純正零件 (GPC) 2009 Q1 法說會逐字稿

Good morning. My name is Britney, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company first quarter 2009 earnings release conference call. (Operator Instructions) I would now like to turn the conference over to Carol Yancey, Senior Vice President of Finance and Corporate Secretary. Ma'am, you may begin your conference.

Thank you. Good morning and thank you for joining us today for the Genuine Parts first quarter conference call to discuss our earnings results and the outlook for 2009. Before we begin this morning, 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 the assumptions underlying these statements regarding the Company and its business. The Company's actual results could differ materially from any forward-looking statements due to several important factors described in the Company's latest SEC filings. The Company assumes no obligation to update 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. Once we've concluded our remarks, we will look forward to answering any questions that you may have.

Earlier this morning we released first quarter 2009 results and hopefully you have had an opportunity to review them. But for those that may not have seen the numbers as yet, a quick recap shows that sales for the quarter were $2.444 billion, which was down 11%. Net income was $89.2 million which was down 28% and earnings per share were $0.56 this year compared to $0.75 in the first quarter of 2008, and the EPS decrease was 25%.

As we said in our conference call back in February, we felt that the first half of 2009 would be the most challenging for us and the first quarter results certainly lived up to the expectations. All four of our business segments had sales and profit decreases in the quarter, but the biggest variances from our plans came in the industrial and electrical segments with automotive and office products ending the quarter about where we had expected.

In looking at the individual businesses, automotive was down 7% in sales in the quarter. Currency exchange had a negative impact on our results in Canada and Mexico, and we had one less sales day in the quarter. If we take these two factors into consideration, automotive was down 1% on a comparative basis. That's not to suggest that we're satisfied with our automotive results, because we clearly are not, and we don't feel that we're performing as well as we should be currently. We recognize that we have some work to be done yet to get our growth rates up to a more acceptable level. However, as we look at some of the detail of the automotive results we do see a few positives.

In our Company owned store operations we were pleased to generate a low single digit increase in the cash or DIY side of the business. This is an important part of our business, and we were pleased to see continued growth, but the commercial business was down mid single digits. Looking a bit deeper into the commercial side, the results from our NAPA Autocare customers were stable with low single-digit increases on a same-store basis, and our major account business performed reasonably well also led by solid results from the tire companies and the AAA accounts.

Our biggest commercial challenge in the quarter came in the fleet category. Customers in this group would range from smaller construction and landscaping companies to the large municipality and over the road-type accounts. This is an important segment for us, but one that seems to have been the most impacted by the economic slowdown, and we were down low double digits in the quarter. We did make solid progress with our ongoing rollout of the parts for Asian and European vehicle initiative, and this will continue to be a growth opportunity for us over the remainder of the year. But then we did not after good quarter in the specialty markets of tools and equipment and paint, so we really had mixed results in the quarter. Some areas are performing reasonably well while some others are not, but we know where our focus and emphasis needs to be and we have initiatives underway to improve some of the weaker performing areas, and our expectation is to show gradually better results from our automotive operations in the quarters ahead.

Moving on to industrial, it was a very difficult quarter for these operations. You may recall that our industrial business was running along pretty well through the third quarter of 2008. They were up 7% through September but then saw a significant slowdown during the final three months of the year and they ended the fourth quarter even in sales and the slowdown has continued into the first quarter as well. In fact, we've seen he a continued drop-off in demand as the quarter progressed. On a per day basis, our January sales were down 12%, we were up 14% in February, and down 20% in March resulting in a 16% decrease for the quarter and the negative results are spread across most of the customer segments and product categories reflective of the broad based decline in the economy.

Over the years, sales demand for our industrial operations has tracked the industrial production and capacity utilization indices and these indices have been in a declining trend for a number of months now, indicative of the challenges currently being encountered by the manufacturing sector of the economy. This is our customer base, and while we do have specific near-term revenue initiatives underway, it is going to take some improvement in the overall manufacturing segment of the economy in order for our industrial operations to get back to positive results. And many of the same comments can be made about EIS, our electrical electronic company. They, too, saw a significant and sudden slowdown in the fourth quarter of 2008. After generating a 10% increase through September, they were down 4% in the final quarter and similar to our industrial business, the slowdown in demand accelerated in the first quarter of this year and ended the quarter down 25%. Our electrical electronic business closely follows the institute for supply management, purchasing manager index, and similar to the industrial production and capacity utilization figures, the purchasing manager index has been declining for a number of months now and we feel that sales demand for EIS is going to remain soft until we see the same improvement in the manufacturing segment that is also needed by our industrial operations.

