純正零件 (GPC) 2009 Q4 法說會逐字稿

Good morning. My name is Celeste and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts fourth quarter 2009 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

I would now like to turn today's call over to Mr. Scott Smith, Senior Vice President and Corporate Counsel. Please go ahead, sir.

Thank you, Celeste. Good morning and thank you for joining us today for the Genuine Parts fourth quarter and year end conference call to discuss earnings results and the 2010 outlook.

Before we begin, 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 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 brief remarks from Tom Gallagher, our Chairman, President and CEO. Tom?

Thank you, Scott and I would like to add my welcome to each of you on the call today and to say that we appreciate your time 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 any questions you may have. Earlier this morning we released our fourth quarter and year end 2009 results and hopefully you've had an opportunity to review them but for those who may not have seen the numbers as yet, a quick recap shows that sales for the quarter were $2.471 billion, which was down 2%. Net income was $99.2 million, which was up 13%. And earnings per share were $0.62 this year, compared to $0.55 in the fourth quarter of 2009, and the EPS increase was also 13%.

For the full year, sales were $10.058 billion which was down 9%. Net income was $399.6 million, which was down 16%. And earnings per share were $2.50, compared to $2.92 last year, and that's down 14%. So it was a tough and challenging year for us, without question, but we were a bitt encouraged by the continued sequential revenue improvement that we saw across each of the four businesses in the fourth quarter results, and also by the fact that we were able to produce double-digit net income and earnings per share increases in the final quarter. This was our first positive quarter in 2009, and it is a marked improvement over our results for the first three quarters.

In looking at the individual segments, the two businesses that have been most impacted over the past year are Industrial and Electrical electronic. These are the two that are most closely tied to the manufacturing segment of the economy which, as you know, has been severely affected by the recession. In the case of Industrial, revenues were down 11% in the final quarter, and they were down 18% for the year. the 22% decreases in quarters two and three we were actually a bit encouraged to see the smaller decrease in the Industrial results in the fourth quarter, but there There is still work to be done to get us back into positive territory.

As we look a little deeper into the Industrial results, we were pleased to see that we did manage to end the year with increases in a select group of industry segments. Food products, Food Processing, power generation would be three examples. And we feel good about the progress made in each of these customer categories. But then they were offset by declines in the majority of our remaining industry segments, with the steepest declines coming in Automotive, Iron and Steel, Equipment and Machinery, and the construction and housing related segments. And the number of industry segments with decreases this past year is reflective of the broad impact of the recession across the manufacturing sector of the economy.

In our third quarter conference call, we referenced the early signs of improvement that we were seeing in both the Industrial production and capacity utilization indices. After consistently declining over the the first half of 2009, these indices started to move back up in the third quarter, and the improving trend continued on through the end of the year. Historically these indices have been fairly reliable six to nine month leading indicators for our Industrial business, and as such, we feel that they will lead to more favorable market conditions for us and they should enable us to report an improving performance for our Industrial operations over the course of 2010. Our results in the Electrical Electronics segment follow a similar pattern as our Industrial results.

After being down 25% in the first quarter, 34% in the second quarter, and 30% in the third quarter, we ended the year with a 12% decrease in the final quarter and we were down 26% for the year. Not where we want to be by any means, but we do think that we're beginning to see the early signs of a very gradual recovery in this business also. One of the leading external indicators for us is the Institute For Supply Management's purchasing manager index. Those of you who follow the index know that a number above 50 indicates expansion in the industry and below 50 indicates contraction. After being below 50 for 18 consecutive months, the index topped 50 in August 2009, and it has remained above 50 for six months now. This too has historically been a six to nine month leading indicator for us and as a result of the improvements seen over the past several months, we would anticipate a more positive trend for our Electrical Electronic business as we progress through 2010.

Moving on to Office Products, SP Richards was down 4% in the fourth quarter and they ended the year down 7%. We did see modest sequential improvement as the year progressed. We started off with a 7% decrease in the first quarter, we were down 6% in the second, 5% in the third, and now 4% in the fourth. While we still have work to do to get back on the plus side, we are at least gradually moving in the right direction. But the impact of the consistent down sizing of the office workforce over the past 18 to 24 months has resulted in a continued decrease in consumption and demand for Office Products across the industry. And this is reflected in our results by customer category as well as product categories.

We ended the year with our independent Office Products resellers being down 5% and our mega customers were down 10%. And then a review of the performance by product category shows that we continue to make good progress in the area of Cleaning and Break Room supplies where we generated a nice double-digit increase for the year and we would expect this category to to perform well. But then we ended the year with low to mid single digit decreases in both Office Supplies and Technology Products, as well as a double-digit decrease in furniture.

The biggest headwind facing our Office Products team is the continued decline in the service sector employment numbers. After growing 1.6 to 2.1 million jobs per year, 2004 to 2007, we saw this contract in 2008 by 1.6 million jobs, and then it contracted again in 2009 by 1.9 million jobs. Until we see these numbers start to improve, demand across the industry is going to remain subdued. However, our Office Products team remains focused on implementing several strategic initiatives in the areas of account penetration and product and channel strategy that's we feel will lead to an improved performance from Office Products in 2010.

