純正零件 (GPC) 2008 Q3 法說會逐字稿

Good morning. My name is Sylvia and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company third quarter 2008 earnings conference call. (OPERATOR INSTRUCTIONS) Thank you. I would now like to turn the call over to Ms. Carol Yancey, Senior Vice President Finance and Corporate Secretary. Ms. Yancey, you may begin your conference.

Thank you. Good morning and thank you for joining us today for the Genuine Parts third quarter conference call to discuss our earnings results and the 2008 outlook. Before we begin this morning, please be advised that this call may involved forward-looking statements such as projection 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 business. The Company's actual results could differ materially for 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 you may have. Earlier this morning we released our third quarter results and hopefully you've had an opportunity to see them. But for those who may not have yet seen the numbers, a quick recap shows sales for the quarter were $2.882 billion, which was up 3%. Net income was $131 million, which was up 2%, and earnings per share were $0.81 this year compared to $0.76 in the third quarter of 2007, and the EPS increase was 7%.

The 3% sales increase follows a 4% increase in the second quarter and a 3% increase in the first quarter so revenue growth has been steady and consistent over the first nine months of the year. And although the increase in net income at plus 2% was not up as much as revenue increase, our operating profit was up 3% in line with the sales increase with the difference between operating profit and net income being primarily attributable to the lower interest income in the quarter. Additionally, we did expense $2.3 million in the quarter in costs associated with the continued restructuring of our remanufacturing operations. Without these costs, operating profit was up 4% in the quarter and net income was up 3% indicating a reasonably good operating job on the 3% sales increase.

Looking at the results by segment, our strongest revenue increases continue to be generated by the industrial and electrical operations. Industrial sales were up 7% for the quarter which follows a 7% in the second quarter and a 6% improvement in the first quarter, so a nice steady picture all yearlong for our industrial operations and we feel good about the progress being made in this segment. Our strongest areas geographically remain the western, southwest and Canadian operations, but we are pleased to see positive growth in all parts of the country. In looking at it by customer category, our best increases continue to come from customers in the iron and steel, pulp and paper and food products industries and these increases are helping to offset softer results in automotive, lumber and wood products and other housing related segments. So a solid performance overall at plus 7% for the quarter and we feel that our long-standing strategy of diversifying our business across the broad base of manufacturing segments and product categories continues to serve us well, especially in times like these.

We were pleased to complete the acquisition of supply as Drago Supply of September 1. This is a $75 million business operating in Texas and Louisiana and it is a fine company that will be a nice addition to our industrial group and ongoing acquisitions will continue to be an important part of our overall growth strategy. So wrapping up on this segment, we feel our industrial operations have performed well through the first three quarters and we anticipate similar results from them over the remainder of the year.

The electrical operations had another terrific quarter. They were up 13% in revenue following their 11% increase in the second quarter and 7% increase in the first quarter. So they have seen a strengthening in their results as the year has progressed and they're now up 10% year-to-date. Importantly, their increase is broad based across both customer and product categories, so they're showing a nice balance and diversification in their growth. Our electrical management team has really done a nice job of positioning their company for solid revenue performance and we feel optimistic about their near-term prospects. They should end the year in good shape.

Moving on to office products. This team continues to encounter a challenging environment, but we were pleased to see them end the quarter even with the prior year. You may recall that the office products group was down 1 -- 2% in the first quarter and then followed that with a flat second quarter and now even again in the third quarter. Not where we want to be, but from our perspective we feel we are holding steady in a very sluggish marketplace.

In looking at our results in a bit more detail we were pleased to see modest growth with our independently owned products resellers in the quarter. This group was up 2% which follows a 1% increase in the second quarter and a 1% decrease in Q1. We were a bit encouraged by the gradually improving trend with this segment of our business. Our sales to the megachannel continue to be challenging, however. We were down 10% with this customer group in the third quarter and we are now running 7% behind year-to-date.

