純正零件 (GPC) 2012 Q3 法說會逐字稿

Good morning. My name is Dawn, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2012 earnings conference call for Genuine Parts Company. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there'll be a question and answer session. (Operator instructions). Thank you, Ms. Carol Yancey, Senior Vice President, Finance, and Corporate Secretary, you may begin your conference.

Good morning and thank you for joining us today for the Genuine Parts third-quarter earnings conference call to discuss our results as well as the outlook for the remainder of the year.

Before we begin this morning, please be advised this call may involve forward-looking 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 comments from Tom Gallagher, our Chairman and CEO. Tom?

Thank you, Carol, and I would like to add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. Jerry Nix, our Vice President and Chief Financial Officer; Paul Donahue, our President; and I will each handle a portion of today's call. Once we have concluded our remarks, we will look forward to addressing any specific questions that you may have.

Earlier morning, we released our third quarter 2012 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 that sales for the quarter were $3.376 billion, which was up 3%. Net income was $172.9 million, which was up 14%, and earnings per share were $1.11 this year compared to $0.97 last year, and the EPS increase was also 14%. After being up 7% in revenue in the first quarter and 5% in Q2, the 3% increase in the third quarter does show deceleration over the past two quarters. We were short one sales day in the quarter this year, so on a per-day basis our third quarter revenues were up just over 4%.

However, with that said, the third quarter results are bit better on a per-day basis, but we did experience a continued deccelerating trend in demand in three of our four businesses, which we will discuss in a bit more detail in a moment. Despite the softer sales results, we do feel that our team did a good job on the operating side of the business by leveraging a 3% sales increase to a 14% sales increase in both net income and earnings per share. A review of the results by business segments shows that our Industrial and Electrical/Electronics segments continue to generate the strongest results. Industrial was up 4.5% in the quarter and Electrical was up 5%. Both had challenging comparisons to go against with Industrial being up 18% in the third quarter of last year and Electrical/Electronic was up 22%.

With that said, however, the results in each case were a little lighter than we had anticipated going into the quarter. Looking a bit deeper into the Industrial performance, we see that the top 10 industry segments were up 2% in the quarter. These segments represent a little over 50% of the total Industrial revenues, so they are important to our overall performance. And the 2% increase in the quarter follows a 12% increase in these same segments in the first quarter, an 8% increase in Q2 indicating demand moderation across these key customer categories.

Interestingly, the moderation is not consistent across all segments. Industries like automotive, iron and steel and chemicals have remained pretty steady over the first three quarters of the year. But then we have seen deccelerating growth rates in equipment and machinery, equipment leasing and coal segments, reflectively feel of the overall economic slowdown of the past several months as well as a slowdown in global demand for a number of these customers.

We see some of the same inconsistency in the EIS results as well, with wire and cable continuing to perform quite well but then were more challenged in the Electrical and Electronics segments, primarily in the solar and contract manufacturing industries. So the current environment is a bit more challenging and choppy for our Industrial and Electrical/Electronics businesses, but the key external demand indicators -- industrial production, manufacturing capacity utilization and the Purchasing Managers Index -- all remain generally favorable and our expectations for each of these businesses is to grow 6% to 8% over the final quarter of the year.

Moving on to Office Products, we were down 1% in the quarter, which is pretty much in line with the 1.5% decrease in Q1 and the 1% decline in Q2. So no significant movement up or down, although on a per-day basis the quarterly Office Products results were positive for the first time this year, which is a bit encouraging. As has been the case all year long, the mega customers outpaced the independent customers in the quarter with the megas growing mid-single digit and independents declining low-single digits.

On the products side, the cleaning and breakroom category grew at mid-single digits, tech products were flat, office products down just slightly and furniture was off low-single digit. At this point, we don't see any material changes in the overall office products environment with conditions remaining challenging for several more quarters at a minimum, and our expectation is for fourth-quarter sales to be in a range of down 1% to up 1%, which would put S.P. Richards down 1% for the year.

So that's a quick overview of the non-automotive segments, and at this point we'll ask Paul to give you an update on our Automotive business. Paul?

Thank you, Tom. I would like to add my welcome to each of you this morning. I'm pleased to join both Jerry and Tom and to have the opportunity to provide with you all an update on the third-quarter performance of our North American Automotive business.

Automotive is our company's largest business segment and we ended the third quarter with sales up 2.5%. For the nine months ended September 30, our Automotive business is up 4% over the same period in 2011. Our sales pattern in the third quarter was very similar to our second-quarter results. In fact, when we account for the one less selling day in the third quarter this year versus 2011, total automotive sales were up 4%, in line with the 4% we delivered in the second quarter.

I will say our overall sales were softer than what we expected at the beginning of the quarter. We believe there are a number of factors impacting our industry, including the mild winter temperatures experienced in the northern half of the country, along with the ongoing uncertainty in the economy. Fortunately, we will begin to annualize the impact of the weather late in the fourth quarter, and a more normalized winter weather pattern should serve to improve demand.

