純正零件 (GPC) 2014 Q1 法說會逐字稿

Good morning. My name is Holly and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company first-quarter 2014 earnings results conference call. (Operator Instructions)

I'd now like to turn today's conference over to Sid Jones, Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us today for the Genuine Parts Company first-quarter 2014 conference call to discuss our earnings results and outlook for the full year. Before we begin this morning, please be advised that 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 filing. The Company assumes no obligation to update any forward-looking statements made during this call.

We'll begin this morning with comments from Tom Gallagher, our Chairman and CEO. Tom?

Thank you, Sid. And I would 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. Paul Donahue, our President; and Carol Yancey, our Executive Vice President and Chief Financial Officer, are both on the call as well and each of us has a few prepared remarks and once completed, we'll look forward to answering any specific questions that you may have.

Earlier this morning, we released our first-quarter 2014 results and hopefully you've had an opportunity to review them, but for those who may not have seen the numbers as yet, a quick recap shows that sales for the quarter were $3.625 billion, which was up 13%.

Net income was $157.5 million, which was up 9%, and earnings per share were $1.02 this year compared to $0.93 in the first-quarter last year and EPS increase was 10%. We are pleased with our overall results in the first quarter and we feel that the GPC team is off to a solid start to 2014.

The combined 13.3% sales increase was our strongest performance in a few quarters and certainly acquisitions help boost the overall results. But we were pleased as well with the performance of the underlying businesses, especially in light of the number of weather-related closures that we experienced across each of the businesses doing the quarter.

And we were also pleased that our increase in sales on a per day basis improved sequentially in each of the businesses as we worked our way through the quarter, which is encouraging. In looking at the sales results by segment, our Electrical and Automotive Operations had very strong quarters, with Electrical being up 30% and Automotive up 23%. Industrial was plus 4% and Office Products was down 0.5%.

Paul will cover the Automotive details in a few minutes, but first, I'll make a few comments about the non-automotive operations, starting with Motion Industries, our industrial distribution company. You'll recall that this segment had a challenging year in 2013, ending the year down 0.5%. We saw a bit of a pickup in the fourth quarter when we were up 3%, and this was followed by their 4% increase in the first quarter, so a bit encouraging.

Also encouraging is the fact that 9 of our top 10 customer segments are generating positive results for the first quarter, with automotive and iron and steel categories leading the way, along with customers in the lumber and wood products, and coal aggregate and cement product categories growing nicely as well. These latter two are important parts of our overall business and it's nice to see them showing solid growth, perhaps indicative of improvement in the housing and construction sectors.

It's also interesting to note that after several quarters of decreases, the original equipment manufacturing segment was up modestly in the quarter, and hopefully a sign that the demand from this important segment is starting to improve force.

Our general sense is that demand in the overall Industrial segment is firming up a bit. Still a bit uneven across certain customer and product categories, and in talking with our customers, we still hear a bit of cautiousness, but not as pronounced as it was six months ago.

And importantly, two important leading demand indicators for us, the industrial production and capacity utilization indices, continue to be at historically healthy levels. As a result of all this, we continue to anticipate a respectable year from our industrial operations.

Moving on to EIS, our Electrical/Electronic Company, they had a terrific quarter, with revenues increasing 30%. Certainly recently completed acquisitions were a big part of their increase, but we do see signs that the underlying conditions are improving somewhat. As with Motion, there is a bit of unevenness in the recovery, but encouraging signs all the same.

This, combined with the ongoing contributions that we will get from their recent acquisitions, as well as the continued firmness in the ISM purchasing managers index -- a key demand indicator for us -- all of this will enable us to look forward to strong double-digit growth for EIS over the remainder of the year.

And finally, a few comments on Office Products. Although down slightly for the quarter, we were a bit encouraged by a few of the trends that we saw develop in the first three months. Our business with the independent office products resellers was down 1% in the quarter, but this part of our business actually improved as the quarter progressed and was nicely positive in March.

And somewhat similar comments on the Mega segment of our business. This group was up mid-single digits in the quarter, with March being strongest month. On the product side, furniture was up mid-single digits, while technology products, core office supplies, and cleaning and breakroom were each down a bit, but encouragingly, all four product categories showed nice positive growth in the month of March, and it's been a while since we have seen all four of the major product categories show positive results in the same month.

Certainly the biggest news for our Office Products segment is the recent announcement that S.P. Richards has been named the first call wholesaler for the combined Office Depot/OfficeMax business. We're honored and we're proud to have been selected and this enhanced relationship will add over $100 million in annual volume to S.P. Richards starting in the second half of the year. So an incremental $50 million or so over the second half, and this will be a nice boost to the overall S.P. Richards sales results in 2014.

So that's a quick overview of the non-automotive businesses, and that this point, I'll turn it over to Paul to cover the Automotive segment. Paul?

Thank you, Tom. Good morning, everyone, and welcome to our conference call. I'm pleased to join you today and to have an opportunity to provide you an update on the first-quarter performance of our Automotive business. As was mentioned in our previous conference calls, we now include in our Automotive recap the results from GPC Asia Pacific, which was consolidated into our results on April 1, 2013.