Looking at the results from product standpoint, we continue to be pleased with our growth in the cleaning and break room category as well as the positive results being generated in the core office supplies category. These are being offset by mid single digit decreases in the tech products and furniture categories, however. We did complete one acquisition in the quarter, PPI, excuse me, a $20 million Los Angeles based regional wholesaler became part of the S.P. Richards family on September 1.

Additionally, we acquired a Michigan based regional wholesaler earlier this month with annual revenues of $50 million. Both of these companies will be nice additions to our office products group and they will help our results in the quarters ahead. And as we look forward we anticipate continued soft demand in the office products industry for several more quarters. Our expectations, however, are that S. P. Richards is still in a position to end the year about even with last year.

And finally automotive. Sales for the group were up 1% in the quarter. Our results in automotive continue to be affected by the sale of the last of the Johnson Industries locations in the first quarter of this year. Our ongoing automotive operations were actually up 3% in the third quarter and they were up 4% year-to-date, so a fairly consistent picture. Looking at our automotive results in a bit more detail. Napa Auto Care, our largest commercial segment, was up 3% in the quarter and after being down 2% in each of the first two quarters, we were pleased to see this nice improvement this past quarter from this key customer group. Our major account business, another important part of our commercial efforts, was also up 3% in the quarter and we feel in both of these, Napa Auto Care and major accounts, our business is growing at a faster rate than the overall after-market commercial business and, as a result, we feel that we are making decent progress in the commercial side of our business.

In the area of new distribution, our efforts stalled over the past three months. While we opened 57 new stores in the quarter we also closed or consolidated 64 for a net reduction of seven. We now have a net increase of 41 net new stores year-to-date and we will get back on track in the fourth quarter by adding 10 to 15 net new stores by year end. As most of you know, the automotive after market is encountering some significant head winds right now and we continue to see a decline in miles driven as well as a deferral of both vehicle maintenance and discretionary spending across the after market, all of which is creating a drag on revenue growth within the industry.

And while our 3% increase in the quarter from our ongoing automotive operations is not up to our historical expectations, we do feel that our initiatives are yielding positive results and that we are holding up reasonably well considering the current environment. We look for a similar performance from automotive in the fourth quarter. So that is a quick recap of our sales results for the quarter and year-to-date, and I will turn it over to Jerry to cover the financials.

Thank you, Tom. Good morning. We appreciate your joining us on the call today. We will first review the income statement and segment information related to our third quarter and year-to-date results and touch on a few key balance sheet and other financial items.

In light of the concerns in the economy and credit markets right now, we want to be especially clear today in communicating the strength of our balance sheet. Continued strong cash flows and dividend record which serve to support our ongoing growth initiatives and goals for maximizing shareholder value. We believe more than ever that the excellent financial condition of our Company continues to distinguish Genuine Parts Company as a quality investment. After this review, we will open the call up to your questions.

Review of income show the following. Total sales for the third quarter were up 3% at $2.9 billion and our year-to-date sales $8.5 billion also up 3% from last year. Third quarter revenue was in line with the first half of 2008 and represents another record level of sales for our Company. Gross profit remains consistent with last year at 29.46% to sales for the quarter and 29.67% for the nine months. Look to show progress on this line going forward and we 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 September, cumulative pricing which represents the prior increases to us is up and I will tell you these are the largest increases we have seen in quite some time, 4.7% in automotive, 6.7% in industrial, 2.7% in office products and 7.2% in electrical.

Now let's look at SG&A. For the third quarter SG&A as a percent to sales 22.14% up less than 10 basis points from last year. For the nine months in 2008, SG&A stands at 22.39% of sales, up 17 basis points. We recognize the need for improvement in this area, but find it challenging to improve our expense leverage at our current level of revenue. We are close, but another percent or so of top line growth would make a meaningful difference for us. In the meantime, we are working hard on cost control measures that can also make a difference and our goal remains to achieve a fifth consecutive year of improved SG&A cost as a percent to sales.

