純正零件 (GPC) 2008 Q1 法說會逐字稿

Good morning, my name is [Sim] and I will be your conference separator. At this time, I want to welcome everyone to the Genuine Parts company first quarter 2008 earnings conference call. (OPERATOR INSTRUCTIONS).

Ms. Carol Yancey, you may begin your conference.

Good morning and welcome to the Genuine Parts Company first quarter conference call. We appreciate you joining us today where we will discuss our earnings results and the 2008 outlook. Before we begin, 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 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 today. As we customarily do, Jerry Nix, our Vice Chairman and Chief Financial Officer and I will split the duties on this call. Once we concluded our remarks, we will look forward to answering any questions that you may have. Now, earlier this morning we released our first quarter results and hopefully you've had an opportunity to see them. But for those who may not have seen the numbers yet, a quick recap shows sales for the quarter were $2,739,000,000, which was up 3%. Net income was $123.5 million, which was up 2%, and earnings per share was $0.75 this year compared to $0.71 in the first quarter of 2007 and the EPS increase was 6%. The 3% sales increase is similar to our fourth quarter 2007 increase and in line with our overall expectation for the quarter. The net income at plus 2% shows that we were not able to get as much leverage as we would like on the 3% sales increase. However, we did have over $5 million worth of charges in the quarter related to the sale of the final three Johnson Industry operations as well as the costs associated with the consolidation of one of our remanufacturing plants. Without these charges our net income would have been up 4.5%, and while the charges had a negative impact on the quarter, both of these decisions are positive steps for the future, and Jerry will cover this a bit more detail in a few moments. On the earnings per share side, we were pleased to show the 6% increase for the quarter.

Looking at the results by segment, our strongest revenue increases continue to be generated by the industrial and electrical operations. Industrial sales were up 6% for the quarter, which we feel is a solid start to the year. Our biggest increases geographically for the quarter came from the western, southwest, and Canadian operations, but we were pleased to see positive growth in all parts of the country. In looking at it by customer segment, our largest increases came from customers in the iron and steel, pulp and paper, and food products industries, and these helped to offset softer results in automotive, lumber and wood products and other housing-related segments. When we put it all together, we are pleased with the Industrial Group's first quarter performance and based upon the continued strength in the industrial production and the capacity utilization figures through March as well as due to their internal growth initiatives, we feel that the industrial operations will turn in another solid performance in 2008.

The electrical segment results are pretty similar to industrials. They were up 7% in the quarter, and that's on top of a 12% increase in the first quarter of 2007. So it wasn't an easy comparison and the electrical operations continue to do a fine job for us. Now, we have seen a slight moderation in the institute for supply management purchasing manager's index over the first quarter, but at 48.6 in March, this is in line with December of 2007 and still remains at a healthy level. We feel this is a positive indicator for our business for the months ahead. Additionally, EIS will be closing on an acquisition on May 1 with annual revenues of approximately $15 million, which will be a nice compliment to their existing electrical business, and it will help to sustain EIS's growth rates over the remainder of the year.

Moving on to office products, this team continues to encounter a challenging environment and they ended the quarter down 2%. And while the sale's sluggishness is more pronounced in the southeast and the western part of the country, primarily California and Arizona, the results in the remaining operations while better were not enough to get us on the plus side for the quarter. Sales to independent office products resellers were flat for the quarter while sales to the mega channel customers were down 6%. So it was a difficult quarter for our office products group and not up to expectations, but we do deal that they will show improvement over the remainder of the year. They have several sales initiatives that will kick in during the second quarter as well as some new business that comes on stream in May. Additionally, they completed the acquisition of a small regional office products wholesaler as of April 1 and this should add about $2 million per month of incremental revenue. So despite the continued industry wide sluggishness, we feel that office products will perform a bit better in the quarters ahead.