As Tom mentioned in his opening remarks, our Automotive business grew topline revenues by 23% in the first quarter. To further explain our growth, the numbers break out as follows: acquisitions, primarily GPC Asia Pac, contributed 17% of the 23%; our core business grew 7%; and currency had a negative impact of 1% plus.

I'd like to take this opportunity to walk you through our North American numbers and provide you an overview of our first-quarter performance. As we reflect on this past quarter's results, it will be apparent the numbers are very similar to our fourth-quarter performance.

A combination of colder weather, solid industry fundamentals, and a shift in the Easter holiday, but most importantly, improved execution in the field, enabled us to report another good quarter. All of these factors played a part in our team generating a 7% topline increase.

When evaluating our quarterly performance, we are encouraged to see that all regions of the US are positively contributing to our sales growth. As was the case in the fourth quarter, the top performers in the first quarter were once again those that were most impacted by the colder winter temperatures. Our divisions, stretching from the Plains across the Great Lakes to the northeast, continue to lead the way for the Company. In addition, these colder temperatures provide a positive momentum for a number of our key product categories, which I'll touch on later.

But as Tom commented in his opening, the extreme weather we encountered during the month of January and even into February in some southern states as well as up and down the Eastern Seaboard forced numerous store and customer closures and had a negative impact on our business. However, we continue to believe the overall benefits to the parts business as a result of these extreme cold temps outweigh any of the negatives.

Now turning to our US Company-owned store group -- comparable same-store sales growth in the first quarter came in at plus 8%. This strong performance follows the 7% same-store sales growth in Q4. Our sales growth in the first quarter was driven by a healthy 8% increase in our commercial and our wholesale business.

Diving deeper into our commercial results, our non-fleet related business turned in another strong quarter, generating an 8% increase. For the second consecutive quarter, both our major account customers as well as our 15,000 plus NAPA Auto Care centers generated double-digit increases.

We're pleased with the progress our team continues to make in these all-important segments of our commercial wholesale business. We also can report an increase in both our average wholesale ticket value and our average number of tickets for the quarter and we are encouraged by both of these trends.

Wrapping up our discussion on the commercial segment, we generated strong results in our fleet business, generating 8% growth in the first quarter. And these are the best results out of this segment of our business in a number of quarters.

Turning now to our retail business, we can report this important segment outpaced our wholesale business in the quarter by posting a 9% overall increase. It's been a number of years since we reported this significant of an increase from our retail business. As we saw with our wholesale business, both our average ticket value and our average number of tickets increased in the quarter. We are pleased with our team's efforts in our stores and the energy behind our many retail initiatives.

Now let's take a look at a few of the product categories driving our growth. Much like the fourth quarter, our NAPA batteries and battery-related accessories continue to post strong results. These categories grew mid-double digits in the quarter. Not surprisingly, the cold winter temperatures throughout much of the country also drove double-digit increases in both our starter and our alternator business.

Other big growth categories for us in the quarter were our wiper and our chemical business as well as our chassis business. Key product categories, such as brakes, filters, belts, and hoses, all grew mid-single digits in the quarter. As we head into spring and with the arrival of warmer temperatures, we expect to see sales in these core product categories ramp up.

So in summary, we remain encouraged as both our North American and our Australasian Automotive operations report another quarter of improved results. We remain positive about the core fundamentals of the automotive aftermarket, and the growth opportunities available to us in both the retail and the commercial sectors.

We have a new ad agency in place, a new 18-year-old NASCAR driver named Chase Elliott, who has posted back-to-back victories in recent weeks, and a new retail customer loyalty program that is currently being piloted in a select number of operations. To date, we are pleased with the results and we plan to roll out additional locations later in the year.

Many of the key aftermarket industry metrics remain positive; however, we are seeing a couple of trends that we will continue to monitor. Let's start first with the positive. The average age of the vehicles on the road remains in excess of 11 years, and deferred maintenance remains at historically high numbers.

A couple of key metrics we will keep an eye on is the price of gasoline and miles driven. Fuel prices have steadily increased over the past 30 days and we -- and have seen an increase of $0.05 in just the last two weeks.

And as for miles driven, after posting positive growth numbers in 2013, they have now trended down slightly for two consecutive months. Harsh winter conditions could be impacting these results and we had hoped to see these numbers normalizing as we head into the summer months.

So in closing, we are pleased with our first-quarter results and encouraged by the strong start to the year. We're proud of our management team and know they remain committed to driving profitable growth throughout 2014. While we have much work ahead of us, we remain optimistic that the initiatives we have put into play are having positive impacts on our results.

We'd like to personally thank all of our NAPA associates, both in North America, and GPC Asia-Pacific in Australia and New Zealand for their efforts in the first quarter.

So that completes our overview of the Automotive business, and at this time I'll hand the call over to Carol to get us started with a review of our financial results. Carol?

Thank you, Paul. We'll get started with the review of our first-quarter income statement and the segment information and then we'll review a few key balance sheet items. Tom will come back up and wrap it up, and then we'll open the call up to your questions.

