純正零件 (GPC) 2010 Q1 法說會逐字稿

Good morning. My name is Valerie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts first quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions).

At this time, I will turn the call over to your host, Ms. Carol Yancy, Senior Vice President of Finance. Ma'am, please go ahead.

Thank you. Good morning, and thank you for joining us today for the Genuine Parts first quarter earnings call to discuss our earnings results and the 2010 outlook.

Before we begin this morning, please be advised 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 on future economic performance and the assumptions underlying these statements regarding the Company and its businesses. The Company's actual results could differ materially from any forward-looking statements due to several important factors described in the Company's latest SEC filings. The Company assumes no obligation to update any forward-looking statements made during this call.

We will begin this morning with remarks from Tom Gallagher, our Chairman, President, and CEO. Tom?

Thank you, Carol.

I would like to add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. As we customarily do, Jerry Nix, our Vice Chairman and Chief Financial Officer and I will split the duties on this call, and once we've concluded our remarks, we'll look forward to answering any questions you have. Earlier this morning we released our first quarter 2010 results and hopefully you have had an opportunity to review them, but for those who may not have seen the numbers as yet, a quick recap shows sales for the quarter were $2.602 billion, which was up 6%. Net income was $100.6 million which was up 13% and earnings per share was $0.63 this year compared to $0.56 in the first quarter of 2009 and the EPS increase was 13%.

After the challenges that we encountered throughout 2009, we're pleased to report a positive quarter on the revenue side and pleased also to follow our 13% earnings increase in the fourth quarter of last year with another 13% increase this quarter. Now, admittedly we were going up against a very soft first quarter in 2009, but we think that our results this year demonstrate continued sequential improvement, and we're glad to start 2010 off with a respectable first quarter. In looking at the individual segment results, our two manufacturing sector related businesses, Industrial and Electrical Electronic showed very nice recoveries in the first quarter. Our Industrial segment was up 9% in revenue and generated positive sales result across most of their product categories and throughout the majority of their customer segments as well. It has been a number of quarters since we have been able to make that statement, and we are encouraged by the broad base of their sales improvement.

As you will recall, this is quite a contrast to what we experienced throughout 2009, and we feel that it is the result of several factors. Certainly the comparisons are easier, but additionally we feel that it is partly attributable to individual growth initiatives within our Industrial business that are showing nice results. These initiatives are product specific focused and target customer category focused, and these efforts should have a positive impact throughout 2010. Acquisitions helped as well, adding about 4 points to the overall revenue growth. Then another factor is the improving trend that we have been seeing in the Industrial production and capacity utilization figures. These are good barometers of activity levels within the manufacturing sector of the economy, which is our customer base, and historically these indices have been fairly reliable six to nine-month leading indicators for our industrial business.

As reported in our prior two calls, the indices bottomed out around mid-year last year and have been showing a gradual, but steady, improvement since. This improvement in our end market conditions appears to be fairly stable right now, and it is a positive indicator for our industrial business in the quarters ahead. Before leaving this segment we do want to point out we did complete the previously announced acquisition of BC Bearing on March 1. This is a well-run, $140 million per year business and this acquisition strengthens our position in western Canada and the northwestern part of the US, and we're pleased to have the BC Bearing organization now part of our industrial group.

Moving onto the Electrical Electronic segment, this business was up 16% in the quarter. As with our Industrial business we had easier comps to go up against and we also had incremental revenue that came from a small acquisition that was completed January 1st. Additionally, the escalation in copper pricing was a factor. However, on a comparative basis, our underlying business was up mid-single digits, which we feel shows a respectable recovery in this segment. And we're encouraged by the fact the purchasing manager's index, which is a leading indicator for us, has shown steady improvement for eight consecutive months now, creating a more favorable end market; and this, combined with the internal growth initiatives, should enable our Electrical Electronics segment to perform well over the remainder of the year.