For the quarter our tax rate was approximately 37.9% which compares to 38.0% for the third quarter in '07. Our year-to-date tax rate 37.3% compared to 38.0% last year with the decrease coming from the lower first quarter rate which was associated with the favorable impact of the sale of Johnson Industries. We expect our tax rate for the full year to be between 37.5 and 38.0 which is comparable to 2007. Net income for the quarter, $131.0 million, up 2% and earnings per share of $0.81 compared $0.76 last year, up 7%. For the year, net income $387.6 million, up 2%. EPS $2.36 compared to $2.23 in '07, up 6%. As you can see, our third quarter results were consistent with our performance in the first half of the year.

Now let's discuss the results by segment. Automotive had revenue of $1.3931 billion, representing 48% of our total, and that was up 1%. They had operating profit of $111.7 million, down 3% so we had margin degradation there from 8.3 to 8.0. The industrial group had revenue of $907.0 million. They had 32% of the total, up 7%. Operating profit of $77.2 million and that's up 11%, so nice margin expansion there going from 8.2% to 8.5%. Office products revenue of $459.0 million representing 16% of the total that were flat in revenue with operating profit of $33.4 million, up 1%. So some margin expansion going from 7.2% to 7.3%.

The electrical group had revenue of $126.8 million. That's 4% of our total and, as Tom said earlier, a terrific quarter up 13% in revenue. Operating profit of $10.3 million, that's up 34%. So excellent margin expansion going from 6.9% to 8.1% of revenue. We're not going to go through the review the nine-month segment information. They're included in the press release and we can address any questions or take any concerns you have during Q&A.

In summary, our 3% sales increase in the third quarter operating, 3% increase in the operating profit grew at the same rate as sales resulting in operating margin of 8.1% for the total Company which consistent with the third quarter of 2007. Through September, our 8.1% operating margin is down 10 basis points from last year and this reflects continued progress in industrial and electrical which is offset by the combination of one-time costs in automotive which represented 10 basis points impact to margin and the deleveraging of expenses in automotive and office products due to their sales volume. We continue to aim for more improvement in our margin in the fourth quarter and, as you can see, our greatest opportunities are in automotive and office products.

Net interest expense of $7.4 million for the quarter, and for the nine months, net interest is $21.9 million. Although net interest is up this year, we should point out that our interest expense is consistent with the prior year. Interest income, however, is down due to the lower rates and less invested cash because of our acquisitions and share repurchase activity. We currently expect net interest to be approximately $30 million for the full year.

Other category which includes corporate expense, amortization of intangibles and minority interests was $14.4 million in the third quarter and is $44.5 million through nine months. These costs are slightly higher than in the respected periods in '07 due mainly to the amortization of intangibles associated with the acquisitions. With one quarter to go in '08 we believe this line will be in the $55 million to $60 million range for the full year.

Now, let's touch base on a few key balance sheet items. Cash at September 30 was $124 million, down from $333 million at September 30 last year. Through nine months in 2008 we spent nearly $230 million for share repurchases compared to $152 million in '07, and we spent approximately $111 million for acquisitions. These investments account for the decrease in cash from last year. However, our cash position remains strong due to the increased income and improvements in working capital. In fact, we would adhere that our cash position remains more than sufficient for funding our operating requirements as well as our growth initiatives. And maybe most important right now we are not dependent upon any short-term borrowing arrangements that are not already available to us.

Accounts receivable increased 1% from last year on a 3% sales increase for the quarter. Before the impact of acquisitions, accounts receivable was down slightly. We remain very pleased with our level of receivables and feel good about the quality of our receivables, something we are closely monitoring at the current time. Our goal at GPC remains to grow receivables at a rate less than sales growth, which we have been able to do for at least seven consecutive quarters. Inventory was up 4% from September last year but is down approximately 1% from December 31, '07.