Total revenues were $3.6 billion for the first quarter, an increase of 13% from last year, consisting of a 10% contribution from acquisitions, 4% underlying growth, and this was offset by a 1% headwind from currency.

(technical difficulty) profit for the first quarter was 29.9% of sales, up 110 basis points from the 28.8% last year. Primarily, the increase reflects the favorable impact of higher gross margins in our Australasian business, which owns 100% of its stores.

Excluding the impact of GPC Asia Pacific, which we will annualize in the second quarter, our underlying gross margin was down slightly from last year's first quarter and this was due mainly to customer and product mix shifts across all of our businesses. We'll continue to seek opportunities for margin expansion, and for the year, we would expect gross margin to be in the 30% range.

As an additional point of interest, we are seeing some slight inflation in our non-automotive businesses to date, but not seeing that in the Automotive sector and we don't expect this to change much over the balance of the year. Our pricing year to date through the first quarter is flat for Automotive, 0.8% for Industrial, 0.7% for Office Products, and 0.8% for Electrical.

Turning to our SG&A, our total expenses were $841 million in the first quarter, representing 23.2% of sales. Our SG&A expenses as a percent of sales are up 130 basis points for the quarter, and much like the changing gross margin, this primarily reflects the impact of higher SG&A costs at GPC Asia Pacific, again, due to their 100% store model.

Before GPC Asia Pacific, our expenses are slightly improved from last year as a percent of sales and primarily reflect the cost savings associated with the freeze of our pension plan that was effective January 1, 2014. Although these savings were partially offset by increases and other retirement-related benefits, the pension freeze will continue to favorably impact our overall retirement-related costs in the periods ahead.

In addition, we continue to focus on effectively managing the costs in every area of our business. We're seeing progress in areas such as supply chain efficiency and labor productivity, and we see room for further improvement in future periods. The first quarter savings from our cost initiatives were offset by increases in items such as healthcare and incentive-based expenditures, and we remain challenged by the lack of leverage associated with only slight underlying sales growth in our non-automotive businesses.

That said, in consideration of the GPC Asia Pacific store model and ongoing savings associated with our cost initiatives and the expectation of the gradually improving sales environment in our non-automotive segments, we expect total SG&A to improve in the quarters ahead and to be approximately 23% of sales for the full year.

Now let's discuss the results by segment. Our Automotive revenue for the first quarter was $1.9 billion and represents 52% of sales and up 23%. The operating profit of $150 million is up 24%, so their margin improved 10 basis points to 7.9% from 7.8% last year. Our Industrial sales were $1.14 billion in the first quarter, which is 32% of total revenue and up 3.7% from 2013.

Our operating profit of $83 million is up 5.3% and the operating margin of 7.3% is up 10 basis points from the 7.2% in the prior year. We're pleased to see this improvement at Motion and continued topline growth in this business will help this further.

Our Office Products revenues were $418.1 million in the quarter or 11% of our total revenues and down just 0.5%. Our operating profit of $33.9 million is up 2.3%, so their operating margin was up 20 basis points to 8.1% from the 7.9% last year. The Electrical/Electronic group had sales in the first quarter of $180.3 million, which is 5% of total revenue and up 29.6%. Their operating profit of $15.5 million is up 48.6% and their margins showed a strong jump to 8.6% from the 7.5% in 2013.

So our total operating profit was up 16% in the first quarter and our operating profit margin was up 20 basis points to 7.8%. We are encouraged by this improvement and especially pleased that each of our businesses contributed to the overall increase. We are focused on consistently growing our margins in the periods ahead and expect to show a 10 to 20 basis point improvement for the full year.

We had net interest expense of $6.2 million in the first quarter, which is up from last year due to the incremental interest income earned in the first quarter of 2013 that was in association with our large cash balance held for that period. This cash was used to purchase GPC Asia Pacific on April 1, 2013, and we expect interest expense over the next three quarters to be slightly favorable to the prior year and to be in the range of $22 million to $24 million for the full year.

Our total amortization expense was $8.9 million for the first quarter, which is up from 2013 due primarily to the GPC Asia Pacific acquisition as well as the industrial, electrical, and office acquisitions that were completed more recently. Currently, we expect amortization expense to be in the $35 million to $37 million range for 2014.

The other line, which reflects corporate expense, was $23.6 million expense for the quarter, which is up from the $14.3 million in the first quarter of last year. This increase reflects higher expenses for a variety of items, including insurance and incentive-related costs. In addition, we had a more favorable retirement plan valuation adjustment in the first quarter of last year.

We expect this line to be in the $75 million to $80 million expense range for 2014, which compares to $67 million in 2013 before the $33 million one-time gain on the GPC Asia Pacific acquisition that was recorded in the second quarter of 2013.

For the quarter, our tax rate was approximately 35.5%, which compares to 35% last year. The lower Australian tax rate on GPC Asia Pacific's pretax earnings continues to benefit our overall rate, which is typically lower in the first quarter relative to our full-year rate. Last year, we had a more favorable retirement plan valuation adjustment, which is nontaxable. We continue to expect our full-year tax rate to be in the 36% to 36.5% range for 2014. Net income for the quarter was $157.5 million and EPS was $1.02 compared to the $0.93 last year and up 10%.