Our Office Products group ended the quarter down 1%. While still running a decrease, the first quarter results continue a trend of gradual sequential improvement and our expectation is that Office Products revenues will turn slightly positive in the next quarter or two. As far as the composition of our quarterly sales on the customer side, the independent dealers were even with the prior year in the quarter and the mega-dealers were down five and both are improvements over the 2009 results where we saw independent business down 5% for the year and the mega-customers down 10%. On the product side we had increases in three of the four product categories, technology products, furniture, and cleaning and break room supplies had quarterly increases ranging from 2% to 10% while the Office Products category, which represents almost 50% of total business, was down 5% in the quarter. So we have some work to do yet on this category, but from an overall perspective while not yet back to where we need to be, we do see signs of continuing gradual improvement within the Office Products results and as mentioned earlier, our expectation is that their sales results will turn modestly positive over the next quarter or two.

Finally, Automotive. After closing out 2009 with a 6% increase in the fourth quarter, we're pleased to be able to report another 6% improvement in the first quarter of this year. Our favorable currency exchange added about 2% to our Q4 results, and then 3% in the first quarter of this year, but after struggling over the first half of 2009, we think that we started to turn the corner in the third quarter of last year and we feel that we're positioned for solid growth in the quarters to come. In looking a little deeper into the details, we were pleased to see that our Company store group and our independently owned NAPA stores grew at comparable rates in the quarter, which we feel indicates a good balance in our overall growth rates. Additionally, every region of the country was positive, again showing a broad performance base in the overall results, which is encouraging.

Within our Company store group, our commercial or wholesale business was up 8% in the quarter with our two most significant wholesale programs, NAPA Auto Care and major accounts both contributing nicely. Auto Care was up 7%, major accounts were up 9%. Our fleet business which had been running double-digit decreases throughout 2009, ended the quarter even with the prior year and hopefully this important customer segment is starting to stabilize for us. The cash or retail business in our Company store group was only up 1% in the quarter. However, our cash business actually improved as the quarter progressed. After being down mid-single digits in January, we saw good sequential improvement in our cash business in February and March and hopefully this will carry over into the second quarter. Putting it altogether, we're encouraged by the automotive results in the first quarter, and we feel that they are off to a good start to what we think will be a solid year for Automotive in 2010.

That's a quick overview of our first quarter sales results and at this point we'll ask Jerry to take a few minutes to comment on the financial performance.

Thank you, Tom. Good morning. We appreciate you joining us on the call today. We'll first review the income statement and segment information and then touch on a few key balance sheet and other financial items. Tom will come back for a recap and we'll open the call up to your questions.

A review of the income statement shows the following, total sales, first quarter up 6% to $2.6 billion. We're pleased to start the year with some positive sales momentum, especially in Industrial and Electrical, which showed tremendous improvement following a very difficult year in 2009. Gross profit in the quarter decreased 70 basis points to 29.2% to sales compared to 29.9 in the first quarter last year. This decrease primarily reflects the pricing actions we took in our Automotive segment the second half of last year as well as competitive pricing pressures in the Office Product segment which we see impacting our gross margin for the foreseeable future. Despite this impact on our margin we're doing a much better job appropriately adjusting our pricing to remain competitive in the markets, which is clearly helping our top line growth. We're making up for the decline on the gross margin line in cost savings and our overall improvement in operating expenses. So we remain focused on continued gross margin improvement in the long-term, but expect this line to remain under some pressure over the next few quarters. For the year through March, our cumulative pricing, which represents prior increases to us, was positive 0.2% in Automotive, a positive 0.1% in Industrial, a negative 0.2% in Office Products and plus 1.0% in Electrical.

Now let's look at SG&A. For the first quarter, SG&A expenses of $598 million were up 2% from $588 million the same period in 2009. At a percent to sales this was down 103 basis points to 23.0 versus 24.03 last year. This decrease in expenses as a percent of sales is due to the benefit of greater leverage associated with our sales growth combined with our cost reduction efforts over the last few years. You may recall that in total for 2008 and 2009 we reduced our head count by approximately 3,900 employees or 13% of our total workforce. Thus far, in 2010 our total employee counted of approximately 29,000 is relatively consistent to December 31, '09, even with our recent sales growth. Our management teams remained focused on the ongoing assessment of the appropriate cost structure in our businesses and the need for future cost reductions while maintaining our high standards for excellent customer service. We recognize that tightly managing our expenses again in 2010 remains absolutely essential.