In addition, we continue to believe that the underlying long-term fundamentals in the automotive aftermarket remain strong and the industry will continue to benefit from the solid growth opportunities this offers us well into the future. The aging vehicle population, now reported to be close to 11 years, the continued growth in the number of older vehicles and the positive year-over-year miles driven numbers bodes well for all of us in the industry. We feel NAPA is well-positioned to capture its share of the increase in demand generated by these positive trends.

When we further analyze our third quarter results, the sales momentum we began to see in late June and early July softened in the middle of the quarter before bouncing back in September. Our average daily sales in the month of September were our strongest since back in March. As a result, our total automotive revenues adjusted for one less selling day improved 4% for the second consecutive quarter. The components of this revenue growth include a 1% same-store sales increase, the positive sales contribution from our acquisition of Quaker City Motor Parts, offset by a slight loss due to currency exchange.

Regarding the increase in our core growth, it is important to point out that our results varied significantly by region of the country. The traditional cold weather regions, our Central, Midwest and Eastern divisions, which comprise about third of our overall business, consistently underperformed the other regions across the US. This likely is a direct reflection of the impact of the mild winter in these colder climate areas. The mild winter temperatures also impacted key weather-sensitive product categories in the regions, products like wipers, breaks and ignition products. We believe this type of regional disparity and product category impact is consistent across most of the industry. It also serves to reason that a return to a more normal winter weather pattern should drive a potential upswing in demand in the upcoming months.

Moving along, we are very pleased with the positive contribution from our Quaker City Motor Parts acquisition. Their third quarter and year-to-date sales contribution was in line with our expectations. We have a strong team in place, our transition plans are on track and we are excited with opportunities that Quaker City will provide to us in the future.

Turning to the results for our company-owned store group, in the quarter our commercial business continued to outperform our retail business. Taking a look at the retail business first, the quarter trended down 1%, which follows a 2% decline in the second quarter. Our average number of invoices per day was down slightly while our average dollar value increased. On the commercial side in our company-owned stores the quarter ended up 1%, consistent with our growth in this segment in the second quarter. Our average number of invoices was flat while our average dollar value per invoice increased. So we're somewhat encouraged to see that while our overall store traffic is down slightly, our average order size is increasing. It's also encouraging to see both our retail and our commercial businesses showing steady results on a sequential basis. Likewise, this is reflected in both our NAPA auto care and major account business results as well.

Sales for these two important customer groups were up low- to mid-single digits in the third quarter. We are pleased to report we reached a record number of NAPA Auto Care Centers in the third quarter, which bodes well for future revenue growth.

So in summary, demand in the automotive aftermarket in the third quarter proved very similar to what we experienced in the April to June quarter. We do remain bullish about the core fundamentals impacting the automotive aftermarket and our Automotive Parts Group. These core fundamentals combined with our own internal growth initiatives provide us ample growth opportunities for the fourth quarter and well into the future.

In light of that, our expectations for our North American Automotive Parts business is to generate a fourth-quarter sales increased in the range of 6% to 8%. So that completes our overview of Automotive business in the third quarter. At this time, I will hand it over to Jerry for a review of the financial results.

Thank you, Paul, good morning. We appreciate you joining us on the call today. We will first review third quarter and nine-month income statements and segment information, then touch on a few key balance sheet and other financial items. Tom will come back to wrap it up and then we will open the call up to your questions.

View of the income statement shows the following. Total sales, a record high of $3.4 billion for the third quarter, an increase of 3% from last year, and this reflects a 4% increase on a daily sales basis. For the nine months, total sales were $9.9 billion, up 5% from 2011. As you heard from Tom and Paul, the sales environment remains challenging in the quarter but we are proud of our team for working through these difficult conditions and reaching another record sales level for the Company. We remain focused on achieving continued steady growth in the fourth quarter of 2012 and beyond.

Gross profit for the third quarter of 28.9% of sales is even with the gross margin achieved in the third quarter last year. For the nine months, gross margin of 29.0% was up 30 basis points from the 28.7% for the same period in 2011. So we made nice progress on improving our gross margin for the year, although the third quarter was a little more challenging due to the competitive sales environment and slightly lower levels of vendor incentives earned for the quarter. We will continue to look for opportunities to expand our gross margin through ongoing initiatives to effectively manage supply chain costs, increase distribution efficiencies and maximize our pricing potential. Our management teams across all of our businesses are committed to this effort.

For the year, cumulative pricing, which represents supplier increases to us, was a negative 0.3% in Automotive, plus 1.2% in Industrial, plus 2.7% in Office Products and a negative 0.7% in Electrical.

Turning to SG&A, total expense was $705 million in the third quarter, and that's up 2% from 2011 and at 20.9% of sales is down from 21.3% in the third quarter of last year. For the nine months, total SG&A expenses, $2.1 billion, that's up 3%, and at 21.2% of total sales compared to 21.5% for the same nine months in 2011. We attribute our steady improvement in this area to the combined benefits of greater leverage associated with our sales growth and our intense focus on managing our expenses. Throughout the organization, we have made solid progress in controlling our expenses and will continue to assess and align the proper cost structure of our businesses as we move through the year and beyond.