Now let's move on to the balance sheet. Our cash at March 31 was $103 million, which is down from the approximate $842 million in March of 2013 and the $197 million at year end. The decrease in cash relates to the cash used in the first quarter for acquisitions, a pension contribution, and share repurchases.

Additionally, our cash position was especially high at this time last year, as about half that balance related to the cash we held for the April 1, 2013 acquisition of GPC Asia Pacific. With these items in mind, we're comfortable with our current cash position at March 31.

Accounts receivable of $1.8 billion at March 31 increased 13% from the same period in 2013, which is in line with our 13% sales increase for the quarter. We remain focused on our goal of growing receivables at a rate less than revenue growth in the periods ahead, and we are very satisfied with the quality of our receivables at this time.

Our inventory at quarter end was $3.0 billion, which is up 1% from December 31 and up 16% from March 31 last year. Before the impact of acquisitions, our inventory is down 1% from December 31 and up 1% from March of last year. So our team continues to do a very good job of managing our inventory levels. We will remain focused on maintaining this key investment at the appropriate levels as we move forward through the year.

Our accounts payable balance at March 31 was $2.3 billion, which is up 30% from March of the prior year due to the positive impact of our extended payment terms and other payables initiatives established with our vendors as well as the impact of acquisitions. Our continued improvement in this area and its positive impact on our working capital in days and payables is encouraging. And we expect this trend to continue in the periods ahead.

Our working capital of $1.9 billion at March 31 compares to $2.3 billion at March 31 of 2013. Effectively managing accounts receivable inventory and accounts payable is a high priority for our Company and our ongoing efforts with these key accounts have resulted in solid improvement in our working capital positioning and cash flow. Our balance sheet remains in excellent condition at March 31, 2014.

Our total debt of $900 million at March 31 represents approximately 21% of total capitalization. It includes two $250 million term notes as well as another $400 million in borrowing under our multicurrency syndicated credit facility. We're comfortable with our capital structure at this time, although we may choose to pay down some of our current debt outstanding under the syndicated credit facility during 2014, depending on the investment opportunities that could arise.

In the first quarter, our cash from operations was approximately $60 million, and for the full year, we would expect cash from operations to be in the $900 million to $1 billion range and we would expect free cash flow, which deducts capital expenditures and dividends, to be in the $500 million range. We're pleased with the continued strength of our cash flows and remain committed to several ongoing priorities for the use of our cash, which we believe serve to maximize shareholder value.

Our first priority for cash is the dividend, which we have paid every year since going public in 1948 and have now raised for 58 consecutive years, which is a record that continues to distinguish Genuine Parts from other companies. Our annual dividend of $2.30 per share in 2014 represents a 7% increase from the $2.15 per share paid in 2013 and it's approximately 52% of our 2013 earnings per share, which is well within our goal of the 50% to 55% payout ratio. 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 our core businesses, strategic acquisitions where appropriate, and share repurchases. Our investment in capital expenditures was $18.4 million for the first quarter, which is up from the $12.9 million in 2013.

We expect our capital expenditures to pick up over the balance of the year and look for CapEx spending to be in the range of $140 million to $150 million, which compares to the $124 million last year. As usual, the vast majority of our investments will be weighted towards productivity enhancing projects, primarily in technology.

Depreciation and amortization was $36.9 million for the quarter, which is consistent with the fourth quarter, but up from the $26 million in the first quarter last year. The increase on this line reflects the impact of Asia Pacific as well as our more recent acquisitions. And we would anticipate depreciation and amortization to be approximately $145 million to $155 million for the full year.

Strategic acquisitions continue to be an ongoing and important use of cash for us and they are integral to the growth plans for the Company. Thus far in 2014, we've added three acquisitions, including one each for Industrial, Electrical, and Office businesses, with estimated annual revenues totaling $235 million. These businesses as well as those acquired over the last several periods are performing well and in line with our expectations, and we're encouraged by the growth opportunities we see for each of them.

We will continue to seek new acquisitions across all of our businesses to further enhance our prospects for future growth, generally targeting those bolt-on types of acquisition with annual revenues in the $25 million to $125 million range.

Finally, in the first quarter, we used our cash to purchase approximately 300,000 shares of our common stock under the Company's share repurchase program. This follows 1.5 million shares purchased in 2013 and today we have another 10.4 million shares authorized and available for repurchase. While we have no set pattern for these repurchases, we expect to remain active in the program over the balance of the year as we continue to believe that our stock is an attractive investment and combined with our dividend provides the best return to our shareholders.

So that is our financial update. And in closing, we want to also thank our GPC associates for all that they do. It's a team effort here and everyone's hard work is truly appreciated. The Company is well positioned for continued growth and we look forward to updating you on our future progress when we report again.

I'll now turn it back over to Tom. Tom?

Thank you, Carol and Paul, for your updates. So that will wrap up our prepared comments, and in summary, we would say that we feel that we came through the quarter in pretty good shape and about where we had planned to be. As we look out over the remainder of the year, we continue to feel positive about our prospects in all four of our business segments.