Excluding the acquisitions, inventory is up approximately 2% from September last year, which is in line with our goal of growing inventory at a lower rate than sales growth. We are pleased with our progress in managing this asset and will continue to focus on our inventory management initiatives to show ongoing improvement on this line in the periods ahead. Accounts payable decreased 2% from last year but we believe that our ongoing negotiations for extended terms as well as other payables initiatives established with our vendors will help us turn this around and show further progress in payables in the fourth quarter.

Working capital. $2.4 billion at September 30 is down approximately 12% from September 30 last year, and we are pleased with our continued progress in managing working capital. Most of the 12% decrease reflects the reclassification of $250 million in debt to current liabilities in December of '07, although excluding the reclass, working capital is still down over 2% from 9/30/07. We have improved our working capital as a percentage of sales by at least $0.01 in each of the last four years and expect to continue this positive trend again this year.

As we mentioned earlier, this improvement is had a positive impact on the strength of our balance sheet. We also commented earlier on our consistent and strong cash flows and we are pleased our strong cash position provides the Company many opportunities. This could not be emphasized enough in today's environment. For 2008 -- are you still with us? For 2008, we expect to generate cash flows in line or slightly improved from 2007 which was already an especially strong year for us. We currently project cash from operations to be approximately $700 million and after deducting capital expenditures and dividends, free cash flow should improve to approximately $300 million.

Looking ahead, our priorities for cash remain consistent with our previous comments. First, the dividend which we have increased for 52 consecutive years. We are proud of this record of consistent growth dependability of an above average dividend yield which is currently greater than 4%. We understand that increasing the dividend is important to our shareholders and that at our February Board meeting we intend to reck men another increase for 2009. Other priorities include the ongoing reinvestment in each of the businesses, share repurchases and, where appropriate, strategic types of acquisitions in each of our business segments.

Opportunistic share repurchase has also been a priority for us for a long time. As part of our repurchase program, we have purchased approximately 5.6 million shares of our Company's stock through nine months ending in September, and we purchased another 1.1 million shares in October for a total of 6.7 million shares thus far in 2008. Today we have an additional 3.7 million shares authorized for repurchase and when needed we would expect our Board to approve another additional shares for repurchase as they have done in the past. We have no set pattern for these repurchase, but remain in active in the program as we continue to believe that an investment in GPC stock along with a dividend provides the best return to our shareholders.

As we mentioned, strategic acquisitions continue to be an important use of our cash and our integral to our growth plans for the Company. After closing two acquisitions in the first quarter and another three in the second quarter, we closed four additional acquisitions this quarter with two of those being effective in the fourth quarter. We are pleased with the acquisition opportunities to that presented themselves this year, although we remain disciplined in our approach to acquisitions. We believe we have added quality companies to our operations which we expect to be accretive to our returns. Through the nine months in '08 acquisitions have accounted for approximately 1% of total sales growth, so you can see that these businesses are important to us, and we look forward to more success with this element of our growth strategy.

Looking forward, we continue to plan for similar pattern with strategic acquisitions in our various segments. Capital expenditures $15.8 million in the third quarter compared to $31.0 million in the third quarter last year. Through September, CapEx is $60.1 million compared to $83.8 million in '07. For the full year, our CapEx investments will be in the range of $100 million to $110 million. We are pleased with the level of reinvestment in our businesses.

Depreciation and amortization, $21.8 million in the quarter, $66.5 million for the nine months. This is slightly higher than our expense on this line last year, and we would expect to continue this trend with depreciation and amortization in the range of $90 million to $95 million for the full year. We feel good about our priorities for cash as we move forward. We continue to believe the use of cash in these areas serves to maximize the total return to shareholders.

Finally, our total debt remains unchanged at $500 million with the first $250 million credit facility maturing in November of this year. We have in place a new signed agreement that will extend this debt another five years at a 4.67% interest rate. The second $250 million is due in November of 2011. Any prepayment of this debt is cost prohibitive due to [make hold] provisions included in the debt agreements. Total debt, total capitalization at September 30, 2008, was 15.8% and we remain comfortable with our capital structure at this time.

