純正零件 (GPC) 2007 Q4 法說會逐字稿

Good morning. My name is Kerrie and I will be your conference operator today. At this time I would like to welcome everyone to the Genuine Parts Company quarterly earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) . Thank you. I would now like to turn the conference over to Carol Yancey, Senior Vice President of Finance. Ms. Yancey, you may begin your

Thank you. Good morning and thank you for joining us today for the Genuine Part's fourth quarter and year-end conference call to discuss our earnings results and the outlook for 2008.

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 and its management, statements of future economic performance and assumptions underlying the statements regarding the Company and its businesses. 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 any forward-looking statements made during this call. We will begin this morning with remarks from Tom Gallagher, our Chairman, President and CEO. Tom?

Thank you, Carol. And I would like to add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. As we customarily do, Jerry Nix, our Vice Chairman and Chief Financial Officer, and I will split the duties on this call and once we have concluded our remarks we will look forward to answering any questions that you may have. Earlier this morning we released our fourth quarter and year-end 2007 results and hopefully you have had an opportunity to see them. But for those who may not have seen the numbers as yet, a quick recap shows sales for the quarter were $2.627 billion which was up 3%. Net income was $126.1 million which was up 6%, and earnings per share was $0.75 this year compared to $0.70 in the final quarter of 2006, and EPS increase was 7%. So while we did see a slight softening on the revenue side from the first three quarters, we were pleased to still be able to get some operating leverage with net income up 6% on the 3% sales increase.

For the year, our sales were $10.843 billion up 4%, net income was $506.3 million which was up 7%, and we earned $2.98 per share this year compared to $2.76 in 2006 and the increase in EPS was 8%. So it turned out to be another record year in sales, net income and EPS for our Company, and we're proud of a job that was done by the GPC team.

Looking at the results by segment, the Industrial and Electrical operations continue to produce the strongest results. Industrial sales are up 7% in the quarter and they were up 8% for the year. You may recall that this follows three consecutive years of 11% growth from our Industrial Group so the Industrial business has been strong for some time now and we are pleased with the ongoing strength in their performance. Geographically we had some differences in growth rates with the west, southwest and Canada turning in the biggest increases but all parts of the country experienced positive results. And the same can be said by major product category, some growing at a faster rate than others, but progress was made across each of the product groups.

And as far as customer segments are concerned, we saw solid growth in areas like equipment machinery, food products, food processing, chemicals, energy, which offset softer results in segments, like automotive, pulp and paper, and housing-related segments. When we put it all together we are pleased with the Industrial Group's performance and we feel that they're positioned to turn in another solid year in 2008.

The Electrical segment's results closely track Industrial. They were up 6% in revenue in the fourth quarter and they ended the year up 7%. As with Industrial, this was the fourth consecutive year of good results from the Electrical operations and they experienced consistent growth geographically as well as across their key customer base. And we are optimistic about their prospects for 2008. External industry factors remain favorable for our Electrical Group and their internal growth initiatives are generating positive results so we are looking for another solid year from this team in the year ahead.

Moving on to Office Products, 2007 was a challenging year for these operations. After starting the year with a 3% decrease in the first quarter they were able to finish just slightly on the plus side in the second and third quarters but then experienced a 1% decrease in the final quarter and they ended the year down 1%. Following three solid years from the Office Products teams in 2004, '05, and '06, the 2007 results were not up to expectation, but they are reflective of the overall slowdown experienced throughout the Office Products Industry. In looking across their customer base, we were pleased to see a 4% increase from their independent office product resellers which is encouraging, but this was offset by a 9% decrease with the mega channel customers. On the products side, core office supplies and cleaning and break room supplies had positive results for the year while tech products and office furniture experienced low single-digit decreases. So 2007 turned out to be a challenging year for our Office Products team but they have solid plans and initiatives in place for 2008. And despite the ongoing softness in the industry, we are anticipating somewhat improved results as 2008 progresses.

And finally, a few comments about our largest segment, Automotive. Sales for this group were up 2% for the fourth quarter and Automotive was up 2% for the year. Core NAPA operations were up 3% for the quarter as well as being up 3% for the year with the difference being due to the continued down sizing of Johnson Industries.