And finally Automotive. We're especially pleased to report a 6% revenue increase for our Automotive operations for the fourth quarter. Now, that still puts us down 2% for the year. But following declines of 7% in the first quarter, 5% in the second, 1% in the third, we're encouraged by the sequential improvement on a quarterly basis and we feel that we have turned the corner in our Automotive operations. We continue to be impacted in the quarter by the decreases that we've been running in our Fleet category. These are customers that range from smaller independent contractors and landscape companies, on up to the large over-the-road trucking companies. And as we have mentioned in the past, in total they represent 20 to 25% of our business, and we ended the year down 10% with these customers.

Conversely, we're pleased with the continued improvement that we see in the more traditional side of our commercial business. Our two biggest programs are NAPA AutoCare and major accounts. Combined, they represent over $1.5 billion of our commercial or installer business, and they were up 6% and 7% respectively in the fourth quarter. These are solid results and they would indicate that we made good progress in these two important parts of our commercial or wholesale business. Additionally, if we look back at our non-Fleet related commercial wholesale business over the course of 2009, we see clear evidence of an improving trend. This segment of our customer base was down 2% in the first half but up 9% in the second half. This shows a nice improving picture.

On the cash side of our business, we were up 2% in the first half and up 3% in the second half, so showing continued improvement here and progress. And we're encouraged by the trends in many parts of our Automotive business. And as mentioned earlier, we feel that we have turned the corner in our Automotive operations and we look forward to an improved performance from Automotive in 2010. So that's a quick recap on the revenue side, and at this point, we'll ask Jerry to review the financial performance. Jerry.

Thank you, Tom. Good morning. We appreciate you joining us on the call today.

We'll first review the income statement and segment information, then touch on a few key balance sheet and other financial items. Tom will come back for a recap and then we'll open the call up to your questions. Review of the income statement shows the following, total sales for the fourth quarter were down 2% at $2.5 billion, and reflect sequential improvement in each of our businesses and for the total Company as Tom mentioned earlier. For the year, we finished down 9% at $10.1 billion, only our second sales decrease in the last 60 years. So moving forward with sales increases in 58 of the last 60 and are expecting to get back on track with another year of sales growth in 2010.

Gross profit in the quarter increased 123 basis points to 31.1% to sales compared to 29.8% in the fourth quarter last year. We're pleased to show progress for the quarter in our gross margin, and for the year gross margin improved by 22 basis points to 29.9% to sales. Through the first three quarters of 2009 were slightly behind our 2008 gross margin levels as we have been addressing some competitive pricing issues, and we also were challenged by reduced incentives earned on lower levels of purchases during the year. In the fourth quarter our pricing concerns seemed to stabilize and we also had the benefit of approximately $20 million in LIFO liquidation for the quarter. Without the $20 million LIFO adjustment, gross margin would have been 30.25 for the fourth quarter.

In 2010 we'll continue to focus on gross margin improvement, although we will see a more gradual process relative to the fourth quarter movement. For the year, our cumulative pricing which represents the prior increases to us were negative 2.6% in Automotive, plus 0.4% in Industrial, plus 3.7% in Office Products, and 2.0 in the Electrical segment.

Now let's look at SG&A. For the fourth quarter, SG&A expenses of $605 million were up slightly from $602 million in the same period 2008, and as a percent to sales were up approximately 60 basis points to 24.5% versus 23.9%. For the year, SG&A of $2.4 billion is down approximately $138 million, and represents 23.5% of sales which is up 80 basis points from 22.7% for 2008. The increase in expenses as a percent of sales is due to the loss of expense leverage on lower revenues which was an ongoing challenge for us throughout 2009, despite our continued progress in reducing our cost structure.

Our $138 million decrease in expenses for the year was driven by volume related declines in 2009, as well as the benefit of our cost reduction efforts related to personnel, such as salary pay freezes, deferral of additional stock option grants, travel limitations and reduced retirement benefits. In addition, we recognize pension savings of $20 million in 2009, related to the soft freeze of the Company's pension plan effective January 1 of 2009, as well as our workforce reduction. We reduced our headcount in 2009 by approximately 2300 employees or 7% of our workforce. And this is on the heels of reduction of over 1600 employees in 2008, or another 5% of our total headcount.

Additionally in 2009 we benefited from cost reduction initiatives in areas such as facility rationalization, freight, leading logistics management and fuel and energy consumption. In total, we estimate that our cost reduction initiatives resulted in savings of approximately $70 million for 2009, in line with our projections. We believe that around $20 million of these savings may come back to us with improved revenue growth, leaving us with a net annual cost savings of approximately $50 million going forward. With that in mind, our management teams remain focused on the ongoing assessment of the profit cost structure in our businesses and the need for future cost reductions while maintaining high standards for excellent customer service. We are in a another year where tightly managing our expenses remains absolutely essential.

Now let's discuss the results by segment. We'll go through the results for the quarter first and then we'll touch base on the full year. Revenue for Automotive in the quarter, $1.2646 billion, was up 6%. Operating profit of $75.0 million was up 11%, so margin enhancement there from 5.7 to 5.9%.