Now let's discuss the results by segment. Automotive had revenue in the quarter 1,290.4 million representing 49% of the total, an increase of 6%, and operating profit of $88.9 million, up 2%, so we had margin slippage there from 7.2% to 6.9% of sales. The Industrial group had revenue in the quarter of $803.3 million representing 31% of the total that was up 9%. Operating profit of $48.8 million, up 43%, so very strong margin improvement from 4.6% to 6.1%. Office Products revenue in the quarter of $410.5 million, 16% of the total. They were down half of 1%. Operating profit of $36.6 million was down 6%, so while operating margin remained strong at 8.9%, they are down from 9.4% the prior year. The Electrical group had revenue of $100.3 million, that's 4% of the total, up 16% in the quarter, operating profit $6.8 million, up 20%, so nice margin expansion to 6.8% from 6.6% the prior year.

We thought it would be worthwhile to note that in addition to our segment results just discussed total net sales benefited from the other sales line, which was a much lower deduction from sales this quarter when compared to the first quarter last year. This line represents a net effect of discounts and incentives and freight build; and with freight up this quarter due to improved sales volume and discounted incentives being down, we have the lower deduction of sales. Total operating profit margin for the first quarter improved 20 basis points to 7.0 from 6.8 in the first quarter of 2009. The improved expense leverage associated with our sales increase, particularly in our industrial businesses drove the increase in operating margins. We had net interest expense of $6.7 million which is down slightly from first quarter and 2009 and we continue to expect our net interest to be approximately $26 million to $28 million for 2010.

Other category which includes corporate expense, amortization of intangibles, and minority or non-controlling interest was $12.3 million expense in the first quarter, that's down approximately $2 million for the same period last year. The improvement on this line mainly relates to $1.8 million favorable retirement plan evaluation adjustment recorded this quarter, compared to $3 million expense in the first quarter last year. The $4.8 million net valuation benefit was offset by the increase in the incentive based compensation which we expect to incur with improved results as well as higher legal and professional costs. Looking ahead, we continue to project the other category being the $40 million to $50 million range for 2010.

For the quarter our tax rate was approximately 37.9%, which compares to 38.4% for the first quarter in '09. The decrease from last year mainly relates to the non-deductible expense associated with retirement plan valuation adjustments in 2009 that we just mentioned. Currently, we expect the tax rate for the full year to be approximately 38.0%. Net income for the quarter was $100.6 million. That was up 13% and earnings per share of $0.63 compared to $0.56 last year was also up 13%.

Let's touch base on a few key balance sheet items. Cash at March 31 increased to $334 million from $133 million at March 31 last year and remains consistent with our cash at December 31, 2009. As you may know, we took a conservative approach in managing our cash in 2009. This approach has allowed us ample funding for ongoing acquisitions, which total $66 million in the first quarter this year, as well as dividends and capital expenditures. We expect to continue to generate consistently strong cash flows and expect our cash position to remain sound. Accounts receivable, $1.3 billion, increased 9% from last year including acquisitions, on a 6% increase in sales for the first quarter and with March being a stronger sales month at a plus 11% average daily sales. 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 March 31, 2010, we're confident that the Company is properly reserved. Our goal at GPC remains to grow our receivables at a rate less than revenue growth.

Inventory March 31, 2010, was $2.2 billion including acquisitions and is down 2% or $42 million from March 31, last year, compared to December 31 inventory down slightly including acquisitions but down $23 million before those acquisitions, which we believe reflects continued progress thus far in 2010. We'll continue to manage this key investment tightly and show more progress over the balance of the year. We're also able to improve our accounts payable position again this quarter with payables increasing to $1.2 billion, an 8% increase from December 31 and up 23% from this time last year. Our progress this quarter was primarily due to increased inventory purchases associated with our higher sales volume for the quarter, especially when compared to last March when volume was down and purchases especially low. With this improvement, our days payables have improved to 56 days and we remain pleased with the positive direction of this working capital category.

Our progress in key areas of receivables, inventory, and payables working capital of $2.6 billion at March 31 is up 3% from March 31 last year and is consistent with working capital at December 31 '09. We encouraged in our progress in managing working capital and 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. After a record year for cash flows in 2009, we fully expect another strong year in 2010 and currently estimate cash from operations of approximately $650 million and free cash flow after deducting CapEx and dividends of approximately $300 million. We're pleased with the continued strength of our cash flows and also feel good about the priorities for the use of our cash. These priorities remain first to dividend, which we paid every year since going public in 1948 and raised for 54 consecutive years. As you may recall in our February board meeting our directors authorized the increase in our 2010 annual dividend to $1.64 per share from $1.60 per share in 2009. Additionally, we continue to use our cash towards ongoing reinvestment in each of our businesses, strategic acquisitions where appropriate, and share repurchases.