And this might be an appropriate time to give you an update on the status of Johnson. As of February 1, we completed the transaction to sell two of the three remaining JI locations which we were pleased to get done. This leaves us one remaining operation and it is our expectation that we will sell this last one during the second quarter. It is a long process but we are pleased to be nearing the end and while we will incur some first quarter expenses relating to the sale, we will see the benefits from these transactions as the year progresses.

Now, as far as some additional insight into the NAPA results, our company-owned store group grew about 1% faster than our independently-owned stores and company-owned stores represent approximately 37% of the total volume. Cash business and commercial each grew at 3% for the year and we are pleased to see the balance in these results. Our major account business was up 3% for the year and this important customer segment was actually up 5% over the second half of the year so we saw some acceleration in the growth rate in the second half and we look for continued good growth in the major account segment in 2008. Our Auto Care business was off 1% in 2007, but we did see positive growth from this important customer segment in the fourth quarter which we feel will carry on throughout 2008.

Now, one area that we did not do as well this year was New Distribution. Although we did open a number of new stores throughout the year, we actually experienced a net reduction in stores over the second half of the year due to consolidations and closures and we ended 2007 with 12 fewer stores. Certainly not up to expectation, and this is something that the Automotive Team has committed to correct in 2008 and we were encouraged by the ten new stores that were opened in January.

2007 was an interesting and challenging year for the Automotive aftermarket in general due to the industry-wide demand moderation that was evident throughout the entire year. And as evidenced by our 3% growth in our core Automotive operations, we were impacted as well. However, while not satisfied with the 3% sales increase, we are a bit encouraged by the relative consistency of our Automotive increases on a quarterly basis in 2007, and we think that effective execution of our key growth strategies will yield improved results in 2008.

Before concluding my remarks, I would like to give you a quick comment on our Heavy Duty Truck Parts and Import Parts initiatives. You may recall that we started the Heavy Duty business in the first quarter of 2007 and over the remainder of the year we worked our way through the normal start-up initiatives and challenges. We are pleased with our current situation and 2008 will be an exciting year for our Heavy Duty Team.

On the Import Parts side, late in 2005 we acquired a minority interest in [Ultram], a western Canada based distributor of parts for Asian and European vehicles. We have been pleased with our experience with this business to date and as of the first of the year we acquired the remaining ownership of Ultram. As with the Heavy Duty business we seek significant growth opportunities here and over the course of 2008 we will complete the Ultram program roll out across the NAPA System.

Strong growth from the Heavy Duty Truck part and Import parts initiatives will help offset much of the loss of the Johnson Industries revenue in 2008 and they will be significant contributors to our overall automotive growth in 2009 and beyond. At this point I will turn it over to Jerry to cover the financials. Jerry?

Thank you, Tom. Good morning. We appreciate your joining us on the call today. We will first review the income statement and segment information then touch on a few key balance sheet and other financial items. We'll debrief and then open the call up to your questions. Review of the income statement shows the following -- total sales for the fourth quarter were up 3% to $2.6 billion and we finished the year up 4% at $10.8 billion. Our fourth quarter was not too different from the circumstances we experienced throughout the year so our results were pretty consistent from quarter-to-quarter in 2007. Not growing at the rate we like to see over the long-term but still this was another record sales year for us and we remain optimistic about the opportunities we have to continue to show solid growth in 2008. We are very proud of the GPC team for their accomplishments and continued commitment to sales growth.

At December 31, the Company reclassified certain warehousing, distribution and handling costs from operating expenses to cost of goods sold. You may have noted this disclosure on our income statement in today's press release and we will present a five year historical schedule of the adjusted cost of goods sold and operating expenses as well as the 2006, 2007 quarterly reclassification in our 2007 annual report. We can also send this schedule to you in advance of the annual report and if you'd like it just let us know.

For '07 and '06 these costs amounted to $176 million and $171 million, respectively, and were $43 million and $41 million in the fourth quarter of 2007 and 2006, respectively. Our comments regarding gross margin and operating expenses reflect these changes. It should be noted, however, that sales, operating margins, net income and EPS were not affected by this reclassification. Gross profit in the quarter was 29.62% to sales compared to 30.46% in the fourth quarter last year. Fortunately, we had improved our gross margins in each of the first three quarters of the year so year-to-date gross profit was relatively consistent with last year 29.67%. We are pleased to maintain our gross margin but believe we could be doing a better job here and see opportunities to show additional progress on this line going forward. We will continue to focus on a multitude of factors impacting these margins including product and customer mix as well as our global sourcing initiatives. For the year, our cumulative pricing, which represents the prior increases to us, is up 1.6% in Automotive, 4.7% in Industrial, 3.0% in Office Products and 5.1% in Electrical.