And finally, automotive. Sales for this group were up 4% for the quarter which is an improvement over the 2% increase in the fourth quarter of last year as well as for the full year 2007. Now, as far as some additional insight into our NAPA results, we opened 37 net new stores in the quarter this. This offsets the negative 12 that we had in 2007, and it's the best quarter for new distribution that we've had in some time and it will drive additional sales over the remainder of the year. Commercial sales in our company store group were up 3% in the quarter, but our cash or DIY business was down 2%, which we think is reflective of current consumer sentiment and a slowing retail sales environment. Our major account sales were up a healthy 7% in the quarter. This follows a 5% increase in major account business over the second half of 2007, so positive trends in this segment of our automotive business which we think bodes well for the quarters ahead. And our auto care business was not quite as good and, in fact, was down 2% in the quarter. This is our largest wholesale program, so we think we have some work to do here to get this on the plus side as quickly as possible. Putting it all together, we think that the 4% automotive increase is a decent performance in the current environment. In fact, this is our best increase since the second quarter of 2006, which is encouraging, and we feel that our automotive operations are beginning to benefit from some of the steps taken over the past 12 to 18 months and they have started off 2008 in a positive way. So that's a quick overview of the first quarter results. Jerry will now take a few moments to discuss the financials in more detail. Jerry.

Thank you, Tom. Good morning. We appreciate you joining us today. I will first review the income statement and segment information and then touch on a few key balance sheet and other financial items. We will be brief and then open the call up to your questions. Review of the income statement shows the following: Total sales for the first quarter were up 3% to $2.7 billion. This is pretty consistent with our growth rate over the last several quarters but still not at the level we'd like to see over the long term. It will remain optimistic about the opportunities for solid growth over the balance of 2008. Gross profit in the quarter was 29.91% to sales compared to 29.82 in the first quarter last year so we showed some improvement on this line to start 2008. We look to show additional progress in this area going forward and will continue to focus on the best product and customer mix as well as expanded global sourcing opportunities to drive this progress. For the year through March, cumulative pricing which represents the supplier increases to us, is up eight-tenths of a percent in automotive, 2.1% in industrial, 1.8% in office products and 2.0% in electrical.

Now, let's look at the SG&A. For the first quarter, SG&A was 22.92% of sales, up approximately 50 basis points from the first quarter in 2007. Although nearly half of this increase, approximately 22 basis points, relates to the costs associated with sales of Johnson Industries and the consolidation efforts in our remanufacturing operations, we lost some additional ground on this line due to the lack of leverage on 3% sales growth. So we have much work to do here. We will absolutely take the necessary steps to achieve a fifth consecutive year of improved SG&A costs as a percent to sales. These steps have already begun. Further more, the sale of Johnson and the consolidation of our remanufacturing operation should improve the profitability of our automotive segment and the total company going forward.

For the quarter, our tax rate was approximately 35.6%, which is down from 38.0 for the first quarter in 2007. This is due mainly to the impact to the sale of Johnson Industries during the quarter and we expect that tax rate for the full year to be around 38.0% which was what our full rate was in 2007. Net income of $123.5 million is up 2%. Earnings per share of 75 compared to 71 last year is up 6%.

Now, let's discuss the results by segment. Automotive had revenue in the quarter $1 billion 305.9 million, represents 48% of the total and they were up 3.5%. Operating profit of $90.6 million, down 5%, so we had some margin degradation from 7.6 to 6.9%. The Industrial Group had revenue of $881.2 million, representing 32% of the total, up 6%. Operating profit of $69.0 million, up 7%. Operating margin stayed strong at 7.8%. Office products revenue in the quarter $442.4 million, represents 16% of the total. That was down 2%. Operating profit of 43.9 million was down 9%, while the operating margins are very strong at 9.9%, the trend is down from 10.7% in the first quarter of '07. The electrical group had revenue in the quarter of $114.3 million, representing 4% of the total, up 7%. Operating profit of 9.0 million, up 25% so this management team continues to do an outstanding job in converting their sales to profit and margins up from 6.8% in '07 to 7.9% in 2008.