Capital expenditures were $9.9 million for the first quarter, down from $14.1 million in the first quarter last year. We'd add, however, that this decrease relates more to timing than anything else as we have a growing number of projects that will be placed in service over the balance of the year. Currently, we expect our the CapEx spending to increase for the full year to approximately $85 million to $95 million with the vast majority of these investments associated with productivity enhancing projects, primarily in technology. Related depreciation and amortization was $22.1 million in the quarter, down slightly from last year. For the year D&A will likely hold pretty steady with 2009 in the $85 million to $95 million range.

Strategic acquisitions continue to be an ongoing and important use of cash and integral to our growth plans for the Company. As Tom mentioned earlier, we made two acquisitions thus far in 2010 and expect these new operations to be slightly accretive to our earnings in 2010, although only minimally. Acquisition opportunities continue to present themselves and we'll remain disciplined in our approach to this element of our growth strategy. We have generally targeted those both types of acquisitions with annual revenues in the $25 million to $100 million range and although there are exceptions such as the BC Bearing acquisition, we intend to follow a similar pattern in the future.

In the first quarter 2010 we used our cash to repurchase approximately 242,000 shares of our company stock on our share repurchase program, and today we have approximately 17.5 million shares authorized and available for repurchase. Opportunistic share repurchases continue to be a priority for us, but without a set pattern for repurchases in the tendency to buy on weakness, the recent movement in the our stock prices slowed our repurchases thus far in 2010. Looking ahead, we expect to remain active in this program as we continue to believe that our stock is an attractive investment and combined with the dividend provides a best return to our shareholders.

Total debt March 31, 2010, remains unchanged at $500 million and includes $250 million which matures in November 2011 and $250 million due in November 2013. Total debt to total capitalization at March 31 was 15.7% and we're comfortable with our cap structure at this time. The Company is stable, our balance sheet is strong, and that provides us the ability to take advantage of growth opportunities in any economic environment. In closing, we entered 2010 from a position of strength and we've great confidence in our growth strategies and the fundamentals in each of our businesses. We believe we got off to a good start with a solid first quarter and are confident in our ability to drive sales and earnings growth this year. We'll continue to support our growth with a strong and healthy balance sheet, sound cash flows, further maximizing our return to shareholders. This concludes the financial view, and I wrap it up by expressing our utmost appreciation to all of our dedicated GPC associates. We're very proud of this group and our efforts to help us perform through a very difficult year in 2009. We also want to thank our customers and suppliers. We appreciate their ongoing support.

Tom, back to you.

Thank you, Jerry. That concludes our comments on the first quarter, and we're pleased to get 2010 started off on solid footing. Now, as far as remainder of the year is concerned, we feel that it is still a bit too early for us to be making any significant changes to the full year guidance that was provided in our February call. However, based upon the first quarter results, it might be appropriate to increase the full year revenue range from plus 2% to plus 4% to plus 3% to plus 5% largely driven by the improved performance in Industrial and Electrical. Then, to narrow the earnings range somewhat from the $2.52 to $2.70 provided in our last call to $2.55 to $2.70, and we will look forward to refining the range a bit more as we get another quarter or so under our belt.

That concludes our planned remarks, and at this time we would like to open the call up to your individual questions. We'll turn the call back over to Valerie.

(Operator Instructions). Our first question will come from the line of Matt Fassler of Goldman Sachs.

Thanks a lot and good morning to you. A couple of questions. First of all, you alluded, I believe, to daily sales, average daily sales in March being up about 11%.

That's right.

And if you could share with us that's obviously substantially stronger than the quarter overall up 6%. You intimated that automotive was somewhat better as the quarter progressed, but if you could share with us the source of that strength and whether you feel it is indicative of what the quarter could look like?