In Automotive, we anniversary the GPC Asia Pacific acquisition as of April 1, which will moderate our overall Automotive growth rates over the remainder of the year, but we continue to feel good about the underlying fundamentals in the automotive aftermarket, as Paul has covered, and we feel good as well with the results that we're seeing from our various initiatives.

The one unknown for us right now is the strength of the headwind that we'll encounter over the remainder of the year due to currency exchange. As mentioned earlier, it was over 1% in the first quarter. With all of that said, however, we feel that we should raise the bottom end of our full-year Automotive guidance from plus 5% to plus 6%, and for now, leave the top end at plus 7%.

As mentioned during our comments, we are a bit encouraged by some of the signs that we were seeing in both the Industrial and Electrical markets, and we would reaffirm the previously provided full-year revenue guidance of 5% to 7% for Industrial and 25% to 30% for Electrical.

And in Office Products, now having a bit of clarity around the Office Depot business, we need to raise the guidance from the previously provided plus 1% to plus 3% to plus 3% to plus 4%. Putting all of this together would give us a full-year increase of 6% to 8%, which is up from our previously provided 5% to 7%.

On the earning side, our prior expectation was to be in the range of $4.47 to $4.57 and at this point, we would say that a range of $4.49 to $4.59 is probably more appropriate. Now, although we don't provide quarterly guidance, as a point of information, there will be a bit of choppiness on a quarterly basis due to some of the one-time purchase accounting adjustments related to the GPC Asia Pacific acquisition in quarters two and three last year.

And as you're updating your models, Sid will be available to talk with you on this. But we are comfortable with the current annual guidance of $4.49 to $4.59 that was just provided and we'll look forward to refining this a bit further as the year progresses.

With that said, we would like to address your questions and we'll turn the call back over to Holly. Holly?

(Operator Instructions) Scot Ciccarelli, RBC.

Paul went through -- I guess I'm getting slower as I get older here, but Paul went through a couple of the different growth rates on the Auto side. Can you just re-summarize those quickly, and number one, number two, you guys have some nice improvement on the payment terms or accounts payable to inventory. Is that coming from across the different segments or is that more leverage towards Auto, where obviously some of your competitors have very favorable AP to inventory ratios? Thanks.

I would say that on the accounts payable, that's primarily coming from Auto, and that would be the majority of what we've seen recently and what we expect to see, but I would also say all of our businesses have initiatives focused on it and it's something that all of our businesses are looking towards doing and have some improvement there. But I would say the majority of the increase is certainly coming from Automotive.

Got you, thank you.

And Scot, specifically, what were you looking for me to repeat on the Automotive numbers?

I guess the only -- I think you had said both commercial and wholesale were up 8%? Was that --

That's correct, yes. Commercial and wholesale were up 8%, our same-store sales were up 8%, and our retail business was up 9%.

I get it. Okay, so we wound up getting 7% because of the currency?

Yes.

Or that's all organic?

Yes.

I got it. Okay, yes, that cleared it up. All right, thanks guys.

Scot, one of the things I would just add is one of the things that we really find pleasing about the quarter in the Automotive business is the consistency of the performance across all of the segments. I think our team did a terrific job of touching all the bases in this quarter.

Got you. Thanks, Tom.

Greg Melich, ISI Group.

Paul, you mentioned March had a nice improvement over the weather disruption in January and February. Could you help us give an idea of the magnitude and whether there was an Easter shift that impacted that and how April is looking -- to look more like March or more like the whole first quarter?

I might take that, Greg, and I'll comment on all of the businesses. Automotive showed consistency throughout the quarter. We saw some pickup in March. And then if we look at the other three businesses, one of the things that was a bit encouraging is that, in each of those businesses, we actually saw sequential improvement as the quarter progressed. And those businesses are more prone to be hurt by the impact of weather. But March was a good month for us in all four of the businesses.

And does April look more like March or like the first quarter?

April looks more in line with March.

Great. And then second, could you give us an update on how the Australian business is doing organically? You get lost a little bit in that seven number, but anything in terms of traffic and comp trends there?

No. As you know, we don't break out that business separately. I think we would just leave it that we continue to be very pleased with the job that that team is doing and we think they've got a very bright future.

All right, great. I'll leave it at that. Thanks.

Matthew Fassler with Goldman Sachs.

My primary question is related to Office Supply. And really a two-parter. The first just relates to how much of the wholesale business associated with the Depot-Max deal that you didn't [produce] or did you think you'll capture, and I'm particularly asking with regard to your geographic coverage and do you feel like you have the coverage to get all of their markets?

And the second question is related to that. As you think about the price that you may have paid to get that business, is there any margin pressure you would expect on the legacy business as a result of whatever it is you took to win that bid? Thank you so much.

I'll try to answer that. In terms of how much of the business will we capture, we've been named first call, as you know, so that gives us the opportunity to fulfill all of their needs across the entire enterprise and how much of it will we get -- we're pretty optimistic that we're going to get a very high percentage of it.

We do have the geographic coverage to support it. We've got the ability to handle all of that business and our intentions are to handle all of that business.

Great.