Despite the distraction of elevated economic concerns over the past few weeks, the third quarter for us felt much like the first half of the year, and we expect the fourth quarter to continue that trend. We are fortunate to be in four industries where we sell expendable replacement-type items and not items that require customers to seek financing. Our proven plan of action is the continue focus on the proper execution of our short and long-term growth plans and that's how our management team is spending their time and energy. In our over 80 years of operating we have experienced the up and down cycles of the economy more than once. We are confident that the fundamentals of our business will prevail again and provide for continued growth as long as we remain focused on those areas that we can control. As always, we want to thank and express our appreciation to the entire GPC team for their efforts under difficult circumstances.

Looking to the final quarter of 2008, our challenge remains to show continued improvement on growing sales, controlling costs, and improving our operating margins. As we have said, we certainly expect to show progress in each of these areas but, as you know, the degree of improvement is more difficult to forecast in these times of uncertain economic conditions. Still we know that underneath the existing turmoil of the same growth opportunities we have been working towards for quite some time, and our strategy is to achieve these goals have not changed. We don't believe this is a time for quick changes in direction nor do we feel that they are needed. We support our growth efforts with a strong and healthy balance sheet, continued strong cash flows further maximizing our return to shareholders. We absolutely remain positive about our businesses, their strategic plans and their prospects for long-term growth. Tom, I will turn it back to you.

Thank you, Jerry. And I think that your closing comments summed it up quite well. These are uncertain times and the current economic issues make it difficult to have a clear view of the quarters ahead. However, one thing that we do have a level of confidence in is that each of our businesses has sound strategies, and that the proper execution of these strategies should enable them to not just grow in line with the respective marketplace growth over the next several quarters, but perhaps to gain a little market share as well. At the same time, we maintain a level of confidence and the ability to keep our balance sheet and cash flow strong. Now we don't underestimate the challenges that we will encounter in the quarters ahead by any means. GPC, like all companies, will be affected by these external factors but we do feel positive about our relative positioning and about our long-term prospects in each of our four business segments.

As far as 2008 is concerned, on the revenue side our prior guidance assumed full year increases of 2% to 5% in automotive and on a year-to-date basis we're up 2%. For industrial, we said 5% to 8% and year-to-date we are up 6.5%. Electrical we also said 5% to 8% and we are up 10% to date and for office products we said 1% to 4% and we are down a bit, roughly 1%. So we are in line in the automotive and industrial, above in electrical, and off just a bit in office but, in total, about where we said we would be. We anticipate that the revenue for the final quarter will be in line with our year-to-date performance and that would put us up around 3% for the year. On the earning side, our expectations remain about the same as we expressed in our last call and we see no reason to change our prior EPS guidance of $3.12 to $3.18 for the year at this time, but with all the current uncertainty in the market place, our bias would be toward the lower end of the range. So that' s how we see it currently, and now we'd like to open up the call to your questions. I will turn the call back over to Sylvia.

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from the line of Tony Cristello from BB&T Capital Markets.

Thank you. Good morning, gentlemen.

Good morning, Tony.

I have a few questions this morning. Jerry, you talked a little bit about price and the price increases you have seen year-to-date, and if I look back at the second quarter, I this I you talked about automotive pricing up 1.7 and I think you noted industrial up 3.4. Now we yet to the third quarter and auto up 4.7 year-to-date and industrial up 6.7. Does that imply that you have seen sort of a 9% price increase during the quarter that gave you that bump of three points over the last three quarters?

No, Tony. I don't view it that way. These are cumulative price increases to us from the beginning of the year. We have seen significant, what we actually saw in the third quarter for instance in automotive we saw 3%.

Okay. So, okay. All right. If I then look at the 3% in auto, can I assume then that the industrial also was up about 3%?

That would be correct.

Okay. How confident are you that you are going to continue to be able to see price increases go in to effect with what has happened on the commodity side of late?