The quarter got a little bit stronger as we progressed through. We were impacted across all of our businesses by the weather that we experienced in the early and mid-part of the quarter, and that had an impact on the January/February results, but March was clearly the strongest performance in the quarter, and the April results thus far through the month are in line with the March results, so they're pretty encouraging as well.

That's great.

Second question if I could. On the gross margin if you could shed a little light, a little more light on some of the items you discussed and particularly interested in why if the Automotive price cuts are one of the impediments to margin, you didn't seem to experience that kind of pressure in the second half, at least it wasn't as visible in the second half of last year in the operating income line, there may have been other things masking it, but if you can shed light on that, that would be terrific?

I will try to answer that, Matt. First of all, the pricing adjustments that were done starting really in the second quarter of last year were done sequentially as the year progressed, so all price adjustments were not done in Q2, Q3 last year. They were done over a period of time, and what we have seen is that the ones that were done first were getting the kinds of results that we had hoped to achieve and frankly what we needed to achieve. If we look at our Under Car Product category, for instance, that's where we took the first steps and some of the product categories that would be in the Under Car group would be things like break rotors, break drums, ride control, all of those lines are performing well, and they're not a drag on the margin at this point.

Some of the lines that came later in the cycle and Under Hood might be an example where we adjusted more recently ignition pricing; we adjusted things like wire sets. Our unit increases are up, they're moving in the right direction, but we don't have the velocity yet that off sets the gross profit drag, and that's where we're still facing a little bit of an impact. What will happen in our opinion is that we think that this will moderate as we progress through the months ahead, and we think as we get toward mid-year and on into the third and fourth quarters that this will not be a head wind and we should be stabilized from what we see now. The bulk of the adjustments that needed to be made have been made. There may be a little bit left, but they're not as significant as the one that is we already adjusted.

And then just as a quick follow-up, and I will keep the rest for later if we have time, you had some pressure associated with vendor rebates in the Industrial business last year, and your Industrial business seems to be, if anything, ahead of the plan today. At what point can you recapture some of the that gross profit margin in the Industrial business?

Matt, we'll have to judge that as we get towards the end of the year. I can tell you for planning purposes we're assuming the same rebates that we earned last year in 2009.

Your question earlier about the gross margin in the fourth quarter, there were some unusual items. If you recall, we picked up a significant amount from our LIFO detriment in the fourth quarter last year due to the inventory reductions, and we're not assuming that at this point this year, but we are assuming the same rebates in Industrial for 2010 that we took in 2009.

Is that based on the sales that you're tracking today? I would think the rebates were materially lower than what you experienced in any year prior to last year. Is there the potential that you have some catch up in the Industrial business if business remains good?

There is the potential, Matt, but we're not planning for it. If it happens, that's great. The other side of it is that we continue to work hard on the inventory levels, and we continue to bring those down, so that mitigates some of the revenue growth that we're seeing in the Industrial business.

Got it. Thank you.

Thank you.

The next question will come from the line of Scott Ciccarelli of RBC Capital Markets.

Hey, guys, Scott Ciccarelli.

Good morning, Scott.

Can you guys help clear up something regarding BC Bearing, and I don't know the seasonality of that business, but I would have assumed just assuming a general run rate, you have about $12 million to $15 million of revenue from BC in the quarter, but if it was 4 points of growth, it had to be closer to $30 million. Can you help clarify that?

There are two things. It is not just BC bearing. We acquired a company called General Tool May 1st of last year and that number is in that 4 points of acquisition growth as well. Our numbers for BC Bearing were a little bit less than what you referenced, but not materially so, but it was more a matter of the General Tool and BC Bearing combined.

Okay. Got it.

And then I guess it is a little bit of follow-up on Matt's question in terms of the industrial profits. They're down fairly materially in terms of the margins from what we saw, say two years ago. I understand you guys are doing your inventory reductions, but I would also think with all the cost cuts there would be a lot of leverage in that particular segment. Without changing guidance, obviously at this point, can you talk about the leverage potential in that segment at this point?

I think the quarterly results demonstrate the kind of leverage we can get. They were up 9% in revenue, and they were up 43% in operating profit, so I think they got some pretty extraordinary leverage on that 9% sales number.

Said another way is there reason you should drop off from the current margin rate or should we expect it to expand or at least stay the same or expand if they were to see the same sales run rate we have seen?