And finally, office production. These operations were down 7% in the quarter. On a per day basis, this is similar to where they were in the fourth quarter of last year. So no improvement in the trend but no deterioration either. As has been the case for several quarters now, our performance by product category varies. Core office supplies and cleaning and breakroom products are generating positive results for us through the first quarter but these are being offset by year-to-date decreases in technology products and furniture which we think follows the overall sales patterns in the office products industry. One of the key demand drivers for our office products consumption is the number of people employed in office or service sector type work around the country.

After growing it 1.5 to 2 million jobs per year for several years, this number contracted 1.4 million jobs in 2008 with over 900,000 of the job loss occurring in the fourth quarter and the preliminary number for the first quarter 2009 shows a decline of just over one million. So the external environment remains challenging. However, our office products folks have several initiatives under way in areas like cleaning and breakroom supplies, private label product expansion, enhanced sales and marketing pieces that our customers can use to grow their businesses, and the continued development of alternate channel or emerging market opportunities, all intended to enable us to capture some additional business in the current economic climate and to position us and our customers to benefit as the economy does start to improve.

So that's a brief overview of the revenue results for the quarter, and Jerry will now take a few minutes to discuss the financial performance. Jerry.

Thank you, Tom. Good morning. We appreciate you 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. Tom will come back on for a brief recap and then we'll open the call up to your questions.

A view of the income statement shows the following. Total sales for the first quarter in 2009 were down approximately 11% to $2.4 billion, just slightly shy of our projected range for the quarter when we reported back in mid-February. This also includes a loss of one business day in '09 compared to the first quarter '08 which accounts for about 1% of the decrease. At this level of revenue you can see we continue to have our work cut out for us as we look to improve on these results over the balance of 2009. Gross profit in the quarter basically flat at 29.95% of sales compared to 29.91% in the first quarter last year. The benefits of inflation and our margin initiative are somewhat offset by the pricing -- by the competitive pricing pressures associated with lower demand and difficult economic conditions which continue to impact our markets in the first quarter. For the year, through March, our pricing which represents supplier increases to us, were 1.0% in automotive negative plus 0.2% in industrial plus 2.2% in office products, and we were flat in the electrical.

Now let's look at SG&A. For the first quarter, SG&A as a percent of sales increased just over 1% to 24.03% versus 22.92% in the first quarter of 2008. Primarily, the increase is associated with loss of expense leverage in the quarter due to the decrease in sales from last year. Outside of the sales impact, we knew heading into 2009 we had a great daily of work to do to improve the expense side of our business and we're pleased to have made some progress in this area. As we mentioned in our last call, we reduced our workforce by approximately 1600 employees, or 5% of our headcount in 2008. Through March of this year we reduced our headcount by another 1200 employees for a total reduction of 2800, or 9% of the total population.

After considering severance impact of our personnel reductions, we began to recognize early benefits of a lower headcount and additional cost reduction efforts implemented in the first quarter such as salary pay freezes, deferral of additional stock option grants, travel limitations, and post retirement benefits among others. In addition, we had some savings from improved fleet management and the decrease in fuel and energy costs due to both lower consumption and lower costs. So despite the challenge of leveraging our expenses on the lower sales volume, we were able to show some progress in managing our expenses in the first quarter. That said, we are far from satisfied, and we can and will do a better job of further adjusting our expenses as we move forward. However, we will do so with a continued focus on providing and maintaining excellent customer service. We remain confident that we can achieve cost savings of $50 million to $60 million in 2009.

For the quarter, the tax rate was approximately 38.4%, which is up from 35.6% in the first quarter last year. This the increase is due mainly to the favorable tax impact of the sale of Johnson Industries during the first quarter last year and currently we expect our tax rate for the full year 2009 to be approximately 38.4%. Net income for the quarter is $89.2 million, that was down 28%, and EPS of $0.56 compared to $0.75 last year was down 25%. As Tom mentioned, that's not where we'd like to be.