We continue to benefit from ongoing cost saving initiatives, including investments in technology, which have positively impacted our operating efficiency in our distribution centers and stores as well as supply chain costs in areas such as freight and logistics, among others. For the third quarter we also experienced saving in our corporate expenses which we will discuss further a few moments.

Now let's discuss the results by segment. Automotive had revenue in the quarter of $1,650,900,000. That represents 49% of the total and is up 2.5%. Net operating profit of $150.6 million, up 7%, so very nice margin expansion from 8.8% to 9.1% of revenue. The Industrial group had revenue in the quarter $1,138,900,000. That represents 34% of the total and it's up 4.5% and they had operating profit of $94.6 million, down 3%, so poor leverage and a little less incentives in the quarter caused our operating margin to slip from 8.9% to 8.3% in the quarter.

Office Products, $444.3 million in sales for the quarter represents 13% of the total. That's down 1%, and they had operating profit of $29.9 million and that's up 10%, so very strong margin expansion there, going from 6.1% to 6.7% of revenue.

Electrical Group -- sales in the quarter $150.9 million represented 4% of the total, that's up 5%, and operating profit $13.6 million, up 22%. So outstanding margin expansion there due to the leverage off the sales and lower copper pricing. But that's a record high at 9.0% in the quarter.

Moving to nine months, Automotive had revenue of $4,789,300,000, up 4%, operating profit of $418.2 million, up 11% -- again, very strong margin expansion for that group, going from 8.2% to 8.7%. The Industrial group had revenue for the nine months of $3,398.800,000, up 8%; operating profit $274.0 million, up 10%. So again, even though with a slight decline in the quarter, they're up solid for the year, for the nine months 7.9%, prior year 8.1% for the current year.

Office Products had revenue for the nine months $1,283,700,000, down 1%; operating profit of $91 million. That's up 2% -- again, excellent margin expansion from 7.4% to 7.6%, considering the negative sales increase. They have done a good job of taking infrastructure costs out and managing their expenses downward.

Electrical Group had revenue for the months $447.4 million, up 7%; operating profit $38.5 million, up 27%. So again, very strong margin expansion from 7.2% to 8.6%, at a record high. And I would not expect for them to continue to show that kind of improvement in their operating margins, but we are extremely pleased with the level that they are at this time.

Total operating profit was up approximately 4% in the third quarter, and operating profit margin improved 20 basis points to 8.6% from 8.4% in the third quarter of 2011. This follows margin improvement of 70 and 40 basis points from the first and second quarters of 2012, respectively, and total operating margin for the nine months is 8.4%, and that's up 40 basis points from 8.0% last year.

We are pleased with this level of margin expansion and expect to show continued year-over-year operating margin expansion in the fourth quarter as well. We had net interest expense of $5.0 million and $14.7 million for the third quarter and nine months, respectively, which is down from 2011 due mainly to the lower interest rate on our $250 million debt agreement that was funded in November of last year. We will discuss our debt position later, but we currently expect our net interest expense to be approximately $20 million to $22 million for the full year.

Other category, which includes corporate expense, amortization of intangibles and noncontrolling interest, was a $12.3 million expense in the third quarter and is $47.0 million for the nine months (technical difficulty) September. This slide shows (technical difficulty) improvement in the third quarter due primarily to the Company's favorable retirement plan valuation adjustment and the income recorded for our 30% investment in Exego. These two factors, as well as a positive impact of our ongoing cost savings, serve to improve this expense line and we currently projected the total other category to be in the $60 million to $65 million range for the full year, which is relatively consistent with 2011.

For the quarter, tax rate of approximately 36.3% was down from 38.6% last year due to the nontaxable status of the favorable retirement plan adjustment just discussed. For the nine months, the 36.4% rate compares to 36.8% for the same period last year, and we would expect our full-year tax rate for 2012 to be approximately 36.5%.

Net income for the quarter, $172.9 million, is up 14%. EPS increased to $1.11 compared to $0.97 last year, also up 14%. For the year, through September, net income is up 13%; EPS of $3.11 is up 14% over the prior year. The third quarter was another record level of earnings for us, and we want to recognize all of our associates at Genuine Parts Company for achieving this milestone. This requires great deal of hard work and dedication on their part and we are proud of their accomplishments.

Now let's touch base on a few key balance sheet items. Cash at September 30 was strong at $398 million, up from approximately $172 million at June 30, although down from over $500 million at September last year and at December 31 of 2011. Our current cash position reflects the more than $500 million used for several investing activities earlier this year, included in the January 1 investment in Exego, the leading automotive distribution company in Australia and New Zealand; the Electrical Group's Light Fab acquisition on February 1 and Automotive's Quaker City acquisition closed on May 1. These significant uses of cash were partially offset by the increase in earnings, effective asset management and cost reductions.