We don't control price increases. Again, keep in mind these are price increases coming to us from our suppliers and who knows what the impact of China and other raw material costs, oil and petroleum based product is going to do. Our challenge is to pass these price increases through which, in an automotive situation, I think that's a lot easier than industrial. Industrial we have some national contracts we are not able to pass them all through at the time we receive them. Our suppliers sometimes are willing to work with us and hold those. We don't have any control over those price increases and when they're going to come.

Okay. So there will be some fluctuation here fourth quarter and probably certainly into the first half of next year?

Tony, based upon what we have seen what has been announced for first of the year, we see more in the pipeline currently, but beyond that we really don't have any visibility.

Okay. And on the, moving to I guess automotive a little bit. Tom, you discussed the success you are seeing in the Napa Auto Care side with some major account segments. Could you provide a little bit more detail in why you think that is sort of outperforming some of your core commercial. Then, also, I don't know that you, maybe I missed it, did you give the break out between cash and commercial break out during the quarter?

Taking the last part of your question first. No, but on a year-to-date basis our commercial business is up about 6 and our cash business is flat.

Okay. As far as the reason for relatively good quarters with auto care and major accounts, these are just key initiatives and critical components of our overall growth strategy and I think our teams have done a good job in just executing on these strategies. Okay. All right. And so, and one other thing is Johnson had some impact this quarter. When is the last quarter we should see that sort of disconnect between what the total Napa revenue will look like and automotive versus what the impact of Johnson is? Is this the last quarter coming up or will we st ill have some of that feed into 2009?

We have a little that goes into the first quarter of 2009, but the significant impact will really moderate after the fourth quarter.

Okay. Okay. And one last question, Tom, you've been with the Company for a long time, and sort of the macro has certainly created some significant head winds for all businesses, not just Genuine Parts. The diversification of your business does provide some offset, and I was I was just wondering if you look back at the last couple of recessionary environments that we've had, how would you say your business is different today and what have you done to prepare in case of a further economic slow down that maybe you, that you feel more confident in what your ability was maybe in the last couple of recessions?

All right. Well first I would say that if you look back over an extended period, Genuine Parts Company has performed comparatively well through all of the economic cycles. One of the things that positions us perhaps a little bit better as we're going into the cycle we are in right now are some of the decisions that have been made over the past several years that I think strengthen our platform. Number one, you may remember that we had a very cyclical component within EIS, and that affected our EIS results in the '01 to '03 time frame. But that component of EIS is no longer with us. Our management team did a good job of selling that piece and they're less dependent upon that than what they were. We just talked about Johnson Industries and Johnson Industries is no longer a part of GPC and I think that positions us a little better.

Within our industrial group we have a broader footprint on the product side which gives us an opportunity to sell more product to existing customers than what we might have been able to do in the past. And that business is a bit more diversified than what it was in the last cycle. And somewhat the same can be said for our automotive business with the recent inclusion of [Ultram], our import parts company, and our heavy duty initiative I think we're positioned across a broader product platform, than what we have been in prior times. So I think our Company, while not immune to the cycle, I think we are in a better position to weather the cycle than we might have been at times in the past.

Okay. That's great. Thank you, guys, I will let someone else ask.

Thanks, Tony.

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

Matthew?

Mr. Fassler, your line is open. You may proceed with your question. That question has been with drawn. Your next question comes from the line of Michael Ward from Soleil.

Good morning.

Hi, Mike.

A couple of things. Jerry, I missed the date you said you, the maturity date you extended the $250 out until.

We have a shelf offering there and the date that is December 1, 12/1 of this year.

Then you said you have a new agreement that extends to what year?

Another full five years.

Five years. Okay. How much spending for acquisitions was included in the third quarter?

About $98 million.

Of revenue but in the third quarter alone how much cash did you put out for acquisitions?

I think it is right at $25 to $30 million, Mike.

I think it is $111 for the year, Mike.

Right. That was largely that Drago in the third quarter?