Now let's discuss the results by segment. Automotive had revenue in the quarter of $1,219.1 million, that was down 7%. Had operating profit of $87.4 million, down 4%. Nice operating margin improvement there from 6.9% to 7.2%. Industrial group had revenue in the quarter of $736.5 million, that was down 16%. Had operating profit of $34.2 million, that was down 50%. So obviously disappointing margin degradation there due to the lack of leverage and decreasing sales to 4.6%. Office products had revenue in the quarter $412.7 million, that was down 7%. Operating profit $38.7 million, down 12% while their operating margin down still very strong at 9.4% of sales. The electrical group had revenue in the quarter of $86.1 million. That was down 25%. Operating profit of $5.7 million down 37%. While their margins are down for their model, they're still very good at 6.6% to sales.

So in summary, with total sales down 11% and operating profit down 22%, our consolidated operating margin fell approximately 100 basis points to 6.8% from 7.8% in the first quarter of last year. Steady and consistent gross margins, decrease in operating margin is a result of our cost structure relative to sales which is discussed earlier we're working hard to improve. Net interest expense of $7.1 million for the quarter, basically flat with first quarter 2008. We currently expect our net interest to be in the range of $25 million to $30 million for the full year. Other category which includes corporate expense, amortization of intangibles, and minority interest were $14.2 million in the first quarter compared to $13.7 million last year. First quarter increase from 2008 mainly reflects a $3 million retirement plan valuation adjustment offset by certain other cost reductions. Looking ahead, we continue to project the total other category for the year to be in the range of $50 million to $60 million.

Now let's touch base on a few key balance sheet items. Cash. At March 31, $133 million, was down $28 million from March 31 last year but up $65 million from December 31, 2008. We're pleased with the strength of our cash position as over the course of 2008 we increased our use of cash for acquisitions, share repurchases and dividends. In addition, the first quarter 2009 we made a $53 million cash contribution to the GPC pension plan. We would add here that outside of this cash outlay and our dividend, we've been inclined to conserve and build cash thus far in 2009 in light of the current economic climate. So with continued strong cash flows, we'd expect our cash position to remain sound over the balance of the year but also look for our cash balance to vary based upon the investment opportunities that may arise during the year such as acquisitions and share repurchases.

Accounts receivable. Decreased 7% from last year and 11% decrease in sales for the quarter. We continue to feel good about the level and quality of our receivables but must remain diligent in monitoring the financial condition of our customers and their ability to pay. For 2009, our goal is GPC remains to grow receivables at a favorable rate to our change in revenue.

Inventory. 3/31/09 was $2.3 billion, down 3% or approximately $60 million from the first quarter last year and also down 3% from December 31, 2008. We've shown steady improvement in our inventory levels for several consecutive years now and will continue to manage this key investment and show more improvement on this line as the year progresses. Accounts payable decreased by 4% from last year, which is in line with our decrease in purchases and inventory levels. Ongoing negotiations to improve our payment terms with certain suppliers and expansion of procurement card program should enable us to maintain our days in payables and we reduce our purchases in 2009.

Working capital was $2.6 billion at March 31, up approximately 4% from March 31 last year, and basically flat with December 31, 2008. Increase from the first quarter last year reflects accounting for $250 million in debt as current liabilities at March 31, 2008. As this debt agreement expired and was renewed at favorable rates last November, the $250 million was then reclassified to long-term debt in the fourth quarter, showing a comparable basis working capital March 31, '09 is down 5%. Pleased with the progress in management working capital and it also emphasized that our balance sheet remains in excellent condition.

We continue to generate strong solid cash flows and our strong cash position provides the Company many opportunities. In 2009, we currently expect our cash from operations to reach approximately $500 million. After deducting capital expenditures and dividends, free cash flow should be in the $175 million to $225 million range, which will be slightly improved from our 2008 cash flow. We're pleased with the strength of our cash flows, but will strive to make further improvement. We'll be prudent about how we use this cash during the year.

For 2009, the priorities for cash remain first the dividend, which we said during our last call was increased 3% to an annual dividend of $1.60 per share for 2009. As you may know, we paid a dividend every year since going public in 1948, and our 2009 dividend represents our 53rd consecutive year of increased dividends paid to our shareholders. The continuous strength of our cash flow provides us confidence in our ability to sustain our dividend record.