The Industrial group had revenue in the quarter, $736.6 million, that was down 11%. Operating profit, $60.2 million, down 16%, so their margins were down to 8.2% from 8.7% the prior year fourth quarter. Office Products revenue in the quarter, $383.8 million, that's down 4%, operating profit of $27.0 million, down 8%, so margins were down to 7.0%. Electrical group had revenue in the quarter of $89.7 million, down 12%. The operating profit of $7.7 million, up 2%, so nice margin enhancement there from 7.4% to 8.6% for the quarter.

Looking at the the full year segment information, Automotive had revenue of $5.2254 billion representing 52% of the total and that was down 2%. They had operating profit of $387.9 million, up 1%, so again, margin expansion from 7.2 to 7.4% for the full year. The Industrial group had revenue for the year of $2.8858 billion, representing 29% of the total. Operating profit of, $162.4 million, down 45%, so their margins decreased significantly from 8.4 to 5.6%. Office Products revenue of $1.639 billion, down 5%. Operating profit of $126.1 million, and that was down 12.5%, so they closed the year with operating margins of 7.7% from 8.3% the prior year. Electrical group had revenue for the full year, $345.8 million, that was down 26%. They had operating profit of $25.3 million, down 31%, so the margins were down slightly from 7.9% to 7.3%.

In summary, the operating profit margin for the fourth quarter fell slightly from 6.9% from 7.0 in the fourth quarter of 2008, on a 2% sales decrease. For the year, operating profit margin is down approximately 80 basis points from 2008 to 7.0 on the 9% sales decline. Again, the decrease in operating margin is primarily the result of deleveraging operating expenses, particularly in our Industrial and Electrical businesses. We had net interest expense of $6.6 million, and $27.1 million for the quarter and the year respectively. This is down from the same periods in 2008. We expect our net interest expense to be approximately $26 million to $28 million, again, in 2010.

Other category, which includes corporate expense, amortization of intangibles, and minority or noncontrolling interest was $640,000 expense in the fourth quarter and is $30 million for the full year. Both the fourth quarter and annual costs in this line were improved from 2008 due to positive impact of our cost reduction efforts in general, as well as lower incentive based compensation costs, such as bonuses and stock options, and certain nonoperating items such as favorable retirement plan valuation adjustments in 2009 of approximately $6 million, of which $2 million was recognized in the fourth quarter. This is a $13 million swing from the $11 million cost recorded in the fourth quarter of 2008.

Looking ahead, we currently project total other category to be in the $40 million to $50 million range for 2010, which assumes no retirement plan valuation adjustments positively or negatively and more normal levels of incentive based compensation which we would expect to incur with improved results. For the quarter, tax rate was approximately 39.1%, which compares to 41.6% for the fourth quarter in 2008. Decrease from last year mainly relates to the nondeductible expense in 2008 associated with the retirement plan valuation adjustment just discussed. The 39.1% rate was an increase however from our rate through the third quarter in 2009 as we experienced higher state and international taxes in the fourth quarter.

For the year, the tax rate was approximately 38.0, which is slightly less than the 38.1 rate for the full year in 2008 and we currently expect the tax rate for 2010 to remain at approximately 38.0. Net income for the quarter, $99.2 million, was up 13%. Earnings per share of $0.62 compared to $0.55 last year was also up 13%. For the year, net income of $400 million, down 16%, EPS $2.50 compared to $2.92 in 2008, down 14%.

Now let's touch base on a few key balance sheet items. In 2009, we took a conservative approach to managing our cash and cash at December 31 increased to $337 million from $68 million at December of 2008. Our cash position remains strong. It's allowed us ample funding for ongoing acquisitions, dividends and capital expenditures as well as the Company's pension contributions. So despite the challenges we faced in 2009, we continue to generate consistently strong cash flows and expect our cash position to remain sound.

Accounts receivable. Accounts receivable decreased 3% from last year, including acquisitions on a 2% decrease in sales for the fourth quarter. We continue to feel good about the level and quality of our receivables and remain diligent in monitoring the financial condition of our customers and their ability to pay. Thus, limiting our exposure to write-offs and ensuring the adequacy of our reserve for bad debts. At December 31, 2009, we're confident that the Company is properly reserved. For 2010, our goal at GPC remains to grow receivables at a rate less than our sales growth.

We're in a year where the credit environment for our customers appears to be improving. However, it's critical that we maintain our credit discipline. Inventory 12/31/09 was $2.2 billion, down 4% or $103 million from last year, and this includes additional inventory from acquisitions of $43 million. We have seen a steady improvement in our inventory levels for several consecutive years now and will continue to manage this key investment tightly and show more progress in the year ahead.

We're also able to improve our accounts payable position again in 2009 with payables increasing 8% from last year to $1.1 billion. For the year, our days in payables improved to 55 days from 47 days in 2008. We're pleased with this progress and attribute much much of it to the improved payment terms with various suppliers. With our progress in our key areas of accounts receivable, inventory and accounts payable, working capital of $2.6 billion at December 31, holding relatively constant with the December 31st, 2008 balance up less than 2%. Working capital is down 9% from December of 2008.