Now let's look at SG&A. For the fourth quarter, SG&A as a percent to sales was relatively constant with the same period in '06 at 21.88% and for the full 12 months in 2007 was 22.14%, down 17 basis points from the prior year. We feel very good about our progress on this line. We would add that many of our costs in the areas of insurance and benefits seemed to stabilize in 2007, something we are very pleased to see. So with our '07 results we have now reduced our SG&A as a percent to sales for four consecutive years. We continue to intensely manage all the costs in our businesses and look to extend this positive trend into 2008.

For the quarter and for the full year our tax rate was approximately 38.0% which is down from 38.3% and 38.4% for the fourth quarter and full-year in 2006. This is due mainly to lower state taxes, favorable tax rate changes in Canada as well as foreign tax credits. The tax rate for 2008 should be about the same as 2007 but can change on a quarterly basis.

Net income for the quarter of $126.1 million was up 6%, earnings per share of $0.75 compared to $0.70 in last year, up 7%. For the year, net income of $506 million was up 7%, earnings per share of $2.98 compared to $2.76 in 2006, up 8%. This represents another record level of earnings for the Company. And relative to our 4% top line growth we feel pretty good about this conversion.

Now, let's discuss the results by segment. For the fourth quarter, Automotive had revenue of $1,274.3 million, that was up 2%. Operating profit $87.5 million, up 11%, so margin expansion there to 6.9%. For the full year, Automotive had revenue of $5,311.9 million representing 49% of the total, that was up 2%, operating profit up 3% at $413.2 million,so margin expansion on the year from 7.7% to 7.8%. The Industrial sector for the quarter had revenue of $828.3 million, that was up 7%, operating profit down 1%, at $77.4 million, margin degradation from 10.2% to 9.3%. I would point out that last year in the fourth quarter the Industrial sector was up 27% and the difference between that -- and at that time, the Industrial Group had reduced their inventory by $50 million in '04, '05 and '06 and we got into a LIFO (inaudible) and picked up income there and so the impact of that inventory gains in LIFO was about $8 million in the quarter so that would explain the decrease there in the fourth quarter operating profit.

Now, for the year, the Industrial Group had revenue of $3,351.0 million, representing 31% of the total, up 8%, operating profit of $281.8 million and that's up 10%, so that margin is expanded from 8.3% to 8.4% for the year. Office Products, fourth quarter, revenue $422.1 million, that was down 1%, operating profit of $37.7 million, down 16%, so their margin decreased from 10.5% to 8.9% since they did not reduce their expenses quickly enough. Now for the full year, Office Products had revenue of $1,765.1 million, down 1%, operating profit of $156.8 million, down 6%, so their margins did decrease from 9.4% to 8.9% for the full year. But I would point out that that 8.9% operating margin is still outstanding.

The Electrical Group had revenue in the quarter of $106.9 million, that was up 6%, they had operating profit of $7.2 million, up 32%, so good margin expansions to 6.7% for the quarter. For the full year, the Electrical Group had revenue of $436.3 million, representing 4% of the total. They were up 7% in revenue, operating profit up 35% at $30.4 million. So outstanding margin enhancement there going from 5.5% in '06 to 7.0% in '07.

So in summary, operating profit for the fourth quarter grew 1% on a 3% sales increase resulting in operating margin of 8.0% for the total Company which is down slightly from the fourth quarter in 2006. Looking to the year, with the exception of Office Products, each of our businesses showed margin improvement and we closed with an 8.1% operating margin for 2007, which is consistent with our 2006 margin. I will add here that our pretax profit margin, which considers all of our operating expenses including corporate expenses as well as interest, improved again in 2007, up 16 basis points to 7.53% of sales. This is the fourth consecutive year of improved pretax margins which we are pleased to report.

We had net interest expense of $4.5 million for the quarter, and for the full year our net interest expense was $21.1 million, down 20%. We would expect our net interest to increase to approximately $26 million to $27 million in '08 as we're projecting lower interest income for the year due to lower interest rates.