Other priorities for 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 were $14.1 million for the first quarter, down from $21.8 million in the first quarter last year. The related depreciation and amortization was $22.5 million in the quarter compared to $22.7 million for first quarter last year. For the full year 2009 we continue to expect our CapEx spending to be in the range of $65 million to $75 million, and we expect our D&A to remain relatively steady with 2008 in the $85 million to $95 million range.

Another priority dating back to 1994 has been opportunistic share repurchases. Although we have not made any share repurchases thus far in 2009, we did purchase approximately 6.8 million shares of our Company stock during 2008 and today we have approximately 18.5 million shares authorized for repurchase. We have no set pattern for repurchases, but we expect to remain active in the program as we continue to believe that investment in GPC stock along with the dividend provides the best return to our shareholders.

As we also mentioned earlier, strategic acquisitions continue being important use of cash and are integral to our growth plans for the Company. We're fortunate to close 11 strategic acquisitions in 2008, and we had one small automotive acquisition in the first quarter of 2009. Although these acquisitions provide incremental revenue for us in the first quarter, we should point out that the negative impact of currency exchange in the quarter associated with our Canadian and Mexican automotive operations completely offset these incremental revenues. We are pleased, however, with the acquisition opportunities that have presented themselves in recent periods and will remain disciplined in our approach to this growth strategy. We look forward to more success in this area and plan to follow a similar pattern of strategic acquisitions over the balance of 2009. We expect to have additional acquisitions to discuss with you in future calls.

We feel good about our priorities for cash as we move ahead into 2009. We continue to believe that the use of cash in these areas serves to maximize total return to shareholders. Our total debt remains unchanged at $500 million, although as mentioned earlier, the $250 million in current debt in the first quarter 2008, which expired in November last year, was renewed on favorable terms another five years and reclassified to long-term debt during the fourth quarter. Our $500 million in long-term debt at March 31, 2009, includes $250 million which matures in 2011 and $250 million due in 2013. Total debt to total capitalization at March 31, 2009, 17.6% and we're comfortable with our capital structure at the current time.

In addition, the Company is stable and our balance sheet is strong which provides us with growth opportunities despite the current economic climate. Difficult economic conditions we saw in the fourth quarter of last year have continued into 2009 as expected. We've turned our attention to the balance of 2009 and beyond and remain focused on a proper execution of our short and long-term growth plans so that we can most effectively perform through this cycle.

As we told you in our last call, we remain confident in the positive fundamentals of our businesses. We believe will be a stronger Company when the economy begins to turn as long as we remain focused on those areas that we have control over. We were pleased to show early progress in aligning our cost structure to current levels of sales but recognize the need for even more improvement. Our management team considered our cost reduction efforts as ongoing and, as always, we remain diligent on expense controls and asset management regardless of the state of the economy. We currently expect to show more progress in these areas over the next several quarters, and we continue to think positive about our businesses, our strategic plans and our prospects for long-term growth. We'll support our initiatives with a strong and healthy balance sheet and sound cash flows, further maximizing our return to shareholders.

In closing, way say we're very proud of the dedicated employees and their efforts to help the Company show progress in sales and earnings. They truly are the best at what they do, and we're a better Company because of their good work. Tom, I'll turn it back to you.

Thank you, Jerry. So that's a recap of our first quarter results. On the revenue side, we came through the quarter about where we thought we would in automotive and office products. Not where we want to be in either case, but about in line with our expectations. Industrial and electrical had larger decreases than we had anticipated, however. We ended the quarter just below the 6% to 10% revenue decline guidance that we had provided in our February call.

On the earnings side at $0.56 per share, we were pleased to fall well within the $0.45 to $0.60 range provided in the February call. As far as the remainder of the year is concerned, we continue to remain on the cautious side. While our expectation is for automotive to show gradual sequential revenue improvement over the remainder of the year and for office products to remain about where they are for a few more quarters, there's still a fair degree of uncertainty about the levels of demand in the industrial and electrical segments in the quarters ahead. We just don't know if we are at or near the bottom in each of these businesses at this time.

With that in mind, we're going to leave the guidance provided in our February call unchanged. At that time, we said that we expected revenues to be down 5% to 8% for the full year and earnings per share to be in the $2.25 to $2.75 range. We continue to feel that these remain realistic expectations in the current environment. At this point, we would like to open the call up to your questions, and we'll turn it back over to Britney. Britney.