Accounts receivable, $1.6 billion, September 30, increased 5% from September 30 last year on a 3% sales increase for the third quarter. As we said before, our goal is to grow receivables at rate less than revenue growth, so we have work to do in this area and we expect to see progress toward this goal in the fourth quarter. Overall, though, we are satisfied with the quality of our receivables.

Inventory, 9/30 of 2012, $2.4 billion, that's an increase of approximately 4% compared to September 30 and December 31 of 2011. The increase is attributable to the impact of our acquisitions thus far in 2012 and inventories are actually down slightly from both September and December when you break the acquisitions out. Our team is doing an excellent job of managing our inventory level, and we remain focused on maintaining this key investment at the appropriate levels as we move through the final quarter of 2012.

Accounts payable balance as of September 30, $1.8 billion. That is up 11% from September 30 last year and up 22% from December 31. The significant increase in trade payables reflects the impact of extended payment terms and other payable initiatives that we have negotiated with our vendors. Improving our payables position has been a priority for us over the last couple of years and it has a positive impact on our days in payables with DPO up two days from 62 -- to 62 from 60 last year.

Working capital, $2.6 billion at September 30 is up approximately 17 -- 7% from September 30 last year as reported but is down 3% after adding back the $250 million in current debt at September 30 of 2011, which was converted and reclassified to long-term debt in the fourth quarter of that year.

Effectively managing accounts receivable and inventory and payables is very important to us and our ongoing progress with these accounts has had a tremendous impact on improving our working capital position and cash flow. Our balance sheet remains in excellent condition.

Total debt, September 30, 2012 remains unchanged at $500 million. First $250 million in debt is due in November of 2013 and the debt for the agreements signed in November of last year is due in November of 2016. Total debt to total capitalization at September 30 was 14.0%, and although comfortable with that capital structure, we want to remind you that back on September 11 we entered into a multi-currency syndicated credit facility agreement for $850 million. This agreement, which carried a five-year term and an interest rate of LIBOR plus 75 basis points replaces a $350 million unsecured revolving line of credit that was scheduled to mature this December. The new facility provides us with expanded borrowing capacity to support our growth opportunities as may be needed from time to time.

No amounts borrowed under this agreement at September 30 of this year.

The Company continues to generate solid cash flows and 2012 is shaping up to be another very strong year for us. We currently estimate cash from operations of $775 million to $825 million for the full year, and at this level free cash flow after deducting CapEx and dividends should be approximately $350 million to $400 million. Continued strength of our cash flows is encouraging. We remain committed to several ongoing priorities for the use of this cash, which we believe serve to maximize shareholder value.

The first priority is the dividend, which we have paid every year since going public in 1948 and have increased for 56 consecutive years. The Company's 2012 annual dividend of $1.98 represents a 10% increase from $1.80 paid in 2011 and represents a payout ratio of approximately 55% of our 2011 earnings per share. Our goal would be to maintain this level of payout ratio going forward.

Our other priorities for cash include the ongoing reinvestment in each of the four businesses, strategic acquisitions where appropriate and share repurchases. Our investment in capital expenditure of $24.0 million for the third quarter, and that's down from $22.2 million invested in the third quarter last year. For the nine months, CapEx totaled $71.6 million compared to $63.9 million for the same period of the prior year. We plan for this level of increase and expect our CapEx spending for the full year to be in the range of $100 million to $120 million. The vast majority of these investments will continue to be weighted toward productivity enhancing projects, primarily in technology.

Depreciation and amortization of $25.6 million in the quarter and $73.3 million for the nine months. Both the quarter and the nine month numbers are up slightly and we continue to expect D&A to be approximately $100 million to $110 million for the full year. Strategic acquisitions continue to be an ongoing an important use of cash and are integral to our growth trends for the Company. We are pleased that our investment in Exego and the Quaker City acquisition in the Automotive Group as well as a small acquisition in the Electrical business continue to perform as planned and are contributing nicely to our results. We remain active in seeking new acquisitions for our businesses, generally targeting those bolt-on types of acquisitions with annual revenues in the $25 million to $125 million range.

Finally, thus far in 2012, we used our cash to repurchase approximately 980,000 shares of our common stock under the Company's share repurchase program and have another 12.6 million shares authorized and available for repurchase today. There is no set pattern for these repurchases but expect to be active in the program over the balance of 2012, and we continue to believe our stock is an attractive investment and, combined with the dividend, provides the best return to our shareholders.

In closing, we want to once again thank all of our GPC associates for the great job they are doing. They are to be commended for achieving another quarter of record sales and earnings. We are well positioned for continued growth in our businesses. We remain optimistic in our outlook for the fourth quarter of 2012, due primarily to the many positive initiatives that are in place throughout our organization. As always, we support our growth with a strong cash flow and a healthy balance sheet, further maximizing our return to shareholders.

That concludes our financial review, so I'll turn it back to Tom.