So, in summary, with total sales up 3%, operating profit down 1.5, our consolidated operating margins slipped approximately 30 basis points to 7.8%. Continued progress in industrial and electrical is offset by the circumstances we faced in automotive and office products. The 70 basis point decrease in automotive is explained by the sales of Johnson Industries and the remanufacturing consolidation. These are both one-time costs which account for 40 basis points of the decline and the remainder to lack of expense leverage on the low single digit sales growth. We attribute the margin contraction of office products to the slight decrease in revenue. So despite providing the highest margin among our businesses, we need to show progress with our office products margins and we are optimistic that our sales plans for the balance of 2008 can help accomplish this.

We have net interest expense of $7.2 million for the quarter, up $400,000 or 7% from last year due to decreased interest income. We currently expect our net interest to be approximately $27 to $28 million in 2008. Other category, which includes corporate expense, amortization of intangibles and minority interest, was 13.7 million in the first quarter compared to 13.1 million in the first quarter last year. Majority of the increase is due to the increase in amortization of intangibles but corporate expense was also up slightly due to a modest increase in personnel and related benefit costs. For the year, we continue to expect this category to approximate our expansion of 2007 somewhere in the range of $40 to $50 million.

Now, let's touch base on a few key balance sheet items. Cash at March 31 was $162 million, down 89 million from March 31 last year. Despite the decrease, our cash position continues to grow strong from increased income and improvements in working capital. In the first quarter this year we spent $95 million for share repurchases compared to 20 million in the first quarter '07 and we spent another 50 million for acquisitions. These investment opportunities to explain the decrease in cash of last year, but our cash position remains strong.

Accounts receivable increased less than 1% from last year on a 3% sales increase for the quarter so we were very pleased with the level of receivables and feel good about the quality of our receivables. Our goal at GPC remains to grow receivables at rates less than sales growth. Inventory was up approximately 5% from the first quarter last year but down 21 million or nearly 1% from year end. As in accounts receivable our goal is to grow inventory at a lower rate than sales growth so we didn't do as well here as we would like to see. That said, at least part of our increased related acquisitions and expansion initiatives, such as imports and heavy duty parts. We will continue to focus on our inventory management initiatives and show more improvement on this line as the year progresses.

Accounts payable increased 3% from last year, reflecting increased purchases related to sales growth as well as extended terms and other payable initiatives established with our vendors. We are pleased with our improvement here this quarter but believe we have room for more progress in the remainder of the 2008. Working capital is $2.5 billion at March 31, down approximately 8% from March 31 last year. We would remind you that this accounts for the reclassification of $250 million in debt due November of '08 to current liabilities. Before the reclass, working capital is up just 1% from 2007, so we are pleased with our progress in managing working capital and have improved our working capital as a percentage of sales by at least one penny in each of the last four years. I would expect to continue this positive trend in 2008. We also emphasize here that our balance sheet remains in excellent financial condition. We continue to generate consistent and strong cash flows and our strong cash position provides the company many opportunities.

For 2008, we currently expect to generate cash flows in line with '07, which was an especially strong year. Cash from operations is likely to exceed $600 million and free cash flow which deducts CapEx and dividends should be greater than $250 million. Our priorities for the cash remain first to dividends which was, as announced our last call, we increased this year by another 7% to $1.56 per share representing our 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 21.8 million for the quarter, down slightly from 23.7 million in the first quarter last year. Related depreciation and amortization was 22.7 million in the quarter compared to 20.7 million last year. We continue to expect our CapEx spending to be in the $110 to $120 million range for '08 and we would expect our DNA to be approximately 90 to 100 million. We feel good about our level of reinvestment in our businesses.

Another priority for us has been our opportunist share repurchases and as part of our repurchase program, we purchased over 2.4 million of shares of our company stock thus far in 2008. This compares to just over 400,000 shares purchased through this time last year and follows the purchase of approximately 5 million shares for all of 2007. Today we have an additional 7.9 million shares authorized for repurchase. We also have no set pattern for repurchase but remain active in the program as we continue to believe an investment in GPC stock along with the dividend provides the best return to our shareholders. Regarding acquisitions, we were pleased to increase our investment in Altrom America and Altrom Canada to 100% effective January 1, 2008. Our relationship with Altrom dates back to 2005, when we made our initial minority investment in the company. As you may know, this group represents our OEM import part initiative and is significant to our automotive sales strategy. In addition, our Industrial Group acquired Mill Supply, a power transmission and bearings company effective March 1, 2008.