I think if the revenue numbers stay in line with what we saw in the first quarter, then we can expect to have very, very strong profit improvement from the Industrial business. Our issue right now is that we're just pretty cautious in terms of what's going to happen in the manufacturing sector.

What we're hearing from our customer base is that they're optimistic about what they think could happen, but they, too, are remaining very, very cautious, and they're just not sure how long it is going to continue. The industrial production number and capacity utilization number that came out yesterday would give us some confidence that it is going to continue for a few more months, but we want to remain on the cautious side for right now.

Scott, I might also point out they had operating margin for the full year and '07 and '08 of 8.4%. While that fell off dramatically last year to 5.6, we expect to see that improve, but keep in mind even with the sales improvement, we're not back to the same sales volume that they had back in '08, so it may not get back to the 8.4% this year, but certainly it will trend back in that direction.

Understood. Thanks a lot, guys.

Thank you.

The next question will come from the line of Toni Cristello of BB&T Capital Markets.

Good morning, gentlemen, it is actually Allen Hatzimanolis in for Tony.

First question on the Automotive business and the uptick in the cash portion as the quarter progressed, were there any particular product categories that surprised you in terms of the relative strength, whether either in maintenance items or more in the hard part arena?

I would say it was more in the hard part arena, and I think the growth that we had on the commercial side of the business would validate that. I mentioned our retail business and our Company store group was only up 1% for the quarter sequentially improved from January through March, but still was only up 1% for the quarter, so more in the hard part arena.

In terms of the wholesale business and the pickup there, was the performance fairly balanced in terms of fleet and NAPA and some of the major accounts or was there one particular area that really was a stronger contributor of that period?

Our Fleet business, as we mentioned in our comments, was flat for the quarter, and we have to say we were pleased with that after running the double-digit increases all of 2009. Seeing the Fleet business come in even for the quarter gives us a little encouragement. I might also add that we've seen the truck tonnage numbers and they actually turned positive in December and then again in January for the first time in quite some time. We're hopeful the Fleet business stabilized and perhaps even see a little growth in that category as the year progressed.

As far as the other elements of our wholesale business, our major account business was up 9%. Our Auto Care business was up 7% for the quarter, so we think pretty strong performances, and they follow somewhat similar increases in the fourth quarter of last year. We like the trends we see in both of those categories.

One more question in terms of the marked improvement in the fleet business. Do you have a sense as to how much of that is coming from just greater utilization rates among your fleet customers or how much of that is maybe just increasing confidence levels that are allowing them to become a bit more pro-active in terms of replacement purposes?

I don't think I can answer that question. I don't have enough detail to give you an exelgt complelgt answer.

One last question and I will get back in queue. On the degradation in auto margin year-over-year, was that primarily a function of just an accelerated rate in pricing resets as the year progressed or also any changes in product mix relative to last year that would have impacted that had line item?

It would be more the pricing adjustments that were taken than the mix. There was some element of mix, but not a material impact. It was more the pricing adjustments.

Okay. Great. Thank you very much.

On looking at this margin thing, when we talk about Automotive, you have to keep in mind that in the first quarter last year, we had a very strong gross margins and the reason for that is we were coming off historically high inflationary numbers coming out of 2008 in all four business segments. That's a part of the reason for this gross margin fall off in the first quarter.

That's very helpful. I appreciate that.

Thank you.

Next question will come from the line of Keith Hughes with SunTrust.

We talked earlier about the adjustments in pricing and Automotive going at various times last year. Are you planning any changes of that variety here in 2010?

At this point, Keith, not anything near the magnitude was what was done in 2009. If you remember, back in the early part of last year we said that we found that we had allowed ourselves to get in a position where we were not as competitive as we needed to be, and we had things that needed to be done and we pretty much accomplished the majority of that, so we'll watch what happens in the marketplace, and we monitor it on an ongoing basis and if we need to adjust certainly we will, but I think the worst of the headwinds are behind us and as I mentioned earlier, I think as we work our way through this quarter and on into the first part of Q3, I think we'll see these things start to come back in line.

Thank you.

Thank you.

The next question will come from the line of Scott Stember of Sidoti & Company.

Good morning.

Good morning, Scott.

Jerry, did you give what the interest expense for the quarter was? I didn't hear it.