We're very pleased with our progress in managing working capital and as you can see the balance sheet remains in excellent condition. We continue to generate solid cash flows and as mentioned earlier our strong cash position provides us with the financial flexibility to consider many investment opportunities. 2009 was a record year for us from a cash perspective, and cash from operations improving to approximately $845 million, and free cash flow up to nearly $450 million, after deducting capital expenditures, purchased properties under construction, lease agreement and dividends.

We're pleased with the strength of our cash flows in 2009. We also feel good about how we used our cash during the year. The priorities for the cash in 2010 remain, first, the dividend which we paid every year since going public in 1948, raised for 54 consecutive years effective with yesterday's Board approval of. To $1.64 per share from $1.60 per share in 2009. Other priorities for cash include the ongoing reinvestment in each of the businesses, strategic types of acquisitions in each of our business segments, and share repurchases.

Capital expenditures were $20.1 million for the fourth quarter, down from $45 million in the fourth quarter last year and for the full year CapEx of $69.4 million, down from $105 million in 2008. We planned on this lower level of spending in 2009, but were careful to make the necessary reinvestments in our businesses. Related depreciation and amortization of $22.9 million in the quarter, $90.4 million for the year, up slightly from the same periods in 2008. For 2010, we can expect our CapEx to increase to approximately to $80 million to $90 million with the vast majority of these investments associated with productivity enhancing projects. D&A will likely hold pretty steady with 2009, also in the $85 million to $95 million range.

Strategic acquisitions continue to be an ongoing and important use of cash and are integral to our growth plans for the Company. We closed on six acquisitions in 2009 and our expectation is that these new operations to be at least slightly accretive to our earnings, although only minimal in 2009. As you may know, we announced on December 21st that our Industrial business, Motion Industries, entered into an agreement to purchase BC Bearing, a bearing and power transmission distributor headquartered in Vancouver, British Columbia. BC Bearing operates 53 branches throughout Western Canada and the northwestern US where we see significant growth opportunities for us. In addition, in early January, our Electrical business acquired a small two location Electrical distributor. So we're pleased with the acquisition opportunities that continue to present themselves and we remain disciplined in our approach to this element of our growth strategy. We generally target those bolt-on types of acquisitions with annual revenues in a $25 million to $75 million range, and we intend to follow a similar pattern in the future.

In the fourth quarter of 2009 we used our cash to repurchase approximately 722,000 shares of the Company's stock under our share repurchase program, and at December 31, 2009, we had approximately 17.8 million shares authorized and available for repurchase. Opportunistic share repurchases continue to be a priority for us, and we purchased approximately 235,000 shares thus far in 2010. 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 a dividend provides the best return to our shareholders.

It's worth mentioning again on this call that through the first nine months of 2009, we were more focused on cash conservation and acquisition opportunities than share repurchases. With the economic uncertainties and historically low business valuations, we felt this was the most prudent way to manage our cash. Balancing these considerations against share repurchases is an ongoing process, but we absolutely believe that our stock is an attractive investment. We feel good about our priorities for cash as we move into 2010 and continue to believe that the use of cash in these areas serves to maximize the total return to shareholders. Total debt at December 31, 2009 remains unchanged at $500 million, and includes $250 million which matures in November 2011 and $250 million maturing in November 2013. Total debt to total capitalization December 31, 2009, 16.0% and we're comfortable with our capital structure at the current time.

The Company's stable. Our balance sheet is strong. And this provides us with the ability to take advantage of growth opportunities regardless of economic conditions. In closing, Genuine Parts Company clearly had a challenging year in 2009, but we remain very profitable and financially sound. We also continue to generate significant cash. We spent much of 2009 managing the Company through unprecedented economic difficulties and believe that through these efforts we are a stronger Company today. We made some difficult yet necessary decisions during the year that served to right-size our cost structure and improve our productivity. We enter 2010 with great confidence in our growth strategies and the positive fundamentals in each of our businesses.

These things, as well as a more stable economy relative to where we've been, position the Company for sales and earnings growth in 2010 and we're very much looking forward to reporting on that in future calls. We'll continue to support our growth with a strong and healthy balance sheet, and sound cash flows, further maximizing our return to shareholders. We enter 2010 from a position of strength with sound growth strategies and solid financial flexibility to fund them. This concludes our financial review. And I'll wrap it up by expressing our appreciation to all of our dedicated GPC associates. We're very proud of this group.

Their efforts have been tremendous and they remind us each day why Genuine Parts Company is the great Company we believe it to be. We also want to thank our customers and suppliers and we appreciate their continued support. Tom?

Thank you, Jerry. So that's a recap of 2009 and in many ways we're glad to get it behind us. We're certainly disappointed to end the year with decreases in both revenues and earnings. However, we are pleased with the progress that the GPC team made on the asset management and balance sheet side of the equation, despite the difficult operating environment. As far as 2010 is concerned, because of some of the progress that was made over the latter part of 2009 we feel that we're in a position to be able to report improved and positive results for each of our businesses in 2010.