(Operator Instructions) Your first question comes from John Murphy of Merrill Lynch.

Good morning, guys.

Good morning, John.

On your cost-cutting efforts, you're targeting $50 million to $60 million for the full year. Just wondering as we look at the results from the first quarter how much of that was achieved in the first quarter? To get to sort of this 100% run rate in realization or is there more coming in the next few quarters?

John, we did not achieve 25% of $15 million of that in the first quarter. We did achieve a little of it. We're probably between $5 million and $10 million cost reduction. It would have been more of that had we not had the offset with the severance pay and also we had the hit for the retirement plan charge of $3 million. So it didn't reflect in the first quarter as much as it will going forward.

Okay. Then when we look at the cash conservation in the first quarter on CapEx and very low level of share buybacks, is that you just taking a conservative stance and should we expect that to continue going through the course of the year or will we see CapEx ramp up, and really what would CapEx maintenance CapEx level be as we look at the business going forward?

Our CapEx for year, we still think it will be in the $60 million to $75 million range, and going forward, and so far that's going to be in technology and enhancement improvement, some upgrade and utility equipment and so forth, but in the current climate we're not building new facilities and in answer to your question, yes, we are conserving cash, and that's the reason for not buying the shares, but we have some potential acquisitions that we're looking at and we wouldn't be interested in going out and borrowing any money to make those acquisitions in this climate. So that's the reason for the conservation of the cash.

So it's more to keep dry powder as opposed to a real concern that there's a need to hide some cash right now?

Absolutely.

Lastly, in the fourth quarter there were certainly some conflicting data points. There was declining -- automotive revenue in the fourth quarter continued in the first quarter. There was some concern toward the end of last year that there might be some market share losses in the automotive business given that some of your competitors printed positive comps in the fourth quarter. The market indicators lead to us believe that the actual market was actually down in aggregate in the fourth quarter and certainly down in the first quarter, so your numbers seem to jive with what we're seeing, but there is that conflicting data out there. Do you see anything going on in your market share shifts? I know you guys specifically mentioned some weakness in your fleet business. Is there anything going on in the market that you can tell, or is it just general market weakness that you are experiencing?

John, I will answer that or try to, anyway. We see several things happening and having an influence on our performance over the last two quarters. One thing, keep in mind, is that our same-store sales performance was actually quite good compared to what we saw happening with others up through the third quarter of last year. We did, in fact, slip in the fourth quarter and our same-store sales performance in the first quarter is not where we would like it to be nor where we think it will be going forward. I would say that we probably did lose a little bit of share temporarily in Q4 and in the first quarter of this year, but we've taken a hard look at the business and we've learned some things along the way.

Number one, we confirmed in our minds that we got an extraordinarily strong, capable, and dedicated group of people who want our automotive operations to perform at the levels that are expected and we confirmed also that the underlying business is actually good. Fundamentally, this is a good business to be in. It is in a slower period right now, but medium and long-term we feel good about the prospects in automotive. I think what we found as we look at the business pretty carefully is that there were a couple of key product categories that we needed to do some pricing adjustment on in order to position us competitively in the market place, things like rotors, calipers, rid control would be examples product categories we felt that we might have gotten a little bit out of alignment on and steps have been taken to correct all of that. Those programs are fresh out in the field now.

We have a couple others that we probably need to do some adjusting on, and they are being worked on currently. We have felt over the past couple weeks that we needed to clarify and sharpen the focus of our organization on a few key sales opportunities and accelerate the evolution of a couple of what we think are really good growth opportunities for us, specifically the import parts program and the heavy-duty truck parts program, both of which continue to grow nicely, but we think we can accelerate the evolution there in the weeks and quarters ahead.

One of the things that did influence our results, I referenced it in my remarks, is that we're a bit more heavily skewed toward the fleet category of customer and that's a category that's going through a down period currently, and one that we need to continue to work closely with to help them through the more challenging times that they're encountering, and also we think we may be able to earn a bigger share of their spend as we work more closely with them, and then we also need to try to offset some of the decline in the fleet segment by reinvigorating our focus on what we would call the regular installer business, programs like Napa auto care and major accounts. I think we found there are a couple of key product areas where we did not do as well as we have done historically. Tools and equipment would be an example, and we see an opportunity there to improve the performance in the quarters ahead, and we also found that maybe we needed to shorten some of the decision making cycle time which our folks have improved upon immensely over the last couple weeks.