Thank you, Jerry and Paul, for the fine updates. So that's a quick overview of our third quarter results, and in looking back over the quarter we would say that we were a bit disappointed in the sales results in each of our four businesses, but at the same time they seem to be in line with the respective trends in each of the businesses. We do think our team operated pretty well and made some good progress on the operating side of the business despite the revenue challenges and we continue to keep the balance sheet in good shape.

Now, as far as the fourth quarter is concerned, the individual sales guidance that was provided during our comments was for Automotive, Industrial and Electrical/Electronics to each to be up 6% to 8% in the quarter and for Office Products to be in a range of down 1% to plus 1%. This would give the total Company an increase of 6% to 7% for the quarter and would put us up 5% to 6% for the year.

On the earnings side, we remain comfortable with our prior full-year guidance of $4 to $4.10 with a bias towards the middle part of the range. This would give us an EPS increase of 12% to 14% for the year. With full-year sales being up 5% to 6% and earnings per share up 12% to 14%, we feel that 2012 will turn out to be another respectable year for the GPC team.

So that will conclude our planned comments, and we will now turn the call back over to Dawn to take your questions. Dawn?

(Operator instructions) Greg Melich, ISI.

I really just want to get into the automotive sales acceleration that you expect from the fourth quarter. If I'm doing this right, you're up around 4% on a real basis in the third quarter, and you think you'll be up 6% to 8% in the fourth. What gives you the confidence there? Is there a shift as auto sales are running quarter to date? Is it acquisitions? Is it FX? Give us a road map there.

I think the primary difference is the fact that we were short one day in the third quarter, but we get that day back in the fourth quarter. So our expectation is that on a per-day basis we will see a little bit of an uptick from what we saw in the third quarter and then the benefit of that extra day. We are actually expecting just a bit of improvement on a day-to-day basis.

Got it. So if that day was 150 BPS in the third quarter, it would be 150 BPS help in the fourth quarter?

That's right.

Got it. Secondly, you mentioned on Auto the deflation. It's been a while since we have seen deflation in that category, if I remember correctly. How should we expect that to flow through to the top line and gross margin?

Just quickly, the last time we saw deflation in Automotive was 2009.

And in terms of the effect on top line, at the levels that we are at, we are down 30 basis points year to date. There will be a pretty modest impact on that. If we see further deflation, obviously it will be a little bit of a headwind. But right now, our expectation is very modest impact.

Great, thanks a lot.

John Murphy, Bank of America Merrill Lynch.

I just wanted to follow up on the Auto sales question as well. As we think about the industry, we are getting conflicting signals of some weakness, some relative stability. Just curious what you're seeing in general, what you think is in the end market there and also really just curious if you have seen anything change in inventory in the channel. Is the inventory heavy or light? And hopefully, at some point, as we see a pickup, could there be an inventory pull-through for your auto sales numbers?

I'll take a first stab at that. One thing to keep in mind is what Paul referenced in his comments, and that's the geographic differences that we have experienced thus far this year with our cold-weather operations being much more challenge than the remainder of operations. And it's a fairly significant delta in performance as we look at that. And our expectation is that delta will start to reduce some as we work our way through the fourth quarter and on into next year.

In terms of what we are seeing in the end markets, what we are hearing from some of our good installer customers pretty much mirrors what we have reported in our own results and they are talking about bay counts, the traffic actually holding relatively steady, but the works orders, the value of their work orders is under a little bit of pressure, which we think is indicative of the consumer being a bit more discretionary with how they are spending their dollars currently.

On the inventory side of it, we don't see any material difference in the inventory. Keep in mind, the main inventory that we would have would be at the store level. And that has, I think, held pretty constant. So we don't see any reduction, nor do we see any opportunity for a great run up in inventory. At the installer level, the commercial side of it, there's very little inventory that's really held, and we don't think that that's going to change one way or the other going forward, won't have any impact.

Great, thank you. And then, Jerry, just on the new bank facility that has been put in place, you said that has now been changed to a multi-currency facility. So obviously, that would help you out with Exego or any other international acquisitions in the future. I'm just curious, is the upsizing and changing that to a multi-currency facility really just in preparation of what may happen with Exego, or are there other international acquisitions that you guys see that could be real attractive to you in the future?

Well, we haven't seen any of any significant size. We would still be open to making if it made sense, but this is primarily in preparation for the Exego transaction.

Okay. And the 14% debt to cap that you're at right now obviously is real solid and fairly low. Would you be willing to take that up materially in the course of the Exego transaction or any other transaction?

Yes, we would, if it make sense of to maximize shareholder value. But yes, if we do the Exego transaction, we'll definitely have to have some debt.

So are you thinking about an absolute ceiling there in the 30% to 40% range, or is it something much lower than that?

It's lower than 30% to 40%. But we have done a little work, and depending on our cash flow and how well we do with managing working capital, it could be in the mid-20, not high 20 range.

That's very helpful. Thank you very much.

Scot Ciccarelli, RBC Capital Markets.