Earlier, Tom mentioned our acquisitions for the second quarter in the office products group and electrical group. So as you can see, strategic acquisitions continue to be an important use of cash and are integral to our growth plans for the company. We feel good about our priority for the cash as we move forward. We continue to believe that the use of cash in these area serves to maximize the total return to shareholders. Finally, we add total debt unchanged at 500 million, although beginning December 31, 2007, a $250 million credit facility maturing in November of 2008 was reclassified from long-term debt to current liabilities. The second 250 million is due in November 2011 and any prepayment of this debt is cost prohibitive due to the make whole provisions included in the debt agreements. The total debt to total capitalization March 31, '08 was 15.8% compared to 16.1% last year. We are comfortable with our capital structure at this level.

We consider first quarter a very challenging one for Genuine Parts Company. We clearly have room for improvement in our businesses, but especially in automotive and office products. The challenge seems to be in overcoming our uncertain macroeconomic and industry conditions. We know we can overcome this through the superior execution of effective growth strategies. For 2008, our goals remain to show continued improvement in 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, the strategic plans and the prospects for long-term growth. Tom, I will turn it back to you.

Thank you, Jerry. Well, that recaps our first quarter results. On the revenue side, back in February we said that we expected full-year increases of 2 to 5% in our automotive operations and we came in at 4% for the quarter. Industrial we said 5 to 8%, we came in at 6%. Electrical we said 5 to 8%, and they came in at 7%. And office products we said 1 to 4%, and they ended the quarter down 2%. So all but office products ended the quarter well within the ranges given and we expect improved performance from office products over the remainer of the year. In February, we said that we expected total GPC revenue to be up 3% to 6% for the full year with the second half being a bit stronger. And at this point our guidance remains the same. On the earnings side we previously gave an earnings per share range of $3.12 to $3.22 per share, which will be up 5 to 8%, and we continue to be comfortable with these numbers. So that is a recap of the first quarter and our view on the outlook for the remainder of the year. And throughout the company our management teams are focused on five key areas, hitting the revenue growth targets, generating earnings growth in excess of revenue growth, showing improved operating margin expansion, and continuing to show improvement in our asset management and working capital efficiency initiatives, all of which will enable us to report a solid year for Genuine Parts Company. At this point, we would like to address your questions and we will turn the call back over to [Sim].

(OPERATOR INSTRUCTIONS). Our first question comes from the line of John Murphy with Merrill Lynch.

Good morning, guys. First if you talk about what you are seeing from your suppliers on the parts side and what you are able to pass through in your distribution and even at the retail level?

Well, John, we said that through the first quarter price increases were .8 of 1% in the automotive parts group. As far as what we are seeing prospectively, we do think that the pricing increases will be a bit more as we work our way through the course of the year. And as far as what we are able to pass on in the automotive side of the business, we don't take a price increase unless we can pass a price increase through. So we would expect that to just flow through as the increases come.

John, I would point out last year in the automotive for the full year we had 1.6% pricing, and we would expect it probably again be in that 1 to 2% range in '08.

And do these price increases have any impact on your inventory? I would imagine they are driving your inventory up higher. That might be part of the reason that there was an inventory creep in the quarter, is that correct?

Well, we are on LIFO, so that would be offset with that.

Okay.

The inventory increase, John, is largely attributable to some of the new businesses, the buildup in businesses for our import parts company where we acquired 100%. We also saw an increased inventory in the heavy duty parts group as they continue to build their business, and then we completed the acquisition, as Jerry mentioned, of Mill Supply was a $34 million a year company. We completed that in March. So their inventory shows up in the quarter end as well.

As we think about miles driven, there is starting to be some decline in the miles driven for the first time in a while. I was just wondering if you can comment on how that's impacting the auto business going forward and if you think this is going to continue, given your experience here.