Our Automotive management team showed good sequential improvement over the second half of the year. And the fourth quarter results would indicate that we're gaining a bit of momentum and perhaps even recapturing some of the market share on the commercial side of the business that was lost during the first half of the year. Our expectation is for Automotive revenues to be up 3 to 5% in the year ahead. In Industrial and Electrical, we feel that we're in the early stages of what will be a very gradual recovery. We may even experience a little choppiness in our results over the the first half of the year, but our expectation is that each of these businesses will be up 2 to 4% for the full year.

Our sense is that Office Products will continue to face a challenging end market for the first few quarters but at this time we'd say that they should end the year even to up 3%. Combining these individual expectations for each of the four businesses would give us an overall full year revenue range of plus 2 to plus 4% for Genuine Parts Company. On the earnings side, our expectation is for the operating units to produce a combined earnings increase in the mid to high single digit range. But then these results will be tempered somewhat by a projected unfavorable swing in our pension and retirement expenses of approximately $26 million. Considering this additional expense in 2010 and maintaining a big of caution until we see how the first half of the year develops, our guidance on earnings would be in the $2.52 to $2.70 range, and we would hope to refine this a bit as we get a bit deeper into the year. That will conclude our planned remarks, and at this time, we'd like to open the call up to your individual questions, and we'll turn the call back over to Celeste.

(Operator Instructions). Your first question comes from the line of Gregory Melich with Morgan Stanley.

Hey, guys , this is Mike Montagna in for Greg. Thanks for taking

Good morning, Mike.

Just wanted to ask you guys quickly if we could delve into the gross margin a bit, you know, still up 40 bips, even if we subtract out the LIFO. Is that really all driven by pricing? And can you just help us understand volume rebate outlook for this coming year, do you need just a low single digit sales growth to get that? Thank you.

Mike, I'll take that question. This is Jerry. You know, we did have the challenge in the gross margin area because of pricing in the first nine months, but for the full year we had $80 million to $85 million less in volume incentives, so that had an impact. The marketplace itself remains very competitive so we're not getting any leverage there on the sales that we have. So it stayed competitive in all the markets. But the impact on gross margin in 2009 was primarily driven by less volume incentives. Now, each of the business units are currently negotiating their programs with our suppliers and it just depends on how those negotiations come out, what the impact of volume incentives have on 2010. Certainly increased revenue will help increase the purchases and increase the volume incentives in total, but you also have to see how those programs are negotiated and some of those in the process at the current time.

Great. Thank you. And so just to follow up quickly on the Automotive side, it does sound like pricing was stable there. Is that fair to say, after the adjustments that you had made earlier?

I think it's more stable, Mike, than what it was earlier in the year but it is very competitive still and we continue to monitor pricing on an ongoing basis and maintain our competitive positioning.

Thank you guys.

Thank you.

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

Good morning, gentlemen.

Good morning, Tony.

Tom, wondering if you could categorize now as you look into the Industrial side of the business, do you still think your visibility six months out is a good indicator of what's happening or because of the backdrop of the macro, are your customers really hesitant to sort of still kind of give any indication of where they're thinking business may be down the road.

I think the six to nine month time frame that we used in the past is still relevant and accurate. So at this point, having seen what's happened with both the Industrial production and capacity utilization numbers for the last four months or so, we'd say that we have tempered optimism for the first half of this year. I mentioned in my comments, we think the results for Industrial and Electrical may be a little bit choppy in the first half of the year but we do think as we work our way through the year that the Industrial demand should certainly stabilize and maybe even improve a little bit for us.

Is that choppiness attributed to any sort of sector or subsector that you're seeing from a business trend standpoint right now?

No, not necessarily. It's really more thinking that we may have a little bit of up and down yet in the overall economy as we work our way through the first half. So we're just trying to remain a little cautious.

Okay. Okay. And shifting gears then on the Automotive side, when you look at the progress you made throughout 2009 and it sounds like you feel pretty confident in the initiatives you took, is there anything sort of in a second phase, if you will, that you want to do with respect to Automotive and what your targeted plans then would be for 2010 with respect to that?

Well, we have very specific plans for Automotive as we have for all of the businesses for the year ahead. We would not want to get into the details of those plans on this call but we've got specific initiatives that are being implemented right now that we think will help to position Automotive where it should be in the marketplace.

Has the -- when you look at the sort of recovery in the Automotive the second half versus first half of last year and then if you were to categorize it, has it been most of that market share driven in terms of gaining back and seeing improvement in revenue, has it been a function of macro environment just helping you from a sort of deferral mentality or keeping vehicles longer? Has it been just sort of attributed to any one? Has it been more of a combination and what you're seeing now, I'm assuming weather is playing a little bit of a benefit to you as well.

Well, it's a combination of the things that you referenced. Keep in mind that we feel we lost a little bit of share over the first half of the year and we did some things late first, early second quarter that were intended to try to help us recapture some of that share. I think the fact that we were down 1% in the third quarter and then up 6% in the fourth would indicate that we may have recovered some of what we lost. It's also important to remember that the overall market for Automotive is better than it is for our other three businesses. So we're fortunate that the aftermarket has been comparatively healthy compared to the other businesses that we're in.