So I guess I would say that we haven't found anything in our business that we consider to be structurally or fundamentally wrong within the business. I think what we have identified are some areas that we can take action on and things that we can fix, for the most part in the near term, and the team is focused on that right now. And, as a result, our expectation is that we will show gradual but steady improvement in the automotive performance as we work our way through the year.

Great, thank you very much, guys.

Thanks for the question, John.

Your next question comes from Matthew Fassler with Goldman Sachs.

Thanks a lot, and good morning to you.

Good morning, Matt.

Couple questions on the operating margin performance by business. It looks like in automotive the EBIT margin year on year was actually quite good considering the sales performance that you showed. You could say the same in office supply and maybe the opposite to some degree in industrial where, granted, it's hard to gauge what is appropriate with the kind of sales that you took, but you fell a bit short of our numbers. So if you could contrast your success I guess on costs in particular and any other dynamic by business that would have driven those operating margin results.

Matt, I will take a stab at that, then Jerry can jump in. But I think across all four of the businesses we've got very active cost containment initiatives going on and all four have contributed in a meaningful way. Jerry mentioned earlier that one of the initiatives is to keep our headcount in line with the revenue production, and we did have a headcount reduction again in the first quarter, but the effect of that will not be felt really until the second quarter and beyond, because of accrued benefit in severance payments to the folks. So we've got a little bit further to go before we see the benefit of that. Other things that are happening across all of the businesses, our facility rationalizations and consolidations. As a for-instance, in the automotive we opened 65 new stores in the quarter, but we actually consolidated or closed 94 of them. So we had a net reduction in store count of 29, most of those being company owned stores, 27 of those were company owned stores. And, again, there's no benefit associated with that until we get into quarters two and beyond.

We've done a lot of route optimization on our transportation routes out of each of the businesses. The main problem in industrial and in the electrical business is the degree of reduction in the revenue side. We just could not de-leverage quickly enough to catch one the 16% revenue decline and a 25% revenue decline in electrical. And as I mentioned in my comments, as the quarter progressed, the revenue declines actually accelerated in both of those businesses. So it was a challenging quarter, but we'll catch up with it on the expense side in the not too distant future.

Got it.

I might mention, we're not used to dealing in negative numbers, period, but much less numbers that are this negative in the industrial and electrical, and so we are kind of chasing the number. We're not sure what an acceptable expense level is. We're certainly not happy with a 4.6% operating margin in industrial, and that cost structure will be adjusted going forward, but the basic expenses that we're looking to reduce are in all business units pretty much the same. It's in the line with freight and headcount, facility rationalization and all those things that Tom mentioned.

Got it. Second question relates to the automotive. I think essential comp store sales and company-owned stores you said I guess was only for the DIY or walk through business where you give a 1% number, but actually it was overall you said automotive was down 1% on a comparative basis. Where was that comparative number in Q4 just so we can compare the trend from Q4 to Q1?

It was about the say. We were just modestly better in the first quarter of this year, Matt, but it would be easier just to say it was the same.

So the common drags on both periods were currency, it sounds like it was the biggest one, I know the calender was a modest drag here in the first quarter.

That's right. We had one less day, and that's about 1.6% by our calculation.

Got it. And there's a great deal more currency in automotive than anywhere else in your Company?

There is. It cost us about 5% in the quarter.

In automotive. Okay. Then the last question I would ask relates to just April, and you talked about deceleration in the industrial linked businesses intensifying really into March. Any sense you can give us on April on any of the businesses would be very helpful.

In the industrial business, we think that -- our expectation for the quarter, second quarter in industrial, is about where we ended the first quarter, maybe slightly weaker, but not dramatically so. In the electrical business, our expectation is to be down at least as much as we were in the first quarter and maybe a little bit more based upon what we see right now. Office product should remain relatively stable and automotive we would look for just a slight improvement in the second quarter.

Great, thank you so much.

Thank you.

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

Hi. Thanks. Good morning, gentlemen.

Good morning, Tony.

I guess sort of on the line of questioning that Matt had, when you look at where you see perhaps trends on the industrial and some of the other categories that are likely to at least remain weak here for the foreseeable future, do you anticipate the level of cost savings that you've identified to be able to offset what will be sort of more of a deterioration in the revenue or at some point does that -- does one take -- do you get actually more de-leverage from the sales side or are you doing enough on the cost side to come through to cover that?