Well, as you know, historically miles driven have increased 1 to 2% a year. In 2006, they were up .9 of 1% but then in '07 we saw that they dropped .4 of a percent and the last figure that I have seen is through January and it was down 1.7% in the month of January. So there's no doubt that the higher gasoline prices are reflected in the reduction in miles driven and we think that's part of the pressure that's on the overall revenue growth within the industry in total right now. So this thing will revert back at one point. We do think that later in the year we might see some moderation in some of the gasoline pricing, and we're hoping that we'll see some increase in miles driven at that point as well.

And then just lastly on the acquisition process, I'm just wondering if could you talk about when you do these smaller bolt-on acquisitions, really the integration process and if it is fairly easy without a lot of hiccups, which it has been in the past, and what you see the pipeline on these acquisitions being going forward?

Well, as far as the integration process, we would expect the ones that we outlined today will be integrated in a similar fashion to the ones that we have done over the last couple of years. These are not large acquisitions. They are more easily integrated and they do, in fact, compliment the existing businesses that we're in. As far as acquisitions going forward, we continue to look for acquisitions in each of the businesses. We think the environment that we're in right now might present some additional opportunities for us and we're on the lookout for anything that we think makes good sense and actually is accretive for the shareholders of Genuine Parts Company. So we have an ongoing and active acquisition process in all the businesses that we are in.

And then just lastly on the debt that's coming due this year, the $250 million. Have you looked at refinancing that and sort of what the picture is given the tough credit markets right now?

Yes, John, we have and I believe we've locked in a rate at this point. We're not able to discuss it at the current time but I think you can expect to see us extend that debt for another five years.

Great. Thank you very much.

All right. Thank you.

Your next question comes from the line of Matthew Fassler with Goldman Sachs.

Thanks a lot, and good morning to you.

Good morning, Matt.

I want to focus first on automotive. Did you have any charges related to Johnson Industries a year ago?

No, not in the quarter we didn't. We did for the year but not in the first quarter.

They lost money but there weren't any charges associated with it.

Okay. That's fair. And you talked about some offsets to the Johnson Industries write-off I guess on the tax line. So if you are to look at the net impact, the net income impact or the EPS impact of those divestitures to the P&L, what would that look like?

Well, I can tell you we picked up $0.03 a share due to the tax benefit from it and the other -- the 3.5 million or so hit that we took was pretax. So I don't know exactly what the net impact of that would be, but it did hurt us in the SG&A side, but we were able to gain some benefit from it in the tax side.

Was the $0.03 a share -- so the $0.03 a share is the loss and then the $0.03 pickup on taxes is essentially -- is that just essentially tax affecting that loss or are there additional tax benefits?

No, the loss is for the loss on the sale of the stock of Johnson Industries. That was accumulated over a period of time.

Yes.

The charges in the pretax number are just for the current quarter.

Okay. So if that's call it 3.5 million, 2.5 million after taxes, that's -- it sounds like it was actually for the quarter and the aggregate, the tax impact more than offset the operating income impact.

Yes, that's correct.

Okay. Also in automotive, any comment on the trajectory through the quarter?

I would answer that, Matt, we wound up getting the year off on a per day basis. We had a pretty good January. It moderated a bit in February and then March came back a bit, not to the January level but it did come back a bit and thus far in April we are encouraged by what we see.

Good. And that would essentially be -- my last question on automotive which is sort of a same-store sales kind of number, you talked about a few more company-owned stores open and they probably didn't move the needle much, but it sounds like the same-store sales number or the equivalent there of probably accelerated from the fourth quarter of '07 into the first quarter of '08, if I heard you right?

I think that's right, yes.

Okay. Great. My other questions relates to office products. Looking at your comments from the fourth quarter, it looks like the megas were actually down less here in Q1, down six versus down nine, whereas the independents lost a little bit of ground, flat versus up four. I'm interested, I guess, in both. What do you make of the moderating decline from the megas? Is that so far as you can decline a result of channel sell through less stocking? What would you attribute that to? And then the independents, I guess, I would think that relate to the broader environment but any color you have there is great.

I would say I think the moderation in decline with the megas is more a matter of mix than it is of anything specific with the group. I had been to a meeting earlier this week, an office products industry meeting, and basically what I heard there is that the industry overall, the results are pretty reflective of what we just gave you for our office products company.