And then in terms of any pressures on the legacy business, we would not anticipate that. I think it may be important to point out that I don't believe that this was first and foremost a price decision on the part of Office Depot. I think price certainly was an element. But I think it's important to remember that we've had the Office Depot business for 20 years.

And part of the reason I suspect that we might have gotten the nod is that we've done, I think, a pretty commendable job of handling that business from day one. So I think price is always a factor, but the value add and the level of service and a level of support that you can provide is an important element as well, and I think we fared reasonably well in that over the past 20 years.

And then, by the way, a very brief follow-up. We can handle this after the call if you'd like. But to the extent that you spoke about purchase accounting dynamics for the second and third quarter last year, would there be any adjustments to the current year's numbers or is it just simply a function of understanding the charges that you might have incurred a year ago?

We're not anticipating any purchase accounting adjustments to speak of for 2014. It was just a reminder that we did have the large one-time adjustment in the second quarter and then we had a smaller adjustment in Q3. So it's just a reminder about the choppiness due to the prior year numbers.

That is helpful. Thank you so much.

Aram Rubinson, Wolfe Research.

Hi, this is actually Chris Bottiglieri on for Aram. Hoping to get your thoughts on increased vehicle complexity. The trend appears to be solely hurting DIY and favor DIFM. But wondering, as the increased complexity, in particular with hybrids, Tesla, and even the aluminum F150s, if there comes a point where the smaller base with the rebate garages are no longer able to handle the work and how should we think about those as it relates to NAPA?

Well, I'll try to take it. Paul may have something to add. I would say one, you're right, that the vehicles are going to become more complex and are going to require a higher-level of training and sophistication to do the repair work in the years ahead. On the NAPA side, we have been anticipating this for several years now and we've got training programs for all of our commercial customers that, if followed, will enable them to do these repairs going forward.

The other thing to keep in mind is that the aftermarket is a very, very large industry and you've got 251 million vehicles on the road today. And this new technology that comes in, it comes in on a gradual or evolutionary basis, not a revolutionary basis. So there's a multi-year opportunity for us to be prepared, not only from the technical training point of view, but also from the supply chain point of view, to handle the demands of the vehicles in the future.

So we actually see it as an opportunity. I do think -- to your point, I do think that those on the repair side that for whatever reason don't avail themselves of the training or aren't in a position to buy some of these diagnostic equipment and tools that will be needed, they're going to be threatened. But at the same time, we think that good customers like our major account customers, our NAPA Auto Care customers, this is an opportunity for them to perhaps gather up some share as we evolve through the transition we're going to be going through.

Chris, the only thing I would add to that is that the overall complexity of the vehicle part today -- as that goes more towards DIFM, that's a positive for NAPA and for our primary customers.

Okay, thank you. I appreciate that color. Congrats on the quarter.

Chris Horvers, J.P. Morgan.

I wanted to try to parse out a little bit more of some of the March, April commentary. You talked about an Easter shift. Is it possible to look at what average daily volume growth was like in the DIY and the commercial side of the auto-parts business to try to figure out what the underlying trend is?

It would be -- it's a hard number to come up with, but it will be -- we would suggest it will be less than 0.5%.

I got you, in terms of the impact. I understand. And that DIY number was just -- I mean, through the roof. Is there any reason to think that first the Easter shift had more of an impact on that side of the business? And can you dig into some of the category performance in DIY? Where that acceleration was, because I think the naive would say wipers, it's cold, it's snowy, it's batteries, it's wipers and that really -- the surge of demand in DIY should have already passed, but actually seems like it showed up later.

So can you talk about the categories that showed the acceleration and how you think about the performance in DIY and commercial both 2Q and then as you get into the balance of the year?

Chris, this is Paul. Let me take the retail piece first, and I think I would start by telling you that overall, our team is performing at a higher level, executing at a higher level. We've done a lot of work in our stores. We've reset our stores, re-merchandised them, extended hours, better signage, better associate care on the floor for our customers and dedicated care on the floor.

So I think all of that has had a positive impact on our retail business and we really saw that trend throughout the past year.

You couple that with the harsh winter weather and that harsh winter weather -- that really drove, we think, some real emergency-type repairs. Emergency-type repairs, you've got stuff breaking down, right? So you've got batteries that need to be replaced, wipers that need to be replaced, scrapers that need to be bought, chemicals that need to be bought.

We saw positive growth in every one of those categories throughout the quarter. So I'd say, really, it's a combination. I think one, our execution is better, and then I think the harsh winter weather drove folks in our stores to get some emergency repairs done quickly.

But you would think -- to Tom's comment that April looks more like March in Auto, you would think that people aren't repairing -- changing their batteries out because it's warmer and the cars are starting. So I guess is the demand starting to spread to more of the repair and maintenance categories that are not more emergency in nature?

I think that's a fair assumption. And my comment about April was not just for Automotive. That was also for our other businesses as well.

Understood. And then, that's a good segue. So on the Industrial business, it seemed like the organic growth came in a little lighter than you were originally anticipating. So did actually the weather end up having more of an impact on that business in the middle part of the quarter that you expected and is what you're seeing in March and April more in line with how you were originally thinking about the year?