Well, Drago would be one and then we did have the S.P. Richards acquisition as well?

Okay. You talked about operating cash in 2009 at $700 million. What are the primary drivers of that? It seems like it is very strong.

Well, it really is coming from the working capital improvements our receivables are growing less than our revenues. We have got several of the business units that are doing a good job and our inventory and taking excess inventory out and also the payables term, extended terms we put in place last year, and we needed to push those out a little further this year as well. And, again, coming from just the general and operating results.

Okay.

And Mike, if you will notice our CapEx numbers are also down. Some of the business units have held their spending down. We were at $60 million versus $83 at this point last year.

So as you go into '09 some of those things will continue. So we could actually see from a working capital standpoint that could be a positive contribution?

We would hope so.

Yes. Okay. And then one last one. On the stores, the deal, the separation of the store count between company owned and independent.

In terms of the 41 year-to-date?

Yes.

It is about, it is about 50/50 about half company owned and half independent.

Okay. The third quarter reduction, was that largely independents?

No. It was a combination and it was, there were a lot of consolidations that were done to strengthen existing operations.

Okay. Thank you very much.

Thank you.

Thanks, Mike.

(OPERATOR INSTRUCTIONS). Your next question comes from Keith Hughes from Suntrust Robinson.

Given where consumer credit is, it looks like the average age of cars on the road is about to go up and maybe dramatically over the next couple of years. That has historically been a positive for your business. How long does that take to come into the revenues in the automotive segment?

Keith, I will answer that. We shall see some impact from that in 2009. You are right about the aging of the vehicles, and they're going to continue to age next year. You probably know that the average age of a vehicle on the road today is 9.8 years and I wouldn't be surprised to see it get to 10 or thereabouts in the not too distant future. So that is a positive for us as we look ahead with the age of the vehicles.

You, and final question, you had broken out your commercial and your cash business in that segment in terms of the growth. What is the rough mix right now in this segment?

Across the NAPA system it is about 75% commercial and 25% cash.

Okay. Thank you.

Thank you very much.

Your next question comes from the line of [Sial Rubin] from Silverstone Capital.

Good morning.

Morning, Sial.

Just one question. I mean you've continued quite consistently to buy back shares. I just wondered whether -- obviously you have indicated you are going to continue that, but I just wonder what consideration you have given to potentially strengthening the balance sheet even further and possibly using the coming year or two to be, to remain very opportunistic and if you strengthen the balance sheet further you could make potentially quite very material acquisition. So I just wondered how you think about that as a possibility?

Listen, Jerry. We just few that as a balancing act. If you just look at the numbers, our dividend yield to date is 4.5%. When you buy these shares we are discontinuing that dividend in the perpetuity. We are earning today pretax about 2% on our cash. So the numbers just make sense right now to do it. But I will tell you that if we saw an acquisition that made sense, we wouldn't back away from it, and I don't know that we are going to make a material acquisition, but if we did, and of course the economy is going to change, it has changed. Just look at what has happened the last couple of months. We just try to stay flexibility as we move forward. If we saw something like that made sense then we would pull back on the share repurchase, but right now we think that's the best acquisition we can make at Genuine Parts.

Great. And actually just one other one. You are adding net stores this year. Do you expect to continue to add stores on a net basis next year?

Yes, we would, Sial. About in line with what we will do this year, 50 to 60.

Okay. Great. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS).

Sylvia, do you have any callers in the queue?

I am showing we have a question from the line of Ann McCormick from FBR.

Okay.

Hi. Thanks. Actually it is [Steve].

Morning, Steve.

Good morning. Just to clarify, Jerry, the CapEx guidance for the year, I think is $100 to $110 million, I believe I caught that right, and given your year-to-date spend, I think it reflects something in the area of $40 million for the fourth quarter. Am I, did I take that down correctly?

Yes. That's correct, and some of that, we may be closer to $100 than $110. Some of that is because we have some IT projects that are in process right now that those will get set up and the CapEx numbers in the fourth quarter as they get rolled out and we start to utilize them.

