it stays there for a period of time then we will go back in and buy it. Those were different times when that stock was at $30 and our cash flow and our operating results and all were different at that time. So we just try to adjust as we go. But, no, we do have any magic number that we're looking at that we wouldn't buy or that we would just jump on it at a certain dollar level.

Alan Zwickler (ph) with First Manhattan Company.

Much more fun having these kind of calls when the stock is up.

Yes, it is.

Guys, when I do some driving out in the suburbs, etc., I see a lot of NAPA signs at gas stations that I maybe didn't see a couple of years ago. Could you comment on what has happened -- in general I just see it. Is it that these people are signing up for a particular program? Is it they are buying more products from you? Could you maybe expand on that a little bit, or is it just that I wasn't looking before?

I think, Alan -- this is Tom. I think what you're seeing are more auto care centers, NAPA Auto Care Centers that are carrying the signage and in exchange for that they make NAPA first call for their needs. And in addition they get a good many business services beyond the normal day and day out service. So I think your observations are right and we continue to work hard to grow that number of auto care centers.

And what is that number now about?

We don't give that number out right now, I don't think.

It is about 12,000.

A little over, yes.

And where would that have been, say, three years ago, just as a reference?

We have been adding about 1,000 per year for the last couple of years.

There must be all in New Jersey then, because that is what I'm saying.

Alan, I also think we do have signage programs available for installers that want to have a NAPA sign that not necessarily has the whole program. It wouldn't be as extensive an identification package, but if you have a real good customer that is doing a good job but maybe is not totally into the auto care concept, they still may have a NAPA sign.

In addition, I think some of our vendors have been fairly aggressive in signage and promotional activities that may have put NAPA signage up on their product in these places.

Now just in terms of the suppliers, any feedback or comment on the Dana sale or the Dana proposed sale? Is that good, bad, indifference, how do you view that?

This is Tom, Alan. We view that as very positive. And we think that the Dana automotive aftermarket group has wound up with a good partner and folks that really want to grow the business. And as a result we feel very good about it.

Thank you very much. Keep up the good work, guys.

At this time there are no further questions.

Then we'll just go-ahead and close the call off. Then for those of you that are on there, we appreciate you joining us this morning. We appreciate your continued interest in and support of Genuine Parts Company.

This concludes today's conference call. You may now disconnect. Thank you.