I am sorry, Scott, what was the question?

The interest expense.

The interest expense for the quarter was $6.7 million.

Great. Could you expand upon some of the initiatives that you talked about that you're having a favorable result in the Industrial and Electrical segment, just give a little bit more or flush it out?

The actual growth in the margins is more driven by the leverage that we're gaining off the revenue that they reported. All of our business units last year, if you recall, we took about $70 million to $75 million of our SG&A in 2009. Thus far, we have not really added that cost back, and particularly in the Industrial and Electrical as that revenue has come back and operating off a lower expense base now, that's the reason for the expansion in the margin.

On the Installer side, can you just maybe just give anecdotal stories that you are hearing how the dealership closures is increasing customer base coming through, maybe even some of the NAPA auto shops?

Well, what's happened is we have benefited from the dealership closures, and we benefited directly and indirectly, probably more on an indirect basis where any dealership that closed the non-warranty repair work that was being done there, the majority of that has gone into the independent after market, and we have an opportunity to capture some of that.

As far as the dealers that have converted and have gone full bore into the repair side of the business, we have a number of those that have aligned themselves with NAPA Auto Care, and that obviously is a direct benefit for us, and we think that will continue to be a good program for us as we work our way through the remainder of the year.

Just a last question on the competitive side. One of your major competitors has been growing its commercial business out on the West Coast, in California in particular. Can you just talk about how your sales are fairing out in the West Coast and California?

Our West Coast business is at the high-end of our performance range. I mentioned in my comments that we're positive in every one of our eight geographic regions, and if we looked at top to bottom, the West Coast would be up near the top for us, so I think we're holding up pretty well there actually.

Great. That's all I have. Thank you.

Thank you so much.

The next question will come from the line of Himanshu Patel of JPMorgan.

Hi, this is Brian Brinkman for Himanshu Patel. I think you suggested that adjusted currency Automotive sales up 3% or so during the quarter. I was just wondering, what is your sense as to how this performance fares versus the competition in terms of market share?

You're right in terms of the underlying being being up 3% ex-currency exchange. If we look at our same store growth, we are up about 4% in the quarter on same store performance, and I think as we see it now, I think that will hold up reasonably well in comparison to others. We did not have a net gain in stores in the quarter and we actually had a 12 store reduction in the quarter. We did some consolidation in combination of stores, but on a same store comparison it was up 4% which I think is reasonably good in this environment.

Okay. Thank you. And then I think if I remember correctly on the fourth quarter conference call, you had guided to Office Products sales plus 3% year-over-year in 2010 and after the first quarter's minus 0.5% year-over-year performance, what is your assessment of where you stand now in terms of that full year objective?

I think if we look at what we gave as guidance, we gave a range and we said flat to up 3% for the year for Office Products. We're down actually 0.5% through the first quarter, so we still think that flat to up 3% is a reasonable expectation for Office Products for the full year.

As I mentioned a little bit ago, we think we will started to turn positive sometime in the next quarter or two and then should remain positive over the remainder of the year.

Okay. Thanks for that.

Thank you.

The next question will come from the line of the Brian Sponheimer of Gabelli & Co.

Good morning.

Good morning, Brian.

Staying in Office, I believe you said that during the quarter furniture was up slightly, but overall Office Products declined. Given the weak white collar employment environment, could you maybe talk a little bit about why the furniture number showed some improvement?

Well, I can give you what I think may have happened. First of all, keep in mind that we're coming off some significant decreases in the first quarter of last year in the furniture category, so the comps are a whole lot easier. I think that the work that's being done by the folks involved with the furniture category in our office product company, I think they repositioned the product line, they have done nice things with it, and I think they have just gotten favorable market response as a result of the hard work that's been done there.

And by repositioning the product line, could you elaborate on that a little bit?

We have done some price point repositioning, but more has contributed to it has been the fact that we have add some additional skews, we've expanded some of the product offering, we've added some additional private label programs, we've enhanced some of the marketing programs that our dealer customers are able to use, so when we put it altogether, I think they just got pretty good market response to some of the things that have been done.

Thank you very much.

Thank you.

The next question will come from the line of Tim Culler of Barrow Hanley.