Okay. And as we look, so is that kind of as we look into '09, I don't recall if you actually addressed this, but is that type of, is that a normalized level of spend?

Yes. You can expect it to be at normal maintenance CapEx particularly in the IT productivity enhancement projects and our delivery equipment, you can expect us to be $100 to $120 million each year.

Okay. Thanks. And then, secondly, if I could, the, you gave us the Company store group auto, retail, commercial sales and the cash. I think you said it was what the percentages were year-to-date. Do you have those percentages where they were for the quarter?

Steve, I don't have them with me for the quarter. We can get that and get back to you.

Okay. Yes. That would be great. And then you --.

Excuse me. What I would say though is our results have been pretty consistent all yearlong, and my guess is that they're going to be about in line with the year-to-date performance.

Okay. So that, the 3% ongoing automotive sales that you reported for Q3 it sounds like that is the type of number we should think about for the fourth quarter as well?

That's right.

Okay. Great. Thank you.

Thank you.

Your next question comes from the line of Gregory Melich from Morgan Stanley.

Hi. Thanks, guys. I apologize. I jumped on a little late so if you mentioned this please just cut me off. But love some color on how the quarter progressed because clearly September was a different kind of month from July and August. So do you guys have any color you can provide there?

We do. I will answer that. September was the weakest month of the quarter and we saw a similar pattern in the second quarter with June being the weakest month of the quarter. Things came back in July and August, and then we had a weaker month in September. I would say through the most recent report for October, we are seeing the development of a similar pattern with October looking like it is going to be a little bit better than what September was.

What do you think accounts for that? Was it people staring at their screens you think the last, their TV screens, the last weeks of September?

Well, that may be part of it and we have been all bombarded with how bad things are, and I think after a while people acquiesce and say they must be pretty bad but we do say factual reason for it other than the trends we see right now.

Okay. So, but the fact that you think the fourth quarter could look more like the whole third quarter. You just confirmed that basically October was looking a little better.

That's right.

And if you were to look at September, was it the hurricane and weather impacted areas where it was weak or was it more general?

No. That had an impact on all of our businesses for sure. And they're still not back at full tilt in certain parts of the affected areas, but that probably explains a little bit of the September weakness and some of the bounce back in October.

Okay. But you would say September had something in addition to just weather? I mean I don't want to, weather is always a funny thing to talk about.

Yes, I don't know again that I can give you a factual reason why September softened. We are just pleased that we see October starting to revert back to more normal levels.

Okay. Great. Thanks.

Thank you.

You have a follow up question from the line of Ann McCormick from FBR.

Hi. Thanks. It is Steve again. Just, you have within automotive obviously you have a large competitor that is going through a relatively large acquisition and I am just wondering if, well, two things. If you guys strategically how, if you are changing anything to I guess compete with that and then, secondly, if you happen to be seeing any change in, in trend in the markets where you, where you compete against that company?

What we are doing is just reminding all of the store operators what it takes to be successful in a very competitive marketplace. That's an ongoing initiative that we have. As far as seeing any trend changes, we don't detect any at this point.

Steve, I would also say there's always somebody making an acquisition in some of our businesses and we just have to continue to execute the plans that we have.

Okay. Great. Thank you.

Thank you.

I am showing no further questions at this time. You may proceed with any closing remarks.

Okay. Sylvia, thank you. We want to express our appreciation to you again for joining us on the call today and remind you of what we said earlier. We are still great believers in the four businesses we have at Genuine Parts Company. We have confidence in them. We are in the right industries and we have got the right marking initiatives in place to continue to show progress. It may may be as good as it would have been if if the economy was better than it is but, nevertheless, we believe Genuine Parts Company is going to be fine and we appreciate your continued interest in and support of GPC. Have a good day.

Ladies and gentlemen, this concludes the Genuine Parts Company third quarter 2008 earnings conference call. You may now disconnect.