The other category, which includes corporate expense, amortization of intangibles and minority interest, was $1.9 million in the fourth quarter compared to $7.2 million last year. The benefit of favorable insurance reserve adjustments as well as a gain on the sale of assets in the quarter contributed to the decrease in expense from last year. For the year this category was $44.4 million compared $48.8 million in '06 and we currently project this expense to again be in the $40 million to $50 million range in '08.

Now, let's touch base on a few key balance sheet items. Cash at December 31 was $232 million, up $96 million from December of '06. Our cash position grew stronger in 2007 as we improved our cash flow with increased income, working capital gains and $56 million in proceeds from a sale lease back transaction closed in the fourth quarter, which we discussed in our last conference call. We expect our cash position to remain strong in the year ahead but we also look for our cash balance to vary based on investment opportunities that may arise in the year such as acquisition and share repurchase.

Accounts receivable decreased 1% from last year on a 3% sales increase for the fourth quarter. So we are very pleased with our level of receivables and feel good about the quality of our receivables.

Looking to 2008, our goal at GPC remains to grow receivables at a rate less than sales growth. Inventory 12/31/07 was $2.3 billion, that's up approximately 4% from last year and in line with our sales growth for the quarter and the year. We have shown steady improvement in our inventory levels for several consecutive years now and we'll continue to manage this key investment and show more progress in the year ahead.

Accounts payable also showed significant improvement in '07, increasing 9% from last year to $990 million. Increased purchases related to sales growth, extended terms with certain suppliers and the increased utilization of a procurement car due in 2007 have driven the increase on this line. We would expect to show additional progress here in 2008.

Working capital was $2.5 billion at December 31, that's down approximately 5% from December 31, '06. We would add that this accounts for the reclassification of $250 million in debt due November of '08 to current liabilities. We have improved our working capital as a percentage of sales and working capital efficiency by at least $0.01 in each of the last four years and currently stand at $0.23 on the sales dollar versus $0.25 in '06. We are pleased with our progress in managing working capital and would also emphasize that our balance sheet remains in excellent financial condition.

We continue to generate consistent and strong cash flows and 2007 was an especially strong year for us. Cash from operations was approximately $641 million for the year, which was up from $434 million in '06. Free cash flow, which deducts capital expenditures and dividends from cash from operations, was $283 million for 2007. We are very pleased with our improved cash flows in '07 and feel our strong cash position provides the Company many opportunities.

As we transition to 2008 our priorities for the cash remain, first, the dividend. We paid a dividend every year since going public in 1948 and yesterday the Board approved a 7% increase in the annual dividend for 2008 to $1.56 per share. This follows an 8% increase in the prior two years and represents 52% of 2007 earnings.

In addition, our 2008 dividend marks the 52nd consecutive year of increased dividends paid to shareholders. Other priorities for the cash include the ongoing reinvestment in each of the businesses, share repurchases and, where appropriate, strategic types of acquisitions in each of our business segments.

Capital expenditures, $31.9 million for the fourth quarter. That's down slightly from $32.9 million in the fourth quarter last year . And for the full year, CapEx -- excuse me -- CapEx $115. 6 million, that's down from $126.0 million in '06. Now looking into 2008, we should see our CapEx spending in the $110 million to $120 million range. We continue to make the necessary reinvestment in our businesses.

Depreciation and amortization of $23.7 million in the quarter, $87.7 million for the year. This is up from 2006 and directly relates to an increased level of capital expenditures over the last two years. Likewise, we expect depreciation and amortization to increase again in '08 to approximately $90 million to $100 million. Another priority for us has been opportunistic share repurchases and as part of our repurchase program we did purchase approximately 5 million shares of our Company's stock during 2007. This follows a purchase of 2.8 million shares, 2.9 million in '05 and '06, respectively. Year-to-date in 2008, we repurchased another 850,000 shares, leaving us with 9.5 million shares available for repurchase today. No set pattern for these repurchases but we'll remain active in the program as we continue to believe that investment in GPC stock along with a dividend provides the best return to our shareholders. We feel good about our priorities for cash as we move into 2008. We continue to believe that the use of cash in these areas serves to maximize the total return to shareholders.