One of the questions that I had is -- this is really another follow-up on the Auto commentary. Tom, you mentioned consumers seem to be a bit more discerning on their spending. And I know this is an opinion, but would you attribute that to weaker consumer spending trends, maybe higher gas prices? Or, do you think it's possible that consumers are potentially just doing less maintenance and repair work on their vehicles because they are interested in new car sales at this point?

I think -- and again, it's just an opinion, as you said. My thought is that the consumer has a finite amount of discretionary spending. And I think part of that may have been geared more toward electronics with the new iPhone or the new iPad or other electronic items. I think part of it might have gone to back-to-school because it was a reasonably good back-to-school season this year.

I think when it comes to the automotive, what we are seeing and what we are being told is that the repair that's absolutely critical or anything that affects driveability, they are in fact getting done, but then their bias is to try to do it for the least amount of money possible. So if we look at our good/better/best product out flow, we see strong performance in the good and better categories and less-strong performance in the best product category. And then we also see, if there are multiple things that need to be worked on or should be worked on on the vehicle, if it's not critical, we are seeing deferral on some of that.

And we have seen some of this at times in the past, and at least in the past what we have seen happen is there is a point in time when some of this maintenance that has been deferred winds up coming back into the aftermarket and we all have an opportunity to benefit from that.

But have you seen that kind of reaction or behavior on the part of consumers at any point in the last four years?

Well, what we have seen going back to 2008 and 2009 is we saw very significant evidence of deferral of some of the items that needed to be purchased. And we came back with strong overall industry results and good positive results for GPC in 2010 and 2011.

There is a question out there, and you alluded to it. And that is, what is the impact of the increased vehicle sales this year? And depending upon whose number, I guess it will be something -- let's call it 14.5 million. If you look back to 2004 through 2007, we had anywhere from 16.1 million to I think it was 16.9 million in new car sales. All those years were really good years for the aftermarket, so we had a higher rate of new car sales on a base that's about the same as what it is today, and the new car dealers benefited and the aftermarket performed well in that period of time.

Then we went into the recession and we saw new car sales go down. Aftermarket went down and the aftermarket has come back well in 2010 and 2011. We see some of the geographic diversity that we see right now in 2012 and some of the consumer spending patterns that we think we are living through. But the fundamentals, as Paul pointed out, the fundamentals are still generally positive and favorable. And we will see this thing come back to a more normal state, I think, as the quarters progress.

Very helpful, and then just a quickie -- Jerry, what was the size of the retirement plan adjustment?

It was about $4.5 million, $5 million. The one positive about it was a negative adjustment in the third quarter of last year, and it was a positive adjustment. And the pickup this quarter was $3 million, but we had a swing compared to the third quarter of last year.

Got it, thanks a lot, guys.

Christopher Horvers, JPMorgan.

I'll stick with the auto thread here. You talked about September being better on a per-day basis. Was that true versus July as well as August? And is there anything that you saw on the regional side or the category side that could either support or refute the weather thesis?

I would just tell you that our September same-store business was low- to mid-single digit year-over-year. So we did see a nice lift in September, and that was across most of our divisions. So even those divisions that -- those cold-weather divisions that we mentioned, the central part of the country, Midwest and Northeast, saw a bit of a lift in September as well. So we are encouraged. And I would tell you that, back to a question that Scot asked, when you look at some of the things happening in the economy, consumer confidence does seem to be growing somewhat. At least that's what was reported in September. Housing starts are moving in the right direction. So does seem to be a bit of optimism out there that we haven't seen in a while.

And that low- to mid-single digit per day compares to the 4% adjusted for the quarter, for the third quarter?

Correct.

So a little bit, so maybe if that was 4%, so maybe a little bit better than 4% is what you're trying to say, right?

We will stick with the low- to mid-single digit there, Chris.

Okay, fair enough. I was just curious, on the brake side of the business I think -- as a consumer, I can understand batteries not failing because of the cold and wipers perhaps as well. What is your view on the brake business, whether that -- is that a macro thing, or is that the weather thing? Because I understand his brakes are pretty tough, so will the weather actually result in improved sales in that category?

The brake business, as we understand it, Chris, it has been a challenge for us. We are now down low-single digits for the year, and it is geographical. Certainly, in those Northern Territories, we have seen more of a decline in our brake business. And we do believe that's weather-related, and we do believe it's across the industry as well.

And then just finally, on the industrial side, you talked about some haves and have-nots in terms of the category. Is there anything changing in terms of some of the weaker categories? How did that trend throughout the quarter?

Well, the three that I highlighted, we saw a deccelerating trend sequentially from Q1 through Q3. I can't give you the specifics about the month sequence. In terms of any changes, we are seeing evidence that some of the housing-related industries have picked up just a little bit, as Paul mentioned. Housing starts have gone up, some of the plywood mills are opening backup or increasing production. So hopefully that's something that will sustain in the quarters ahead.

Where we see some weakness is where some of these companies are larger exporters, and some of what is happening in the global economy is starting to have an impact on their North American production.

And then one final one -- have you seen anything in terms of a drought impact in terms of some of your ag customers?