Okay.

But here again I would say that we see a slight improvement in April and we hope that it will sustain itself through the month and on through the quarter. We are somewhat optimistic that we can improve these results as the year progresses and, as I said earlier, we're still saying that office products will be up for the year in that 1 to 4% range.

And then finally just one question on the relationship between office products and industrials. As we look at the macro factors that you attribute performance to, they are somewhat similar in those two sectors. Are you a bit surprised at the divergence and performance between the two? Industrial has been quite consistent for you and office products less so and one would argue that's been true of the industry as well.

Well, we can see clearly why industrial is performing as well as it is and electrical also for that matter because the demographics continue to look very favorable. The industrial production capacity utilization figures continue to look good there. What we see different in office products is that for the first time in quite some time we are seeing a decrease in the number of white collar jobs across the country today, which has a direct impact on the demand for office supplies. So we are -- I guess we are a bit pleasantly surprised with how well industrial and electrical are holding up and we are a bit disappointed in how difficult we find the office products business to be currently and, again, that's reflective of what's happening in the industry.

Great. And then finally, Jerry, on the tax rate, he talked about a tax rate in the 38, you started off in the 35s for Q1. Should we expect a tax rate that exceeds 38% for the rest of the year to get to you that annual average?

Yes, I think 38.2, 38.3 to get it back to the 38s for the full year probably reasonable.

Thank you so much, guys.

Thank you, Matt.

Your next question comes from the line of Jonathan Steinmetz with Morgan Stanley.

Great, thanks. Good morning, everyone. Can you hear me?

We can hear you fine, Jonathan, good morning.

Just a few questions. First, starting on the auto side, I missed a little bit. Did you break out what the reman, I think you mentioned on the reman side what that cost you in the quarter.

No, we didn't, John. It was about $2 million.

$2.1 million. The total of the two is right at $5.5 million.

Okay and how long does this reman -- it seemed like it's been a slow drip for a long time. How long does that continue to persist, do you think?

Well, we've consolidated two plants over the last 14 months or so. That's the end of the consolidation. This gets us to where we want to be. We think we are positioned now to benefit from the positive results of that consolidation.

So the business itself has low margin but we shouldn't have the sort of loss-making or charges related to that?

No, that makes the remaining plants more profitable as the capacity utilization moves up in them. That was the reason for the consolidation of the two.

Okay. And do you anything differently, I guess when you think out over the next two or three years on the auto side, I am thinking, John Murphy had a question related to miles driven going down. It doesn't seem like when we lag that over the next two or three years that the auto side may be as robust. Does it make you think differently about how you want to run the business from either a head count perspective or a number of warehouse perspective or anything when you look at the auto margin that makes you make some more significant changes?

Well, the key word that you just used was "significant." I think what we see is that on the revenue side some of the initiatives that embarked upon in the last 18 months or so will help us, we think, perform at a reasonable level. The import parts initiative, we continue to expand that and we continue to be encouraged by what we see with that. The heavy duty truck parts initiative will play a bigger role for us as we go forward, so those two will be key for us in the next 12, 24 months. As far as the cost structure of the business, we always look at cost structure on an ongoing basis but, yes, we are saying that we are going to have to continue to find ways to streamline operations, to be more productive in existing operations and to take our SG&A down as a percent of sales in the automotive operations and we have got initiatives under way in all of those areas to help us get there.

Okay.

John, since you mentioned, the miles driven and the macro issue. There's also a positive macro issue and that's the aging fleet and the 6 to 12-year-old age group and the mix of those being more light trucks and SUVs. It's yet to be seen what impact that would have. There may be enough positive impact to offset the slowing in the miles driven.

Okay. I guess my last question relates to fuel costs. Do you have a number at all or an estimate as to what that might have hurt you by and I guess try to recoup some of it through surcharges and that sort of thing? Do you know company wide what that is hurting you by, and I would imagine that's going up as we move into the summer here.

We can't answer that specifically. We can tell you that it has had a double digit increase. Our fuel costs have gone up double digit across all of the businesses thus far this year. How we recover those varies by different business units, but we are seeing a net/net increase in fuel costs for sure.