Matt, it's a balancing act. I mean, I'm sorry, Tom, it's a balancing act because we don't want to go so far that we can't service the business we have and lose it to competition or lose the revenue. We are not sure at this point because we have not been in this territory before, but I can tell you we do feel like we've got more costs that we're going to have to take out.

Another part of this in the industrial and electrical is because in those businesses you get volume incentives, and as we're reducing our inventories and reducing our purchasing because of the lack of sales, then that has an impact as well. So it really is difficult or impossible for us to answer where that new operating margin is going to be for 2009. Certainly, this is not going to last forever and it will cycle back out and we'll get those margins back up to where they were, but it's impossible for us to answer where they're going to be here for the next couple quarters.

I might -- Tony, I might try to add something that perhaps will be helpful and that is when we started to see the businesses slow in the early part of the fourth quarter last year, each of businesses built cost reduction plans, very specific, very detailed. All of them implemented on those plans and did a good job with that. But as we saw that the business was decelerating even more in industrial and electrical, they had built contingency plans to take more costs out which they had been working on and they continue to refine the contingency planning to try to catch up with the declining revenue. As Jerry said, we've got a good bit more to go, but our folks are pretty determined that they're going to get to where they need to be.

Has there been any change in how you compensate your employees? I mean, has there been more incentive given to profit dollars hitting reduced budgets or are you just not -- ? I'm just wondering from a compensation structure, short of saying, here's the new budget, we've got to save costs, but what's the priority or the focus been across each division when it comes to that

Our plans are built specifically within each of the businesses, and they're put together with specific recognition of what responsibilities the individual may have. But if you look at any one of the businesses, the management teams at the senior levels are heavily compensated on an incentive plan, and it's heavily skewed toward the profitability and the return on investment in those businesses. So we have not changed the plans as much as you're asking, I don't think, because we've always been heavily dependent upon profitability performance which takes into consideration the revenue and the net profit for that business.

Okay. And one last question, and maybe this is for Jerry. When you look at that time revenue decline, how much positive impact did you have on revenue this year from an acquired business standpoint?

We probably would have had 1% to 2% on the acquisition, but that was all traded off with the currency exchange from our Canadian and Mexican operations.

Okay. And is currency -- has that started to work a little bit back in to your favor as the quarter progresses?

Modestly in March but not where we would like to see is it.

Okay. Great. Thanks, guys.

Your next question comes from Himanshu Patel with JP Morgan.

Hi, this is [Brian brinkman] for Himanshu Patel. I know you discussed margins a bit already, but I was wondering if you could make some specific comments related to the rather benign decrementals at the automotive segment this quarter. Specifically, how should we think about the sustainability of some of the more nonvariable portion of the costs that were taken out this quarter and might decrementals be as benign moving forward as they were in the quarter for this segment?

Well, one of the things that happened is our margins in the automotive in the first quarter last year were not as good as we would like for them to be. We had a couple of unusual things and that we had the sell of Johnson Industries that was in there. We also had the closure of one of our rebuilding plants was in there. So that helps some, but the automotive folks, that revenue was impacted earlier than the other business segments and they started taking the costs out earlier, and they didn't have, for the headcount reduction, they didn't have impact of the severance that the other business units had. I think we hope to see continued improvement in the margins, and I don't know if we'll see four-tenths percent increase in the automotive margin each quarter, but we think we can continue to take costs out there and see some improvement. The key to that is going to be to get the revenue growth back.

Okay. Appreciate that. Thanks a lot.

Thank you.

Your next question comes from Keith Hughes of SunTrust.

Thank you. Earlier you talked about pricing in automotive being negative 1%. Is that the impact of your pricing actions on the items you mentioned earlier or is that just a generic decline across the board?

It is a cumulative pricing that we receive from our manufacturers from January 1 through the first quarter. So, it's not a full impact on our revenue growth, but that is a factor because we pass on pricing, increases or decreases.

Keith, that's manufacture related and it has nothing to do with any specific actions that we may have taken in the marketplace.

Now, the specific actions you took, how much of the product portfolio are we talking about here? Small number? Big number?