Good morning, guys. I just to want clarify; I don't want to spend too much time on the pricing issues, but I am a little confused. I thought Jerry said that the pricing cuts at the top -- at the Auto and Office were being essentially offset by cost reductions farther down the income statement, and then when Tom described it, it sounded as if he was saying that the gross margin pressures would be offset as sales rebounded with a lag effect in response to the price cuts.

I am kind of wondering, did I misunderstand it, because it seems to me that, one, would essentially take care of itself and the other would require further efforts on SG&A and other soft set to margin pressure if the pricing continues to be soft for the foreseeable future, as you said.

I think you heard both of us correct. I think that Tom's comments about that making up the gross margin thing and the volume side, hopefully that's going to happen, and the other side is we certainly are going to continue to try to take costs out of our SG&A, so it is a combination of those things.

Okay. And you would expect the margins would hold, though, if the pricing continues to be soft for the foreseeable future, you would still expect to be able to offset it going forward, is that correct?

That's correct.

One last question. I don't know if I heard you correctly, but did I hear you guys warming up to the idea of maybe doing more on the acquisition front than you have historically, am I reading it the wrong way?

We did a couple of acquisitions last year. We completed two this year. One small acquisition and in the Electrical the first of the year, about a $9 million per year business, and then we referenced the BC Bearing acquisition completed the first of March, about $140 million. We have, as part of our overall growth strategy, we have an acquisition component in all four of our businesses are actively looking for things that they think may make sense. On an ongoing basis we're looking at different opportunities and the different businesses, but we're fairly disciplined. At least we like to think we are in how we approach these, and we'll not consciously over pay for anything.

We have valuation formulas we stick pretty closely to, and if we can find a good accretive bolt-on type companies that we think make good fits for GPC, then we'll continue to try to add them to our portfolio of companies. So I don't think we're any more open minded, certainly no less open minded about the acquisitions than what we have been, but we found last year, for instance, we found valuations were still a little bit higher than what we thought were reasonable, and they may be coming a little more in line with the range that we think is reasonable in 2010, at least we hope so.

Okay. Very good. Thanks for clarifying.

Thank you.

Management has allotted time for one more question. That question will come from the line of Bill Selesky of Argus Research.

Thank you. I actually had a couple of questions. First of all, on the gross margin line, can you talk about the impact of incentives on the first quarter, in particular?

They were down slightly because of inventory reductions for the most part, but they were a factor not a dramatic factor, but they were a factor.

Okay. And secondly, I just wanted to ask a question about the Office Products segment. You mentioned that if things should turn profitable next quarter or two, can you tell me how pricing pressures relate to your feeling that things will get better over the next couple of quarters?

I think we don't see any evidence of pricing pressures intensify. Our reason for thinking that will turn slightly positive are based upon, number one, the comps are a whole lot easier compared to where we had been historically. Number two, we see some stabilization in the white collar employment numbers after declining over 2 million jobs per year in 2008 and 2009, we actually had a slightly positive number for the first quarter of 2010, about 182,000 service sector jobs were added in the first quarter, so we think we don't believe the downward pressures are going to be as great in the employment area as what they have been.

Lastly, some of the programs that the Office Products group have put together look encouraging to us. We talked a few minutes ago about what's happened in the furniture category. I think that should have a chance of continuing. A lot of good work is being done in the area of cleaning and break room supplies, and we would expect those numbers to hold up for us; and I mentioned the core Office Supply category which is almost half the business was off about 5% in the quarter, and we think that the team is working hard to find ways to bring that number back, at least get it slightly positive in the quarters ahead, so they're the reasons that we think that business could get a little bit better for us, but we're not looking for a dramatic turn as I mentioned. We're thinking still that flat to up 3% for the year is a reasonable expectation for that business, and then hopefully as we turn and get into 2011 we'll get back to more historical growth rates.

Okay. That's great. Thanks very much.

Thank you very much.

Thank you.

Thank you. At this time we'll return the call over to our management team for closing remarks.

Valerie, thank you. We appreciate those of you joining us on the call today, and we also appreciate your ongoing and continued support of Genuine Parts Company. We look forward to talking to you in the future, if something comes up, otherwise, we'll be talking to you at our second quarter conference call. Thank you and have a good day.

Thank you for your participation in today's conference call. You may now disconnect.