純正零件 (GPC) 2014 Q4 法說會逐字稿

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

I would now like to turn the call 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 fourth-quarter and full-year 2014 conference call to discuss our earnings results and outlook for 2015.

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 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, Sid; 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. Paul Donahue, the President of Genuine Parts Company, along with Carol Yancey, our Executive Vice President and Chief Financial Officer, and I will each handle a portion of today's call. Once we've completed our individual comments, we will look forward to addressing any specific questions that you may have.

Earlier this morning we released our fourth-quarter and year-end results, and hopefully you've all 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 $3.822 billion, which was up 9%. Net income was $165.6 million, which was up 10%. And earnings per share were $1.07 this year versus $0.97 last year, which was also up 10%, so we feel that our team came through the final quarter of the year in good shape.

For the full year, sales were $15.342 billion, which was up 9%. Net income was $711 million, up 4% on a reported basis and up 9% on a comparative basis. You'll recall that in 2013 we had one-time purchase accounting gains that were related to the GPC Asia Pacific acquisition, and that had a one-time favorable impact on the 2013 results.

Earnings per share for the year were $4.61. And EPS was up 5% reported basis and 10% on a comparative basis.

Sales, net income, and earnings per share each reached record levels in 2014, which we're certainly pleased to report. We're also pleased that the sales and EPS results both came in a bit above our full-year guidance that was provided back in October, with all four of our business segments contributing nicely.

Turning to the individual segments, I will cover the non-Automotive operations, first followed by Paul, who will then review the Automotive performance. Starting off with Industrial, the Motion Industries team came through the year in good shape. Sales for the year were just under $4.8 billion, and this was up 8%.

We were pleased with the cadence of the year, with sales being up 4% in the first quarter, 7% in the second, and then 10% in each of the final two quarters of the year. These solid results were underpinned by broad-based positive contributions across the major product categories as well as the major customer segments.

On the product side we ended the year with 11 of our top 13 categories showing growth. Encouragingly, all 13 were up in the final quarter.

Among our top 12 customer segments, 11 posted positive results for the year, and all 12 were positive over the final three months. Again, encouraging trends.

Among the strongest-growing segments for the year, in no particular order, were automotive, coal aggregate and cement, iron and steel, lumber and wood products. This is a diversified cross-section of the North American manufacturing base, and we feel that these solid results are reflective of the improved conditions that we currently see in the overall economy, which is encouraging as we head into the new year.

Before ending our comments on Industrial, we do want to mention that we completed the acquisition of Miller Bearing as of February 1 of this year. Miller is a highly regarded regional industrial distribution company headquartered in Orlando, Florida.

They operate 17 branches and have annual revenues of approximately $40 million. This will be a great addition to our Industrial group, and we're pleased to have the Miller organization now a part of Motion Industries.

Turning to the Electrical segment, EIS was up 23% in the fourth quarter and they were up 30% for the year, so it was a strong performance from this team in 2014. While certainly pleased with the overall results, we do want to point out that acquisitions were the major contributor to the sizable sales increases.

In fact, the EIS underlying business was only up 1% for the full year. However, we were encouraged to see the underlying business up 4% in the final quarter, which was the strongest performance of the year and hopefully a sign that demand is starting to pick up a bit in this segment.

As we enter 2015, EIS will continue to see sluggish demand among their telecommunications customer base, at least for the first half of the year. The deflation in copper pricing will also present a headwind. But the EIS team has a number of strong revenue initiatives underway, and we expect a solid performance from this team in 2015, especially over the second half of the year.

Finally, Office Products. Total revenues came in at $1.8 billion, and this was up 10%. As with our Industrial segment, Office Products sales got stronger as the year progressed.

After being flat in the first quarter, they were up 4% in the second quarter, 15% in the third quarter, and 22% in the fourth quarter. This progression clearly shows the positive impact of our enhanced relationship with a significant customer that kicked in in the second half of the year, as well as the nice contributions from the Impact Products acquisition that was completed midyear.

But beyond this, we're also pleased to see single-digit growth from our independent Office Products reseller channel for the entire year. This segment actually firmed up as the year progressed.