You say double digit, but how should we think about what percentage of your cost of goods sold relates to fuel?

We'll have to get back to you on that, Jonathan. I don't have that.

I can tell you that we don't include freight in the cost of goods sold. That's in SG&A.

SG&A. Okay. All right. Thank you.

Okay. Thanks.

Your next question comes from the line of Keith Hughes with SunTrust.

Thank you. Within the electrical segment, given some of the raw material inflation that has and probably will occur, have you seen any type of prebuying ahead of price increases from customers?

No, we haven't really at this point. Some of the products that you may be referring to, there's actually some shortage on some of that product. So the industry overall is not in a position to do too much prebuying.

And what kind of products are you seeing shortages on?

Well, some of the fabrication material that we use in our Fabrico business at EIS for instance. We're on allocation and have been. There's just an inordinate worldwide demand right now and so the manufacturers are really working hard to keep up with demand, but we're not in a position to build inventories in those product categories.

All right. Thank you.

Thanks.

Your next question comes from the line of Rick Weinhart with BMO Capital Markets.

Good morning, gentlemen.

Good morning, Rick.

A couple of questions on the auto parts business. The auto care center you said was down a couple percent, which I think is unusual for that business. Is there anything unusual going on there or can you give a little color on what happened?

I don't think there's anything unusual going on. I think the auto care group in total is experiencing much the same as all repair operations are experiencing. We did say they were down 2% for the quarter. We also said that our major account business was up 7% for the quarter, but in that case, we have taken perhaps more share with the major account segment. Some of the surveying we do on outbound sales would indicate that the repair business in total is flat to up modestly right now and I think that's more what's happening with auto care business than anything else.

Okay. That was my second question, on the majors -- the major accounts up 7%, a strong number there. Is any of that stuff that occurred in this quarter or would you attribute that more to wins in the past that maybe you are gaining some traction on?

I think it's more of result of some things that happened in 2007. I mentioned earlier that we were up 5% in the last six months of '07, and we're up 7% through the first quarter and I think that's just a result of some of the good work that was done last year.

Okay. And then just back to the auto care. My question was really based on, when I think of that business, I tend to think of that is as part of your commercial bucket which was up 3% and then the auto care down 2%. Is this something in the mix there that caused that to be a little bit weaker than the rest of the commercial or maybe I'm not thinking about the mix right?

Well, embedded in what we would call the wholesale business would be things like the major account business and their 7% increase would offset some of that 2% decrease with the auto care customers.

Okay. Moving on to the fuel charges, surcharges, I'm wondering -- I understand that your gross margin doesn't have the costs embedded in there for distribution, but I'm wondering about parts delivery from the store out to your customers. You have been able to or are you trying to pass on fuel surcharges there?

No, that's not something that we see evidence of in the industry. We are trying to do there is we are trying to be more sophisticated in our delivery management systems. We are trying to get more revenue per delivery run. We are just trying to manage it from a different perspective.

My last question if you have any comments on the O'Reilly CSK merger there. I imagine that doesn't impact you directly. Over the long term, how are you viewing that in general?

Well, we see it's a natural consolidation and it makes a lot of sense, we think, for O'Reilly's. They will do a good job with it once they get through the integration. They are a well-run company. We have a lot of regard for that organization. What it does do is it takes one player out of the industry. Had O'Reilly not done this, they would have eventually opened on the West Coast and we would have had just an additional entrant there. So we have one less competitor than we would have had. In the near term there may be some integration challenges or whatever that may open some opportunity, but in some ways it clears the landscape for the future and we look forward to competing with O'Reilly's on the West Coast.

Okay. Just to follow up on that point. There does seem to be a bit more consolidation her enow as we are getting into '08, starting off with that piece of business. Are you finding -- I mean it would seem anyway by what you have done so far this year, are you finding a greater number of opportunities are arising?

Well, I would say that difficult times present additional opportunities and I think that's evident in the automotive side of the business. So we're out there working as diligently as we can to try to find things that make sense for Genuine Parts Company.