It depends on the definition of small or big. We're talking tens of millions of dollars but we are not talking $50 million or $100 million.

Okay. That answers the question. Within the industrial business, the cost cuts there, is that something we'll start to see in the second quarter, the benefit, or is that more of a second half of the year?

I think we'll start to see some of it feed through in the second quarter and then it will continue on through the remainder of the year because they're into that contingency planning in terms of getting costs out as well.

Final question. You talked about your fleet sales being hurt within the automotive segment. Was that due to loss of customers or just customers business being down?

Customers business being down. Contraction in that category.

All right, thank you.

Thanks for the questions.

Your next question comes from Mike Ward with Soleil.

Thanks, guys. Good morning.

Hey, Mike.

Jerry, you mentioned I think you had a pension contribution of $53 million, is that correct?

That's correct.

Was that a required contribution or was it voluntary?

No, it was required. We have a policy internally that we're going to have our pension plan fully funded, and with the returns and all that pension plans generated in 2008, that got down, and then we had an actuarial calculation done that said we needed to make a $53 million contribution to get it back to an acceptable funded status and that's what that was for.

Okay. And where did that show up on your cash flow statement? Was that just on the operating cash flow number there?

Yes, it was.

Okay. And your assumptions for the year for your free cash flow assumptions include that contribution?

Yes, they do.

Okay. And I think that's about it. I appreciate it. Thanks for your time.

Thanks, Mike.

Your next question comes from Gregory Melich with Morgan Stanley.

Hi. Thanks, guys. A couple questions. One, I wanted to follow up on the auto pricing a bit. The number you gave, if you were to split that into commodity products versus more hard parts, is there a discernible difference given how much oil has fallen?

It might be more heavily skewed toward some of the petrochemical-type products. We've seen some deceleration in pricing there over the quarter.

Greg, I might point out that that's across all product categories within the automotive and it may be that we had some price increases for certain product categories and decreases for others. That's a net number across all product categories within the automotive.

But if you took out sort of the commodity chemicals it still would have been down, is that fair?

We don't know that granular information on it, but -- unless you do, Tom. I'm not sure that I can answer that.

I'd say it probably was down just a bit.

Okay. Then getting a little deeper into the office product side, could you give us a bit more color from the top line perspective as to how the national accounts are doing versus some of the independents?

We can tell you what our businesses with them. The independent business was down 5% in the quarter, and our major account business was down high teens in the quarter.

Just a reminder, that's similar to the trend in the fourth quarter?

No, the fourth quarter we actually were modestly up with the independents, and the majors it's a little bit softer, but the big difference was with the independents. Independent business last year, Greg, was up 1%, if I remember correctly, and our major account business was down mid double digits last year.

Okay. So sequentially the bigger swing you saw was independents.

Yes, in the quarter.

Then finally, with the actions you are taking, particularly in auto, how should we think about that in terms of impacting gross margin versus SG&A going forward? You've taken a lot of action. Sounds like a lot of that is still coming through on SG&A. But if you are take pricing action, should we expect gross margin to be harder to grow going forward?

I would say that our gross may lag the revenue just slightly but not materially because we've got initiatives to protect the gross profit in other ways as well.

Okay, great, thanks.

Thank you.

(Operator Instructions) We will take one final question, and that question comes from Brian Sponheimer with Gabelli & Company.

Good morning. Most of my questions have been answered. Just had an industry question here. Are you guys seeing across the board any deterioration or distressed in any independent distributors, whether it's in the office products division or with MRO products on the industrial side?

When you say distress --

Opportunities for you to potentially gain share not through consolidation but rather just less competition being around to compete with.

I think there may be some of that, yes, and I think that may surface in all four of the industries quite honestly, but especially in the industries that are more highly fragmented. We see some evidence of that starting to surface currently.

And any particular line that -- and just how impactful this could be from a revenue perspective for you going forward?

No, I don't think we could quantify that, honestly. I think it would be difficult, because we don't know specifically the size of some of these companies nor do we know which ones in particular may be under more stress, but we see some evidence in the marketplace that some of this may be going on.

Okay. Thank you again. All my questions have been answered.

Thank you.

Thank you, Brian. Britney, thank you. We appreciate everybody joining us on the call today, and we appreciate your continued interest in and support of Genuine Parts Company, and we look forward to talking with you in the future.

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