We were also pleased to have ended the year with solid growth in all four of our major product categories. So the results from the Office Products Group were broad based from both a customer and product perspective, which is encouraging, and this team goes into 2015 with a bit of momentum, which is good to see.

that's a quick overview of the non-Automotive businesses, and at this point we'll ask Paul to bring you up-to-date on the Automotive segment. Paul?

Yes, thank you, Tom. Good morning, everyone, and let me add my welcome to our fourth-quarter conference call. I'm pleased to join you today and to have an opportunity to provide you an update on the fourth-quarter performance of our Automotive business.

We are pleased to report our global Automotive business grew top-line revenues by 4% in the fourth quarter. This 4% number consists of 6.5% core Automotive growth, which includes slight benefit from acquisition offset by 2.5% of currency adjustments.

The currency adjustment was a bigger headwind than we had anticipated for the quarter, but our team was able to overcome this challenge with stronger-than-expected core growth. When reviewing our quarterly performance, we continue to be encouraged by the solid results our teams are generating across our entire Automotive business.

During the fourth quarter, we saw our US team post a 7% sales increase, while our international businesses, including Canada, Mexico, Australia, and New Zealand, grew mid single digits. In the US, all regions of the country are positively contributing to our sales growth. The Atlantic, Western, and Midwestern divisions led the way for our Company in the fourth quarter.

Now let's turn to our same-store sales numbers. Our US Company-owned store group grew comp same-store sales in the fourth quarter by 7%. This 7% is on top of a 7% increase we generated in the fourth quarter of 2013, which gives us a two-year stack of plus 14%. This solid performance continues a strong same-store sales run dating back to the fourth quarter of 2013.

Our quarterly breakdown for 2014 is as follows. In the first quarter we generated an 8% same-store sales increase; and in Q2 we posted a 7% increase; and in Q3 we are plus 6%. Rolled up, that gives the US Automotive businesses a full year same-store sales number of plus 7%.

We are proud of our team for generating these solid results. But we are also well aware we have a steep hill to climb in 2015 to continue to build on these comps.

Our 7% sales increase in Q4 was driven by a combination of strong sales on both our commercial wholesale side of the business and by our retail business. Let's start with our retail results.

As mentioned in previous calls, we have put a renewed focus on this segment of our business, and we are pleased to report these initiatives are beginning to pay dividends. Our team did an outstanding job in the quarter, driving an 11% increase in our overall retail business.

As generally is the case, there was no one single initiative that drove this double-digit increase, but rather a combination of things that our team has been working on for the past 12 months that really began to take hold in the quarter. Retail basics such as extended store hours, proper staffing, dedicated retail associates, and increased training all played a part.

In addition, we have fine-tuned our radio and our print advertising. We focus our team on planogram compliance, and we are driven to increase both the size of our average ticket and the number of tickets flowing through our stores.

In Q4 saw a significant increase in our average retail ticket and an increase in the number of retail tickets. We are by no means satisfied with where we are today, and we have a great deal of work left to do. However, it is a testament to our team's hard work that we are moving the needle on this important initiative.

Now let's turn to our commercial wholesale business or our do-it-for-me segment. This segment turned in a 6% increase in the fourth quarter.

Recapping our year's performance, our commercial business was at or exceeded 6% growth in each quarter of 2014. Highlights for the quarter included solid performances by our two major wholesale initiative, NAPA AutoCare, and major accounts.

Starting with our major account business, this strategic segment delivered its sixth consecutive quarter of double-digit growth, a terrific accomplishment by our entire major account team. Our NAPA AutoCare Centers, now totaling over 15,500 nationwide, posted a high single-digit sales increase in the quarter. This performance ensured another year of low double-digit increase for our AutoCare business.

We would also like to report on our fleet business. This important segment continued a solid year-over-year performance by posting a 5% increase in the quarter, and we wrapped up 2014 at plus 6%.

We can also report good trends in our average wholesale ticket value, which had positive growth in the month and in the quarter, with little or no inflationary support. We also saw year-over-year growth in the average number of tickets flowing through our stores.