Finally, I want to update you on our debt position at December 31. Total debt remains unchanged at $500 million, but the $250 million credit facility maturing in November of 2008 was reclassified from long-term to current liabilities. The second $250 million is due in 2011, and prepayment of this debt is cost prohibitive due to make hold provisions included in the debt agreements. At this point we've made no decision regarding our plans for the debt as it comes due. Total debt to total capitalization December 31, '07 was 15.5% and we are comfortable with our capital structure at this time.

Despite the uncertainty in the markets we serve, we were pleased to see progress in our overall operations for the fourth quarter and the year. It's in periods such as these that we're reminded of the balance created by the diversification of our businesses. With another record year behind us, we have now increased sales in 57 of the last 58 years, increased profit in 45 of the last 47 years. We are proud of this record and we feel it reflects our unending commitment to steady and consistent growth at Genuine Parts Company. As we turn our focus to 2008, our goals remain to show continued improvement on growing sales, controlling costs and improving our operating margins. We will support these initiatives with a strong and healthy balance sheet.

We hope everyone is still with us on the conference call, we apologize for that. We just talked about how good our strong cash flow was, but apparently we didn't pay our power bill because we had a brief power outage there that shut the call down for a moment.

But, hopefully, you got the fact that we were through '07 and as we turn our focus to 2008 our goals remain to show continued improvement on growing sales, controlling costs and improving our operating margins. We will support these initiatives with a strong and healthy balance sheet and continued strong cash flows, further maximizing our return to shareholders. We feel good about our businesses, their strategic plans and their prospects for long-term growth. We are proud of our dedicated employees and their efforts. This is especially true when external business conditions present additional challenges for us. We are very appreciative of their efforts in making Genuine Parts Company the great Company that we believe it to be and know we have the right people in place to make it an even greater Company in the years ahead. Tom, I'll turn it back to

Thank you, Jerry. Well, that recaps our performance for the fourth quarter and year-end 2007. As we look back over the year we feel awfully good about the results in Industrial and Electrical/Electronic. With an 8% sales increase, Industrial also was able to improve their margin 10 basis points. Electrical was up 7%, they improved their operating margin 150 basis points. Automotive, while only up 2% in revenue was able to show 10 basis point margin improvement for the year, which we were pleased to see. Only Office Products regressed on us, being down 1% in sales and off 50 basis points in operating margin. But we do anticipate improved results from Office Products in 2008.

Putting it all together, with sales up 4%, net up 7% and EPS up 8%, we are pleased to be able to report another record year in all three areas as well as to be able to show continued improvements in asset management, working capital efficiencies and maintaining strong cash flows. So progress was made in a number of important areas and we are proud of the job that was done by the GPC team.

Now, as far as 2008 is concerned, we enter the year feeling good about the specific plans in place in each of the four business segments. At the same time, however, we recognize the additional challenges that we will face due to a slower economy. And with that in mind, we are a bit more cautious in our expectations for 2008. Generally speaking, we feel that the second half of the year will be a bit stronger than the first half, and full year revenue expectations for each of segments would be as follows -- in Industrial and the Electrical/Electronic we are looking for 5% to 8% revenue increases, in Automotive 2% to 5%, and in Office Products, 1% to 4%, giving total GPC 3% to 6% on the revenue side. And with revenue growth in this range, we would expect net income to be up 4% to 7% and earnings per share of $3.12 to $3.22 which would be up 5% to 8%. At this point we will ask Kerrie to go ahead and open up the call to your questions.

(OPERATOR INSTRUCTIONS) . We will pause for a moment to compile the Q&A

Your first question is from Tony Cristello with BB&T Capital MArkets .

Good morning. Thank you, gentlemen.

Morning.

One question given the environment we are in right now, you have been working a lot on the cost side of things for the last year or even longer and tried to maintain a lean operating infrastructure. I am just wondering with level of sales now, are you positioned to continue to take even more out on a cost basis or do you run the risk of being perhaps too thin to, to sort of sustain levels of growth you might need once the operating environment improves?

Tony, I don't think we run the risk of being too thin. That's an area we are very sensitive to. We would not reduce cost at the expense of revenue growth, but I do think we have opportunity to further refine some of the cost structures in the businesses and as we said in the closing comments, we think that we can continue to look for margin improvement as well as EPS improvement in 2008 at the level of sales we have described across each of the businesses.

Tony, I would also point out the CapEx numbers have been up the last two or three years. The reason is productivity enhancement, investments in the IT Suite side of our business that aids us in getting our cost down with out effecting the service it actually improves the service to our customers.