Absolutely. Absolutely, so if you go into the farm communities, you see some real impact there. So that's had an impact both in Automotive, as well as in our Industrial business.

Bret Jordan, BB&T Capital Markets.

A follow-up question on your comments about September being the best since March. Within that -- and I think it was partially addressed earlier -- do you see an improvement in the maintenance category in that trend as well? It seems that maintenance has underperformed failure industrywide. But are you seeing some improving demand in what had been lagging categories?

Some modest improvement there, yes.

Okay. And then I guess regionally, and it's tough to look at it, you said about a third of your business was in the geographically more challenged markets. And can you break out the relative delta on that performance? Or maybe a way to look at it without doing that would be to give us some idea of comp maybe for Quaker City year-over-year. You didn't own it last year, but if you can -- was it a positive comp, or did we actually slide negative in some of these Eastern and East/North/Central markets?

Well, I'll take the first part of that. The Northern divisions that we mentioned, their comps are running low- to mid-single digit down year-over-year. The balance of our business, which is six divisions comprising the West, Southwest, Southern, is up mid- -- low- to mid-single digits.

Okay, great, thank you.

Matt [Bignew], Goldman Sachs.

Good morning, it's actually Matt Fassler, along with Matt [Binno]. A couple of questions here -- first of all, as you think about the underlying run rate adjusted for days, I want to confirm that the acquisition probably contributed a bit more this quarter than it did last quarter, when you only had in place for a partial period. Is that the right way to think about it?

Yes, that's right. We had two months in the prior quarter, three months this quarter.

So it's only a one-month difference, so a small difference. And when you talk about September being the best year-on-year performance that you had since March, is that including or excluding the impact of the acquisition?

In both cases, in both cases, on a per-day basis, if we look at our average daily sales volume for the month of September, the ongoing operations had a record, as did with Quaker City. But as with Quaker City, we had a very strong performance in September.

Understood. And then secondly, the Industrial, there has been a lot of focus on the fourth quarter guidance for Automotive. I want to look for a moment at Industrial, and I guess two questions, interrelated. The first is that there seems to have been some disconnect between the macro factors that you used to project your business and the revenue growth that you reported. And then if you could correct me if I'm wrong, whether the extra day hits industrial similarly to the way it does automotive, such that ex the day hit, you would've been close to 6% and the acceleration you expect is not that substantial?

We were, on a per-day basis we were up 6.1% in the quarter, on a per-day basis.

And in terms of the micro versus macro, your numbers and your experience sequentially versus some of the macro indicators still looking good and your expectation that the third quarter represents the lower bound of performance, any insights you have, either trends through the quarter, quarter to date that give you the confidence for that pickup?

Well, we are too early in this quarter to try to comment on any trends. But some of the industries that we service, the industry segments, are very strong right now. I mentioned Automotive as a for-instance. We are benefiting from the strength in the new car sales, the improvement that we are seeing there. The thing we don't know is what the impact is going to be for some of the companies or segments that are a little bit more export-dependent because we have seen deceleration there. Coal would be an example, and primarily the Eastern coal has been really hard hit over the last couple of quarters, and we don't know that it's going to come back this quarter.

Got it, understood, thank you very much.

Brian Sponheimer, Gabelli & Co.

I just want to spend a little bit more time on the operating profit in Motion, with sales up $50 million but operating profit off about $2.5 million. I know you've called out some puts and takes there, but maybe just spend another minute going through how you see that operating profit moving through the fourth quarter, maybe into next year.

If you look, our Industrial business was up 8% in sales in the second quarter and up 4.5% here in the third quarter. So we are not going to build inventory to get incentives. And so we took in less incentives in the third quarter as we have through the six months and less than we did last year. We are basically down slightly in incentives this third quarter compared to 2011. So both of those contribute to that' slowing in the growth and operating margin in the quarter.

But if you look for the nine months, they're still doing a good job with operating margin. They are still 20 basis points, and we would expect to see that kind of improvement for the year.

Okay, and just going to the multi-currency facility again, you've talked about Exego as a good opportunity on a go-forward basis and owning the 30% is putting the balloon out there to see if you like the business or not. With the multi-currency facility happening this early, would it be appropriate to say that you are more than pleased with how Exego has gone thus far?

Yes, we are more than pleased with how it's gone thus far, but just because we did this facility, we had a facility of $350 million expiring in December. We went ahead and got this out of the way, and it's a five-year facility. So we can do it this quarter or we can do it in five quarters, or at whatever period. We just put that in there to be in a position to do whatever we needed to do.

Okay, and just along those lines, with the idea that Exego may not happen for a while, given where the stock is, given where your cash balance is, given some decent visibility on some improvement that you expect for Auto on a seasonal basis next year, why wouldn't you become more aggressive to repurchase shares at this time?

There's no reason, and you may see that.

Alright guys, thank you very much.

David Gober, Morgan Stanley.