Now a quick review of the product categories driving our growth. In the fourth quarter, we experienced double-digit growth in our brake business, our tool and equipment business, and our NAPA import parts business. A great job by our sales team in all three of these important categories.

As we look ahead to 2015 and beyond, we continue to be encouraged by the fundamentals in the automotive aftermarket. The average age of the fleet remains in excess of 11 years.

The size of the fleet continues to grow and, not surprisingly, the all-important miles-driven metric recorded its largest growth in the past five years. After relatively flat to even negative numbers in recent years, miles driven was up 1.4% through 11 months.

We saw a jump in miles driven as the price of gasoline dropped in late Q3 and Q4. Miles driven was up 2.3% in September, 2.6% in October, and 1.1% in November. This growth is a direct result of the lowest fuel prices we've seen in six years.

That said, we are beginning to see fuel prices inch back up in early February. However, the national average is still significantly below last year's fuel prices.

So in summary, we are pleased with our fourth-quarter results as well as our full-year performance. Our teams in the US, Canada, Mexico, and Australasia continue to post solid growth.

As good as we feel about 2014 and our industry in general, we are facing our share of headwinds as we move into 2015. Foreign currency is a significant headwind for our non-US Automotive businesses, which we'll continue to monitor. In addition, we will face challenging 2014 comps in every quarter of 2015.

That said, we are confident in our strategy, the key initiatives we've laid out, and the management team we have in place to make it happen. In closing, we want to thank our management teams both in North America as well as our team on the ground in Australasia for another fine year for the GPC Automotive business.

That completes our overview of the GPC 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 begin with a review of our fourth-quarter and full-year income statements and our segment information, and then we will review a few key balance sheet and other financial items. Tom will come back at the end of my remarks, and then we'll open the call up to your questions.

Our total revenues were $3.8 billion for the fourth quarter, an increase of 9% from last year. This consists of underlying sales growth of 8% and a 3% contribution from acquisitions. These items were offset by a currency headwind of approximately 2%.

For the year, our sales increase of 9% was 5% of core growth, with another 5% from acquisitions, offset by a 1% currency headwind.

Our gross profit for the fourth quarter was 30% of sales. This compares to the 31% gross margin last year. For the 12 months our gross margin of 29.9% compares to 30% reported last year, or 30.1% excluding the one-time purchase accounting adjustment in 2013 that was previously disclosed and also referenced in today's press release.

We're pleased that our fourth-quarter gross margin was in line with our expectations. We also recognize the need for further progress on this line and, as we've stated before, this area has our full attention. As we move forward in 2015, we will rely on well-executed margin initiatives across all of our businesses to offset the ongoing customer and product mix shifts that are pressuring our gross margins today.

Additionally, our incentives -- our initiatives are important in addressing the generally low inflationary environment, especially in the Automotive segment. Our supplier price increases for 2014 were flat for Automotive, up 1.5% for Industrial, up 1.4% for Office Products, and up 0.3% for Electrical. Currently, we are planning for about the same pricing environment again in 2015.

Turning to our SG&A, our total expenses of $881 million in the fourth quarter were up 2.9% from 2013 and at 23.1% of sales. This is a 130 basis point improvement from the 24.3% reported last year.

For the full year, our total SG&A expenses are $3.5 billion, which is 22.7% of sales, compared to the 22.6% in the prior year, or 22.9% before the purchase accounting adjustment mentioned earlier. So this is a 20 basis point improvement on a comparative basis for the full year.

The improvement in our fourth-quarter and full-year SG&A expenses reflect the benefits of our effective cost management in every area of our business as well as greater expense (technical difficulty) especially across our non-Automotive businesses in 2014. Our teams remain focused on effectively managing our costs, and we expect to show continued progress on our SG&A line in the periods ahead.

Now let's discuss the results by segment. Automotive revenue for the fourth quarter was $1.99 billion. That represents 52% of our sales and is up 3.7%. Operating profit of $150.3 million is down 2.3%, so their margin declined by 40 basis points to 7.6% from the 8.0% last year.