Well, we did have an improved quarter organic growth-wise. We did have an improved quarter for the addition of some acquisition volume as well, but we did see some improvement organically and we also had the impact -- negative impact of currency exchange in the quarter, which was just over 1% in the Industrial business.

To the second part of your question, our non-automotive businesses are hurt by the kind of weather that we experienced in the first quarter, because it's business closures and we don't experience increased demand because of cold temperatures. We do get the benefit of increased demand on Automotive offset by whatever number of stores and customers' locations that are closed.

But it was a headwind in the quarter -- the weather was, and that's behind us now. So we've got a degree of optimism for the remainder of the year.

Okay. And then just the one final one on the margins. At what point in organic growth in the non-automotive businesses do you start to see vendor allowances picking up year to year and then similarly getting leverage on the SG&I side? Thanks.

I'll try to take that, and Carol can help, but I would say that we need approaching mid-single digit growth in those businesses. One of the offsets potentially to any volume incentive programs is the fact that our team is doing a better job -- ever-increasing better job -- on our inventory management. So I think Carol covered the inventory numbers overall, but we're doing a better job in each of the businesses on a continuing basis.

So we run the businesses. We don't use the balance sheet to prop up the income statement. So if we can generate mid-single digit growth in any of these businesses and at the same time through better visibility and better technology hold inventories even, that's what we're going to do. We're not going to boost the inventories in order to try to qualify for any additional rebates that might be earned.

And I think just one other thing on the volume incentives, there was not really an impact in the quarter. Our volume incentives were basically flat compared to the prior quarter and we're modeling flat this year for 2014. So I think there is some other things that should come into play with our gross margin initiatives that we should get the improvement from those areas rather than just the sheer volume incentives.

Thank you.

John Lovallo, Bank of America.

First question would be for you, Carol. If we think about the Auto business, if we think about the year-over-year incremental margins, they've been in the low kind of 8% range over the past few quarters. I guess the question is this a reasonable run rate to think about or are there additional levers now that can be pulled, given that Exego would be fully integrated and so forth?

Well, traditionally, and we try not to base everything on just first quarter. So first quarter tends to be a lower margin business, especially on the Automotive side, and we do have a bit of seasonality, certainly with Asia Pacific and what our first quarter is, is their winter, if you will. But we have some seasonality, so on a four-year basis, we would point you more to looking at the full-year margin numbers and say that's where we would expect to be on a full year. And we are still looking for a 10 to 20 basis point improvement on a full year basis.

Okay, that's helpful. And maybe more of just a strategic question here, thinking about the Office Products business and you guys currently have eight proprietary brands there, which -- it would appear that there would be at least some degree of cost that's associated with supporting those brands. Is there any business rationale to potentially consolidating the brands and going to the market with maybe a more consolidated portfolio, if you will?

I don't think that's part of our thought process, currently. I think we're comfortable with the way we're managing the product portfolio today.

Okay, thanks very much guys.

Brian Sponheimer with Gabelli and Company.

A couple of questions here. With Auto being up 8%, how much do you think a piece of that came from market share gain and how much do you think may have come from what will be the advance general parts conglomerate when that's all integrated?

Yes, Brian, this is Paul. A couple of things. One, it's kind of difficult to tell at this point, but I would tell you that as far as your question on the advanced CARQUEST acquisition, it's pretty early yet. We are encouraged by the things that we're seeing happening in the field, but it's very early. And I can tell you that, for the first quarter, there was really no material impact on our numbers in the first quarter as a result of those two businesses coming together.

Okay, and just -- pricing dynamics staying fairly stable so far?

Absolutely -- you're talking about in the marketplace, Brian?

Yes.

Yes, so far everybody is -- it seems to be pretty rational out there. We're certainly, as Carol pointed out in her comments, we're not getting any help from price increases. But it's rational.

As this year progresses, and let's say things begin to get any better, do you foresee any sort of mix shift back towards the best and better products, Paul? Or is that just something that you don't think is going to be a major part of the marketplace going forward?

Well it's hard to tell, Brian. We do have a good, better, best offering of products, for sure, in the marketplace. We promote all three. We push all three. We have seen a bit more of a flight to value in recent years and I don't know that that's going to change to any effect going forward in 2014.

All right, thank you. And Carol, just -- one of your comments you said you guys may choose to pay down some debt as the year goes on. Given how cheap your borrowing -- why would that be the best use of cash as you guys look at how to allocate capital?

Well, right now, what we were saying is we're at $900 million right now. We may. It's really going to depend on what opportunities may present themselves between now and end of the year. And certainly, that could come in the form of acquisitions or share repurchases, and honestly, it was looking at how our cash is going to be and our cash flow coming in, so it's really a balancing.

We may be at levels similar to last year. We were saying we may take it down a bit from the $900 million that it is first quarter, but we haven't ruled out anything because, really, we're going to look at it as things present themselves between now and the end of the year.

Okay. All right, thank you very much. Nice quarter.

Seth Basham, Wedbush Securities.

So, I have a couple of questions. First, if you could give us a better sense of what underlying gross margins were year over year for the Auto business when you strip out the Asia Pacific business?