As far as the weather, the weather actually has been a negative in the first part of this year. We will recover some of that as those vehicles are used again, but the fact that many of our customers were closed through the first part of the year, January, February, and the fact that many of those vehicles were not running, I think that that will have a little bit of tempering effect on our results. I might mention that we will recover some in Automotive but what happens in the remaining three businesses is that if their customer base is not operating, that business is gone and gone forever, because if the equipment is not running in Industrial or in Electrical or people aren't working in the offices and Office Products, you don't get that demand back. But these are temporary things and we'll work our way through them over the next few weeks.

Okay. That's very helpful. And last, Jerry, when you look at then, can you sort of organic versus acquired revenue growth in Q4 as well as any currency impact in Q4 and then also just a clarification, just the guidance of the 2 to 4% include impact of acquisitions such as BC Bearings as well?

I might answer that, Tony. As far as the impact of currency exchange and acquisitions for the quarter, it was a positive two. For the year, it was a negative two. So we saw that play out that way. As far as the 2 to 4, that does include the expected revenue gained from the BC bearing acquisition and the Fay electric on the Electrical side but it does not include anything beyond that. As a matter of information, we expect to close on BC Bearing at the end of this month and take over March the first.

Okay. Very helpful. Thanks, guys.

Your next question comes from the line of John Murphy with Banc of America-Merrill Lynch.

Good morning, guys.

Good morning, John.

A broad question and then kind of the take you down to Industrial and Automotive. As you look at your cost cutting efforts and slightly maybe some repositioning in the Automotive side, is there anything more that you can do internally, or is it just a function of or the future just really a function of you keeping control over what you've done and the leverage from sales beginning to come back? And I'm just trying really to understand because when we look at the Industrial there was better than we expected revenue and the margins were much stronger and I'm just trying to think as we go forward and think about 2010, if it's really a case of operating leverage and you've done a lot of the hard work already.

Well, I think we've done some good work throughout all four of the businesses and I think our management teams from our perspective should be complimented. But that's not say that we feel that our work is done. There are some additional opportunities that we have in all of the businesses. We have some very specific opportunities identified and we have teams in place to help us do the work necessary to capitalize on those. So I think there's more in the way of cost reduction that will be done in all four of the businesses, but honestly, we're hoping for some top line growth so we can get a little bit of leverage off of what's been done and what will be done also in 2010. But we don't think we're anywhere near the bottom yet in terms of our ability to take some cost out.

When you look at Industrial in the fourth quarter and the great operating margin that you guys posted of 8.2%, I mean, there was obviously some operating leverage from the top line growth or better than top line than we thought but I mean what specifically was driving that big 8.2% margin? Was there LIFO liquidation that was helping out there or were there other specific initiatives?

Primarily in the Industrial side, the LIFO that we talked about earlier, the bulk of that came in the Industrial side. So they benefited from that in the fourth quarter. But they also had taken some cost out earlier in the year and they were projecting revenue growth and we gave that in our third quarter conference call, they were projecting revenue growth to be down more than 11%. So the benefit is some from leverage but the primary pickup there was in the LIFO gain in the fourth quarter.

Got you. Then just lastly on the retirement in OPEB liabilities look like they have cranked down from the first half of the year. Down about $300 million on the balance sheet yet you're talking about higher expense in 2010 versus 2009. What's the discrepancy there?

John, I'll have to get into that with you offline. I don't have the answer to that at this point. But we'll get back to you on that.

Great. Thank you very much, guys.

Primarily, John, it's the pension plan. The contribution we made in the first quarter of the year and then the pension curtailment but I'll get back to you with specifics.

Great. Thank you very much.

I might just add to that, it's more a comparative issue. We did a little better as Jerry pointed out in his comments, we did a little better on the pension expense in 2009 than was anticipated and we don't expect that to repeat. We're going to normalize again in 2010. So it's a comparison issue.

And actually I'll just hop off after this. The soft freeze was just for the annual, the year of 2009, not for 2010, that's coming off?

Well, that soft freeze has an impact going forward. It reduces our pension expense going forward. The thing that we did in 2009 is because the headcount reduction, we had a pension curtailment that we picked up significant income as a result of that.

Okay. Great. Thank you very much, guys.

Thanks.

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

Thanks a lot and good morning to you.

Good morning, Matt.

Couple questions for you. First of all, on the gross margin line, can you talk about the impact of incentives on the fourth quarter in particular? You talked about an $80 million to $85 million hit over the course of the year. Presumably as your revenues came in a little bit better in the fourth quarter you were able to do a little bit better than you had expected on the rebate side.

Matt, primarily we -- those incentives, we do our best to target those as we go throughout the year and have them hit each quarter based on projections, and that's pretty much what happened in the Industrial sector. We spread those incentives out over the year and as well in the Office Products and those are two primary business segments that that occurs in. So the gross margin impact there would have been spread throughout each quarter. The one thing that's positive that occurred was a pickup in the LIFO in the fourth quarter.