For the year our Automotive sales of $8.1 billion, which is also 53% of our total revenues, was up 8.1%. Our operating profit of $700.4 million is up 9.2%, and our margin is up 10 basis points to 8.7%. So despite the pressure on our margin in the fourth quarter, we are very pleased to report a slight increase in our operating margin for the full year.

Our Industrial sales of $1.2 billion in the fourth quarter, which is 31% of our revenues, is up 10.4% from the prior year. Our operating profit of $96.3 million is up 31%. Our operating margins showed strong expansion this quarter, up 120 basis points to 8.0% from the 6.8% last year.

For the year our Industrial sales of $4.77 billion represents 31% of our total revenues and is up 7.7%. Our operating profit of $370 million is up 15%, and our margin is 7.8%, which is up 60 basis points from last year.

This is a solid margin improvement for Industrial, and we are especially pleased to see the expansion come from both core gross margin improvement as well as SG&A leverage. In addition, we had the benefit of stronger supplier incentives in 2014, so this was a very good year for Industrial.

Our Office Products revenues were $469 million in the quarter or 12% of our revenues and up a very strong 21.7%. Our operating profit of $35.3 million is up 12%. So their operating margin was down 60 basis points to 7.5%.

For the year Office revenues of $1.8 billion or 11% of sales are up 10%. Our operating profit of $134 million is up 9%, and our margin is down 10 basis points from last year to the 7.4%. Again, our customer mix shift is impacting our net margin for this business, but we are pleased with our overall top-line growth.

The Electrical Group had sales in the quarter of $177.4 million. That's 5% of revenue and up 23%. Operating profit of $15 million is up 23%, so their margin is basically unchanged at 8.5%.

For the year, sales for this group are $739 million or 5% of our revenue and up 30%. Our operating profit of $65 million is up 36%, so our margin is up nicely to 8.8% from the prior 8.4%, a solid 40 basis point improvement.

So in total, our operating profit was up approximately 10% on a 9% sales increase in the fourth quarter, and our operating profit margin improved 10 basis points to 7.8%. Operating margin expanded in all four quarters for 2014, and the full year is up 30 basis points to 8.3%. We are very encouraged by this progress, and we remain focused on continued margin expansion in the periods ahead.

We had net interest expense of $5.5 million in the fourth quarter. This is down from $6.1 million last year.

For the 12 months, interest expense is $24 million, which is consistent with the prior year. Looking ahead for 2015, we currently expect net interest expense to be approximately $22 million to $24 million for the full year.

Our total amortization expense was $10.5 million for the fourth quarter and $37 million for the full year. Our amortization for both the quarter and the year is up in 2014 due to the acquisition activity across all four of our segments. For 2015, we expect amortization expense to be in the $40 million to $42 million range.

The Other line, which reflects our corporate expense, was $15.7 million expense for the fourth quarter, which is down from the $20.7 million in the prior year. For the full year our corporate expense is $90 million, which is up from $35 million from the prior year, or $67 million before the one-time purchase accounting adjustment that we previously discussed.

The favorable fourth-quarter comparison primarily reflects certain year-end adjustments in the prior year, which slightly increased our expenses in the fourth quarter of 2013. For the year, the increase from 2013 reflects a variety of items including higher overall expenses at areas such as legal and professional, insurance, and incentive-based compensation.

In addition, an unfavorable $7 million swing for 2014 associated with our retirement plan valuation adjustment also impacted this line item. With these and other factors in mind, we expect corporate expense line to be in the $85 million to $95 million range again in 2015.

Our tax rate was approximately 37.6% for the fourth quarter, up from 36.2% in 2013 as the mix of income by country and relative foreign income tax rates primarily drove the overall higher tax rate. For the year, our 36.4% tax rate is up from the 34.4% in the prior year due to several factors, including the favorable rate on the one-time purchase accounting gain in 2013.

In addition, our lower retirement plan valuation adjustment and our foreign income and rate mix also contributed to the increase in our rate in 2014. Looking ahead, we would expect our tax rate for 2015 to be in the 37% range.

Net income for the quarter was $166 million compared to the $150 million in the fourth quarter, or up 10%. Our EPS at $1.07 compared to the $0.97 reported last year, also up 10%.