Have you started to receive the benefit side of the capital spend yet on those processes or is this something that may take a quarter, two quarters, six quarters to finally get through to where you are at the level of meeting or more than offsetting the investment?

I think we are seeing some of the benefit from the initiatives we are putting in place last year and the year before. That's evidenced by the ten basis points improvement in operating and automotive as well as Industrial, 150 in the Electrical Electronic. So I think we are seeing the benefit. We have projects that will pay further dividends to us in 2008.

Okay. And looking at Q4 and as well as 2007, shifting gears I am wondering, what was the organic growth of revenue versus how much revenue did you actually end up acquiring for the year?

Well, the majority of the revenue was all organic. We had less than 1% contribution from acquisitions in quarter and in the year.

Okay. And is that a sort of a, in this environment, what is your strategy or thought on acquisitions? Is there opportunity to perhaps be a bit more aggressive when others are struggle ?

I think that's probable. I might mention here that we have two recent announcements on smaller acquisitions on the Industrial side as of March 1st, we have a regional bearing and PT distributor that will join Motion Industries. They have about $32 million in revenue and then as of April 1st, we are going to be including a regional Office Products distributor in with the Office Products Group. They have annualized revenue of about $30 million. So we see those two as enhancements for 2008 and we have discussions at various stages with other companies across the businesses and we are hopeful that we can go ahead and tell you about those in our next call or two.

Okay. Just one last question, with respect to NAPA, what is the plan for growth? I mean typically it would have been about 100 as the target or goal. As we look into 2008, given the soft operating environment on Automotive, can you sort of give some thought as to how you plan to invest into the business and grow the business given what's going on from sort of a head wind?

Sure. The-- certainly the new distribution will play a roll. We had said many times in the past that we would like to open 100 net new stores a year. This past year we fell way short of that. But as I mentioned we did open ten in January. I think we will have a positive result on net new stores if pressed for a response as to how many I would say 50 to 60 net new stores for 2008. We are going to look to continue to roll out the [Ultram] Import Parts initiative across the remainder of the NAPA Organization on the U.S. side. So that will be an enhancement to our growth. The Heavy Duty initiative will continue to invest in that. We have some specific initiatives in other areas that we will continue to push in the year ahead.

Okay. Great. Thank you guys.

Thank you, Tony.

Your next question comes from Jonathan Steinmetz with Morgan Stanley.

Morning everyone.

Morning, Jonathan.

A few questions here, first a couple on the weeds and then maybe a bigger picture. Jerry, you talked about potential Johnson's Industries exit cost in the first quarter and then a benefit in the second or fourth quarter. Could you just be specific on what we should expect for the first quarter. Was it actually a loss making operation in the second to fourth quarter. Can you comment on what we should see in the benefit?

I think in the first quarter about a $0.01 per share because of some exit cost , but beyond that it should be a margin enhancement issue for us because even if they were making profit it was much lower margin than any other business. So we should be a positive. I can't quantify the positive in the third for the last three quarter but in the first quarter it should cost us about a $0.01 a

You also mentioned in this quarter you had a gain on a sale and some maybe insurance reserve type unwinds. Can you first of all is that correct and second can you give us amounts attached to that?

Well, the reserves were adjusted and I don't know what the specific numbers were. I would have to check that and give it to you. We had a gain. We sold properties. We had a portion of that gain on the sale and lease back that fell in the fourth quarter. It was more slanted in the area of the gain on the sale of assets than it was on the insurance reserves.

Okay. What was that gain? Do you remember?

No, I don't,. I think it is 2 to $3 million.

Okay. All right. Lastly, maybe for Tom, there are a lot of companies in the S&P 500 growing earnings more rapidly than you guys not so much because of better domestic and North America operations but because they have so much more international exposure. When you think about acquisitions going forward, do you want a broader international footprint or would you prefer to focus domestically?

Our preference would be to be a North America Company. And currently 90% or so of revenue comes from the U.S., about 9% from Canada, about 1% in Mexico. We see ample growth opportunities in all three of those markets that would not preclude us from looking at something other but our priority would be to do it in North America and to leverage the strength of the management team and the infrastructure that we are in place in each of the businesses.

Okay. Thank you, guys.

Thank you.

Your next question comes from Keith Hughes with SunTrust.