So we don't break out the gross margins specifically to the segments, but what we would say is if you took out the impact of Asia Pacific for this quarter, our core gross margins were down about 10 basis points and that was really reflected in all of our businesses and we said that was more of a customer and product mix and it's really representative of all of our businesses.

Got you.

So we would hope -- we've got some things in place that we hope to see that come back a bit between now and the end of the year, and -- so we're kind of targeting at around 30% or just a little bit better than that by the end of the year.

Okay, so full-year gross margin guidance hasn't changed versus your prior guidance, right?

No, it hasn't.

Okay, great. And then, in terms of the Auto business again, the gap between some of your strongest markets that you referenced -- the weather-affected markets in the North and Northeast versus the least strong markets -- did that gap change in this quarter relative to last quarter?

Well, it did somewhat, Seth, and primarily because some of the -- our divisions and groups down in the south were impacted by the weather in a negative fashion, right? So you had some customer closure and store closures which - certainly the folks up north deal with the weather a lot better than we do down here in the South.

Got you. So that would imply that northern markets actually accelerated in terms of trend in the first quarter versus the fourth?

Well, they -- the northern divisions continued as they were in the fourth quarter, so have continued to be strong operators for us, absolutely. Your assessment is correct.

Okay, great. And then can you remind us last year what your same-store sales was for the US NAPA business, adjusted for any selling day differences?

Hold on.

Just give us a second, we'll pull that up.

For the first quarter?

Yes.

5%? 7 --?

No -- no, no.

No, that's not --

First-quarter 2013, our same-store sales were just up modestly. Basically flat.

On a selling day basis?

On a same day basis.

Great. Okay. And then lastly, as it relates to the Office business, the incremental $100 million -- the sales that you guys expect from the ODP win, should we expect that to come at similar margins to the segment average?

No, it will be a little bit lower than the overall average.

Okay, perfect. Thank you very much, guys.

Keith Hughes, SunTrust.

My question is been answered. Thank you.

Bret Jordan, BB&T Capital Markets.

Quick question, I guess. As you look at the accounts payable to inventory, and you're pushing towards 80%, and I imagine most of that is on the back of the Automotive side, where do you see that number getting to? Do you think you can get the Motion and electrical suppliers to drink the Kool-Aid on extended terms or are we --because most of it has come from Auto, it might be hard to get it up from here?

Well, I don't think we plateaued. So I think you'll see a bit of improvement from here. As far as the first part of the question, this concept is not spread throughout the other businesses. So it's going to be more difficult and more time-consuming to accomplish what we would like to accomplish in those businesses. But I think we still have a little bit of headway yet in terms of bringing it up.

Would we think that your Auto AP inventory is in the 90s if your aggregate AP is in 79?

We haven't worked that number.

Okay. And then I guess a question -- just to go back to market share, not a lot you said has changed in the first quarter, but have you picked up distributors from the CARQUEST transaction?

We've had some positive results there. It's a little early in the process, but there have been some movements, yes.

How about you talk about how many or sort of where you think you are? (laughter)

No, no, no. We wouldn't want to do that.

Okay. And then one last question. I'll give you one last one, then. As you talked about strong categories, I think you said that friction is getting better into the second quarter. Is chassis or any other categories staying strong out of what would have been sort of a real seasonal demand spike as people do post-winter repairs? I can understand where batteries and growth hitting Electrical might have peaked in Q1, but are there other pieces of the business that are driving Q2?

No, for sure, Brett, you're right. We saw -- certainly in Q1 was a big growth in batteries as we saw in Q4. Our expectation -- And chassis had a good first quarter as well. We're expecting that business to continue strong into Q2. You look at some of the potholes up in the northern part of the country; I think there's going to be an opportunity for chassis, for sure.

As we look at our core categories, brakes and filters, for example, as people now -- as the weather warms up, people get their cars into the bays. That's the business that we're expecting to see a nice ramp-up here in Q2 and Q3.

Okay, great. Thank you.

Greg Melich, ISI Group.

Yes, hey, guys, this is Mike Montani on for Greg. Just wanted to follow up on the full-year guidance. It seems like the revenues were increased by about $140 million but then EPS by only about $0.02, which seems to imply about $5 million of net EBIT. Is there something that I am missing there? It seems interest is up a little bit and maybe other amortization line items as well to offset, or can you just help me to understand the flow through there?

We'll have to get back to you on that, Mike.

We didn't do it in terms of the actual revenue and the EBIT. One thing we did do was raise the bottom end of the Automotive guidance. So we brought that up from 5 to 6. But I think there were some other changes, some other headwinds in there, and honestly, currency is playing in there a bit, too. So we didn't necessarily come about it the way you did.

Okay, great. We can follow up offline. Thanks, guys.

And at this time there are no further questions. I'll turn the conference call back over to management for closing remarks.

Well, we appreciate you attending our call today and we appreciate all the questions and if we can be of further assistance, let us know. Otherwise we look forward to reporting out after our second quarter numbers. Thank you for your support.

And once again, we'd like to thank you for dialing in for today's Genuine Parts Company first-quarter 2014 earnings results conference call. You may now disconnect.