This is Shaun Kolnick on for Dave. Thanks for taking the question. Are you seeing anything different in the competitive environment when it comes to auto parts from 3Q maybe to Q2?

I don't think we could say that we have seen it in that short a period. What we are experiencing right now is what we go through periodically. And that is, when business slows up somewhat, the competitive environment increases somewhat. So it's a fairly normal pattern that we experience at times like these, and this particular pattern is very consistent with what we have seen in past times.

Just one more, on the AP to inventory side. You had a pretty nice quarter, up about 400 basis points. Do you have any idea of how much further progress you might be able to make there?

We can continue to make progress. It's a difficult thing to tell you how much progress we can make. We are going to continue to work with our vendors in negotiating terms, prices and everything. That's just an ongoing priority for us. Really don't have a number that I can give you that we are going to strive for or try to reach. But you will see continued improvement there, I think.

Thanks, guys.

Keith Hughes, SunTrust.

I just wanted to jump back to Industrial. As you talk to your customers, and I know you guys (inaudible) on the top 10 industries and what they are at in the quarter. What are they looking at in terms of their pace of business over the next three to six months? Is it accelerating, decelerating, or are they just uncertain?

I think uncertainty would be one the answer. And it's more because of the external uncertainty. So there are people out there that are sitting waiting to make some capital expenditure decisions, depending on how things develop over the next quarter or so. So right now, it's a little hard to answer that specifically, Keith, but that's what we are hearing from our customer set.

Is that due to Europe, or things more domestic?

I think it's a combination of both, honestly. Obviously, the domestic thing is more immediate with the election and then the fiscal cliff that may loom out there, but then, there's also a number of companies that are dependent upon some demand in Europe that are a bit uncertain as to what's going to happen there. But that plays out more over a medium to longer term, we think.

Thank you.

Efraim Levy, S&P Capital IQ.

In the release, you mentioned gains in certain industries. Which ones were the gainers, and what were the drivers of those gains?

I'm sorry. Can you repeat that? You broke up on us.

You mentioned in the press release that there were some gains, in certain of the industries you gained market share. Which ones were the ones where you gained market share, and what were the drivers of those gains?

I would say that if we looked across the core businesses, we performed, at a minimum, in line with the performance of the overall industries. And perhaps we gained a little bit in each of the industries. And if you look at automotive as a for instance, I think that if we look at the publicly traded companies in the aggregate, the performance of each of the companies would suggest that we might see be gaining as a group a bit at the expense of the non-publicly traded companies, as a general statement. And in terms of the other business, we just have to look at our performance directly with our publicly traded competitors and see how they stack up. But I think overall, our teams are doing a pretty good job of holding their own at a minimum maybe improving their position, in a few cases.

You say it's largely execution driven, I think.

That's right.

Thank you very much.

Brent Rakers, Wunderlich Securities.

This is Anjali Voria in for Brent Rakers. I know you talked a little bit about the Office op margin lift that you saw in the quarter. Could you talk a little bit further, maybe give a little more clarity on that side of the equation, especially when you are seeing growth from independents slowing? I am trying to assess where that lift is coming from.

And then also, as a follow up, do you think you will see that typical lift in Q4 on both the Office and Motion side?

I don't think you're going to see a continued lift in the margins at the Office Products side. Where that is coming from is not in the gross margin side of things, it's coming in expense reduction and infrastructure cost adjustments that they are making there. They have been in a depressed sales environment for some time, and the management team there has done a good job of taking that cost out. And they're going to continue to focus on taking further cost out until they see revenue recovery. But you're not going to continue to see movement up in it, but I think we would be pleased, really, if the Office Products would just to continue to hold their margin. They were 7.6% for the nine months, and we would have expected to maintain that for the full year.

Now, in the Industrial side, we were up 20 basis points for the nine months. And there's no reason to think that they can't maintain that for the full year. But that's going to be dependent upon what kind of revenue growth they get. And I'm sure that they will do a good job leveraging their expenses off of that revenue growth.

Okay, that's very helpful, thank you very much.

Greg Melich, ISI.

On the sales again in Auto, I just want to make sure that the up low- to mid-single digits -- that compares to the 1% same-store sales in the quarter, or to the overall sales?

Greg, we are going to have to dance around that question. What we will have to do is research that and get you an answer, if you don't mind. (inaudible) work back with you on that one.

And then I guess another one, sort of a straightforward one about the quarter, is how much did FX hurt, and how much did Quaker City on?

We have not given those out specifically, but if we net the impact of Quaker City against the one less day and the negative in FX, net-net, it had a 1% positive for us in the quarter.

That's great, thanks a lot.

There are no further questions at this time. I will now turn it back over to the presenters for any closing remarks.

Dawn, thank you. We appreciate each of you joining us on the call today and we appreciate your continued interest in and support of Genuine Parts Company. We look forward to talking with you in the future, if not before, then certainly when we report our fourth-quarter and year-end results in February. Thanks for joining us.

This concludes today's third quarter 2012 Genuine Parts earnings conference call. You may now disconnect.