Got it. My second question relates to SG&A. Your dollars were up and that was despite the pension numbers not being quite as severe as we had expected. Actually favorable variance. Was there incentive compensation that you were able to pay out, given the earnings ended up being certainly better than most of the Street numbers.

Not to speak of. We didn't grant any options in 2009. We also gave no salaried personnel any increases in 2009. We do have a number of our folks that are driven by profit incentives and are on a bonus plan. And some of them were paid out. Still, even though we did better than expected, those incentives that were paid out were less than made the prior year and less than they were projected to make.

So I guess if year-to-date through the third quarter your SG&A had been down roughly 7%, and if you back out some of the adjustments last year, the increase was smaller than that. The increase was larger than that, I guess. Any particular reason?

No, not that I'm aware of. Again, we had to accrue for some bonuses attend of the fourth quarter but it was still, again, lower than the prior year but it was higher than it was in the first three quarters.

Got it. My next question relates to the Industrial business. Obviously we've heard lots about an inventory correction and inventory restocking through the Industrial complex broadly speaking, driving more throughput than final demand. Kind of a systemic thing. Tom, what is your sense as to the nature of the the improvement in the Industrial business. Would it be inventory driven from your customers or do you think they're also seeing improvement at the point of sale?

I think there was some inventory replenishment throughout the segment but I also think we get anecdotal information about lines being started back up, or running a little bit longer, and we see a little bit of that happening in the current environment in some of the industry segments, not all of them, but in some. We like what we see. The food and food related industries, for instance, they continue to perform pretty well for us. The power generation and the alternative energy segments continue to perform pretty well. Some of the heavy Industrial as we mentioned, Automotive, Iron and Steel, we see those continuing to have an uphill battle yet to get back to where we were.

Got it. And then just a couple quick ones. If you look at historical seasonality in your business, and the Industrial business, frankly, most of your businesses, the first quarter is stronger than the fourth quarter. That's less true in Automotive but distinctively true in Industrial with the exception of last year obviously when things slowed down. Are we ready to go back to historical seasonality at this point? Do you think we've based that trend going forward on a sequential basis should be no worse than it's typically been.

I'd like to defer the answer to that until the end of this first quarter.

We don't have a sense for that yet, Matt, honestly. The only way I could answer it is in a very broad sense and that is that we feel better about the opportunities in 2010 than we did going into 2009. We think there is more firmness in the end market currently than clearly there was in the first part of 2009. So we're cautious but we're more optimistic than we are pessimistic as we were at the end of 2008, going into 2009.

Then a quick final question. You talked about the trends for megas versus independents in the Office Products business on the year. Jerry, could you tell us what that looked like for the fourth quarter in particular?

I can tell you, Matt, if you just give me a minute on it. We were down 6 on the independent side and down 2 on the mega side in the quarter.

Thank you so much.

All right. Thank you.

Thanks.

Your next question comes from the line of Scot Ciccarelli with RBC.

Hey, guys, how are you?

Good morning, Scot. Good.

Good. First of all, a couple clarifications. Did you say most of the 90 basis points or so of LIFO adjustments were in the Industrial segment?

Yes. 80% would have been in the Industrial. We had some LIFO pickup in the Electrical side. The Office Products group is on FIFO inventory so there would have been none of that there and then been a minor amount in the Automotive side.

Thanks, Jerry. That's helpful. And then outside of the LIFO adjustment, was the only other let's call it one timish item, the $2 million of so of pension expense or was there anything else in the P&L in the quarter?

Those were the major items, Scot.

Okay. And then the last question I guess a little bit broader. Maybe this is for Tom. Can you just talk about the operating environment in the auto segment a bit. Obviously you guys have made some changes, you made some price changes, we have cross currents with gas prices, new car sales, miles driven. How would you sum up how you guys are thinking about the auto business at this point?

We think that 2010 is going to be more favorable for us than 2009 turned out to be. We think most of the demographics that we look at are positive, favorable going forward. I was looking at something recently, just as an example. In 2008, 29% of the vehicles registered were one to five years old. Forecasts or predictions are that that will drop to 19% in 2013, 81% then being six years and older. And the significance for us is that vehicles that are six years and older, the annual expenditures for parts and maintenance are a little bit better than two times than they are for vehicles one to five years old.

So that's a positive. The miles driven will vary modest improvement year-over-year, as least seem to have stopped the declines. So I think the overall climate is better than it was in the past year and I think over the next several years, it's a bit more favorable than what we've just come through and then more specific to us, I think some of the initiatives that our Automotive team has implemented and some of the plans that they have going forward should enable us to perform at a higher level in 2010 and beyond than what we did in 2009.

Okay. And what are the expectations for the Fleet business for 2010?

Right now we're just hoping it stays flat for the whole year with some decrease in the first part and a little bit of improvement in the second half.

Got it. All right. Thanks a lot, guys.

Thank you.

Your next question comes from the line of Michael Ward with Soleil.

Thanks. Good morning.