Thanks, just want to follow up a little bit on your guidance, specifically around the Industrial Electrical revenue. The guidance, at least in the top end would be basically a repeat of what we saw last year. You had talked about a couple or one small acquisition you are doing. Does that number include more acquisitions as you contemplate 2008?

It does include the expectation that we will benefit from the one that we just mentioned, that closes March 1st. We are very comfortable with the range we gave you. And if another opportunity comes and we can exceed the range that is we have given out then with we would be thrilled to be able to do that.

How much would price pay a factor in that number?

Price, in the Industrial sector right now is a little over 4%, I think it is about 4.7 currently.

I would also say, Keith, why everyone is expecting Industrial sector to slow, the industrial production numbers have been up the last two months and our focus in talking to our customers, you would think the cycle would slow some, but at this point, there's no evidence of it.

Okay. And final question, Jerry, you had talked about interest expense being higher than what we saw in the fourth quarter. Is the drag you are talking about the difference between of what you are earning on the cash and what you are paying on the 500 million in borrowing?

Yes, that's correct.

Okay. Thanks.

Your next question comes from Michael Ward with Soleil.

Good morning.

Hi, Mike.

Two questions, first do you have the store count for the Company-Owned as well as the total on the Automotive side? Just to repeat the question, do you have the store count for year-end and if you have the break down between the Company-Owned and Independent?

We will get that for you in just a minute, Mike.

Second, this is, share repurchases. You mentioned you had 9.5 million shares so is the share repurchases a dollar or is it share amount?

It's a share amount. Mike, the Independent stores we had at the end of the year was 4,743, we had Company-Owned, 1,094, so we had a total stores of 5,837.

So the Independents are down?

That's correct.

The Company-Owned are up 9 for the year.

Okay. On the pricing side with Automotive, what are seeing there, are you seeing anything at all on the pricing front? Has it changed at all? Well, we had 1.6 in Automotive for all of 2007, we don't the results thus far in 2008, but talking with our folks I think we will be looking at another year of 1 to 2% of price increase and if you look back we had 1.7 in '06 and we had 1.6 in '05. It's been steady at that level.

Sounds great, thanks you guys.

Thank you, Mike.

(OPERATOR INSTRUCTIONS) Your next question comes from Rick Weinhart with BMO Capital MArkets.

Good morning. On the Automotive area, we had a few of your competitors report recently that there was a step change in sales as we hit the end of the year and I'm wondering what kind of volitility you are seeing in that business and there been any changes since the beginning of the year.

Rick, we did see a change in the month of December, we have had steady and stable results in October and November and then we saw a drop off in December, especially as we get towards holiday season. The second half of the month we saw a change. We were please to seen that the January numbers came back and a more in line with what we saw earlier in the quarter and through mid month, February we are consistent with where we were in January.

Okay. Good, thank you. One question on the [Raylock] Division. had read that there is perhaps internal consolidation there and that's occuring in the first quarter. Can you comment on that and talk about it, is there any impact to the P&L that we should know about?

We are consolidating one of the plants that we have in to the remaining facilities that we have in that remanufacturing business. That we be completed by the end of the quarter. We will have some expense associated with the consolidation. Jerry, you may have the number. It would be minimal, it would be about $2 million , 2 to $3 million.

Last question for the Office Products Business. First, was there any impact from significant or change in the vendor rebates at the end of the year? AS I think we have heard some of your competitors.

In our case our purchases we not as strong as they might have been in some prior years, so we would of seen a difference in the dollar amount but proportional it would of been the same.

Okay. Have you seen any change in the trends for that business now that we have seen the mega's take down their inventories, or do we still think there is more inventory adjustment going on at some of these places?

I wouldn't answer specifically what's happening at particular customer segment but I would say that we saw a slightly improved performance in January, It's our expectation that Office PRoducts will have a positive year for us. We expected to be up 1 to 4% for the year. everybody's looking at supply chain and how you can become more efficient. We expect improved performance from Office Products as the year progresses.

At this time there are no further questions. Do you have any closing remarks?

We just want to apologize to those of you who are listening, it was inconvenient today with the power outages. We appreciate you sticking with us and we appreciate your continue in and support of Genuine Parts Company. We look forward to talking to you at a future call. Thank you for joining us.

This concludes today's conference, you may now disconnect.