Rick, I will tell you in the automotive side we run obstacles. Every one of these businesses have been sold we looked at. Our challenges is we already have operation there. If we make the acquisition we would either have to close existing stores or close what we bought. That's the reason why the acquisitions, the larger ones, don't make sense for us on the automotive side.

All right. Some of the smaller tuck-in, bolt-on operations, they are still available now, or opens the door for you?

There's some of that out there and if we can find ones that make sense, we hope to participate in them.

Okay. Great. Thanks very much.

Thank you.

Your next question comes from the line of Tony Cristello with BB&T Capital Markets.

Good morning, this is actually [Allen] for Tony. How are you?

Good morning. We are doing fine. Thank you.

The first question with respect to the automotive segment, did you see any difference in sales trends on a regional basis. And did any flooding in the Midwest have any impact on business?

Well, the answer to both questions is yes, we did see some of the continuation of regional trends that we have seen in the past, the more challenging areas for us would be in the southeast and primarily in Florida and then we see challenges in California and in Arizona. And this is consistent with what we've seen for a little bit of time now and consistent with what we see in some of our area businesses as well. Then the flooding certainly had a moderating effect on the business during the time that those areas were impacted without question.

Okay. A bit of a follow-up question. Would you be able to quantify the impact that raising your stake in Altrom from a minority interest to 100% ownership had on automotive sales during the quarter?

We had slightly reduced sales in automotive if we balance the Altrom, the increased revenue with the heavy duty business against the loss of revenue for the sale of Johnson Industries we would have been down just a little bit in the aggregate there.

And is that on a year-over-year basis? Am I understanding correctly?

That was on a year-to-year, quarter-over-quarter, comparing this year first quarter with first quarter of last year.

Okay. Excellent. Thank you very much.

(OPERATOR INSTRUCTIONS). Your next question comes from Chip Rewey with Cramer.

Did you say your auto sales would have been down or the impact would have been down? I didn't catch your last thing.

Thank you for clarifying that, Chip. No, the impact -- there was a slight negative to our automotive growth when we look at the --

Okay got you.

Okay. Thank you.

And can you quantify, I think you said about 40 basis points was from Johnson. Was that really the SG&A issue, too, in auto? Like, what was the dollar number there?

That was -- there was like 3.5, 3.4 I guess it was in the Johnson case and 2.1 for the remanufacturing.

Okay. So the Johnson won't repeat and the remanufacturing just should dribble down over the next few quarters?

No, those are one-time costs in both cases. There was severance and all associated with the remanufacturing.

Okay.

And the Johnson thing is over.

The repurchase, did you have a dollar figure attached to that in the quarter? You did 2.4 million shares this.

Yes, I will get that for you. It was $94 million.

And can you talk about -- I mean, you've got 7.4 million left. You said you would be aggressive. Can you put some color on that? Are you aggressive here? How aggressive would you be on the 7.4? If you can't be answer too much about that, can you talk about how you purchased shares throughout the quarter, like more skewed to where the stock is now?

Yes. Keep in mind we did 5 million shares last year and we already did 50% of that in the first quarter this year. So I think we are more aggressive and we do try to buy on weakness and, as you know, our stock along with all the other stuff has weakness. So we will continue to be active in that. We don't have a set target that we are going to do 2.5 million shares a quarter or anything like that. We are more active on certain days. We have not been in there because of blackout period for the last week. And if the stock shows weakness, we go in on a daily basis and be more aggressive.

Okay. And last, you said you probably rolled a debt that comes due this year. Do you have any idea on kind of what the spread could be or what rate you could roll now? Have you checked with banks? I'm just trying to figure out what type of interest --

The rate will be a good bit lower than what we have. I just can't give the details on it because we still have some documents yet to complete. But the rate will be lower than is at the current time.

All right, guys. Solid quarter. Thanks a lot.

And at this time, there are no further questions.

[Sim], thank you. We appreciate those of you joining us on the call today. We appreciate your continued interest in and the support of Genuine Parts Company and we look forward to talking with you on the next conference call.

This concludes today's conference call. You may now disconnect and have a great day.