Good morning, Mike.

On the pricing side, you said Automotive Jerry minus 2.6%. Was that the year or the fourth quarter?

No, that was for the year. The fourth quarter was 0.7% negative.

Okay. And so is that kind of the run rate going forward?

I'm not sure. You know, after coming off of the highest inflation we've seen in 20 something year in 2008 and then get into a negative pricing environment in 2009, I think at this point we're not expecting to see any decreases or increases in it.

Part of that was your strategy, just to try to go after some of those commercial customers.

Those prices I've given you are prices to us from our suppliers.

Okay. I think that's it. Thank you very much.

Thank you, Mike.

Your next question comes from the line of Himanshu Patel with JPMorgan.

This is Ryan Brinkman. You talked a little bit about in your prepared remarks the prospect or outlook for bolt-on acquisitions. How are the multiples you might be being asked to pay changing as the economy now recovers and is that impacting your capital allocation strategy at all?

Well, the multiples of late have been more in line with what we consider to be more reasonable than what we had encountered a year or so ago. How they'll be impacted in the year ahead I don't know, but we try to value off of historical earnings and not projected earnings so the historical earnings are going to include 2009 and will reflect the difficult environment. So we pay on perform -- past performance, not on anticipated performance.

Brian, what the multiples that we're willing to pay has not changed. What's changed is expectations has changed because the private equity money has basically disappeared and then not others out there with balance sheets to do it today. What we're willing to pay has not changed but the expectations have come down in some cases and some they haven't and we're going to maintain our discipline until they do and if not, we'll continue to repurchase the stock and use the cash that way.

Okay. Thanks a lot. Congratulations on the quarter.

Thank you.

Your next question comes from the line of Scott Stember with Sidoti.

Do you guys have what the Automotive segment sales were, excluding currency?

Excluding currency? Yes, I don't know if we have it by segment or not, but we can get back to you. Let us check on that. We don't have it right here with our information but we'll get back to you.

That would be great. Could you talk about how the do it yourself segment performed for you in the quarter?

I don't have it for the quarter. I do have it for the second half and we were up 3% in the second half. We were up 2% in the first half and 3% in the second half of the year.

Okay. And some of the macro trends you guys touched on, maybe you could just expand on the impact that the closing of the new car dealerships is having on your business, any anecdotal stories that you're hearing at the shop level?

Well, the reduction in new car dealerships is a positive for the independent repair trade in the aftermarket. Any work, non-warranty work that was being done in any of the dealerships now is being moved into the independent aftermarkets. So I think if you look at some of the publicly traded companies that do repair work, you'll see that it's had a favorable impact on their results. I think we mentioned in our comments that we had a nice quarter with our major accounts and with our NAPA AutoCare customers. I think the increased demand for their services is reflected in those numbers. So we think that's a positive for the aftermarket and it's going to continue it looks like through 2010 and perhaps beyond. The reports that I've seen basically say that there will be fewer car dealerships at the end of the year we're in right now than there were this past year. And some of those disenfranchised dealers have in fact opened up independent repair operations and used car businesses and they've become really good prospects and customer candidates for us.

All right. That's all I had. Thank you.

Thank you.

Your final question comes from the line of Brian Sponheimer with Gabelli Company.

Good morning.

Good morning, Brian.

Just very briefly, I want to talk about the Fleet customer on the Automotive side and what really drives that customer? That's such a wide array of end users of customer mix. Is it construction? Is it freight? What should we be looking for to really see that flat 2010 outlook improve?

Well, if we kind of slice it a little bit, construction would certainly have a positive or negative impact on the one end of the spectrum and they would be the landscapers and the contractors and people like that. On the other end, if you go all the way to the other end of the spectrum, it's the big six, seven and eight, class six, seven and eight vehicles, over-the-road equipment and truck tonnage is an important measurement there and if they're moving for freight, they're going to be using that equipment. So what we expect is as I mentioned is that the first half may be still down a bit but the second half, it's our expectation that we'll see that pick up just a little bit, just because of the projected improvement in the overall economy in 2010.

Okay. And one last question, if I might. Product mix on the Automotive side across your segments, with the understanding that your customers are always looking for best price, have you seen any movement back towards better and best offerings versus value?

In some particular instances, we have. We've seen it in our friction product offering as a for instance because there is a significant value proposition for them there. So we've seen it happen in product categories like that. But then we continue to see an overall price sensitivity and an overall movement toward the value line type of product and our product positioning strategy is good, better, best and the good and better unit growth is stronger for 2009 than the best unit growth would be. We don't expect that to change dramatically in this coming year.

All right. Thank you very much.

Thank you.

Ladies and gentlemen, at this time we have reached the allotted time for question-and-answer session. I will now turn the call back over to management for closing remarks.

Thank you, Celeste. We appreciate those of you joining us on the call today and we also appreciate your continued interest and support of Genuine Parts Company. We look forward to a better 2010 and we look forward to talking with you at our April conference call for the first quarter results.

Ladies and gentlemen, this concludes today's Genuine Parts fourth quarter 2009 earnings release conference call. You may now disconnect.