Now let's discuss a few key balance sheet items. Our cash at December 31 was $138 million, which is down from the $197 million the prior year. We continue to use our cash to support the growth initiatives in all of our businesses, and we remain comfortable with our cash position.

Our accounts receivable of $1.9 billion at December 31 increased 12% from 2013 on a 9% sales increase for the fourth quarter. We remain focused on the goal of growing receivables at a rate less than revenue growth and will be working hard to achieve this objective in the periods ahead. We continue to be satisfied with the quality of our receivables at this time.

Our inventory at the end of the year was $3 billion, which is up 3% from the prior year, or up just 1% excluding the impact of acquisitions. Our team continues to do a very good job of managing our inventory levels and will remain focused on maintaining this key investment at the appropriate levels as we move forward into 2015.

Accounts payable balance at year-end was $2.6 billion, or up 13% from the prior year, due to the positive impact of our improved payment terms and other payables initiatives established with our vendors. We remain encouraged by the continued improvement in this area and its positive impact on our working capital and our days in payables.

Our working capital of $2 billion at December 31 is down slightly from the prior year. Effectively managing our working capital and, in particular, our accounts receivable, inventory, and accounts payable is a very high priority for our Company. Our ongoing efforts with these key accounts have resulted in solid improvement in our working capital position and cash flow for the last several years, and our balance sheet remains in excellent condition.

Our total debt of $765 million at December 31 is down approximately $70 million from the nine months ended in September and is basically unchanged from the prior year. This represents approximately 19% of total capitalization, which is also consistent with the prior year.

Our total debt includes two $250 million term notes, as well as another $265 million in borrowings under our multicurrency credit facility. We're comfortable with our capital structure at this time.

We continue to generate solid cash flows. In 2014 our cash from operations was approximately $800 million and our free cash flow, which deducts capital expenditures and dividends was $335 million.

While not at the level of the historical records achieved in 2013, where very pleased with the continued strength of our cash flows. For 2015 we currently expect cash from operations to be in the $800 million to $850 million range, and the free cash flow to be approximately $350 million.

We 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've paid every year since going public in 1948 and have now raised for 59 consecutive years, effective with yesterday's Board approval of a $2.46 per share annual dividend for 2015. This represents a 7% increase from the $2.30 paid in 2014, and it's approximately 53% of our 2014 earnings per share, which is within our goal of a 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 businesses, strategic acquisitions where appropriate, and share repurchases.

Our capital expenditures were $34 million in the fourth quarter, down from $40 million in the prior year. For the year our capital spending totaled $108 million, which is a slight decrease from the prior year.

The decrease in expenditures for the fourth quarter and the year primarily reflects the timing associated with certain projects. With this in mind we currently expect our capital expenditures to pick up again in 2015, and we look for our CapEx spending to be in the range of $125 million to $145 million for the full year. As usual, the vast majority of our investments will continue to be weighted towards productivity-enhancing projects, primarily in technology.

Our depreciation and amortization was $40 million in the fourth quarter, up from $36 million in the fourth quarter of the prior year. It's $148 million for the full year, which is up from $134 million in the prior year.

The fourth-quarter and full-year increases reflect the impact of our capital expenditures as well as acquisitions. We currently expect depreciation and amortization to be approximately $155 million to $165 million for the full year in 2015.

Strategic acquisitions continue to be an important use of our cash, and they're integral to the growth plans for the Company. In 2014 we made seven acquisitions, including at least one in each of our four business segments. We expect this new business to contribute annual revenues of approximately $390 million.

We also have remained active in 2015, acquiring JAL Associates for the Office segment in January and Miller Bearings for the Industrial segment on February 1, that Tom discussed. Combined, we expect these two acquisitions to generate approximately $50 million in annual revenues and to be accretive to our earnings in 2015.

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 acquisitions with annual revenues in the $25 million to $125 million range.

Finally, in 2014 we used our cash to repurchase approximately 1.1 million shares of our common stock under the Company's share repurchase program. Additionally, we have purchased another 500,000 shares thus far in 2015; and currently we have 9.1 million shares authorized and available for repurchase. While we have no set pattern for these repurchases, we expect to remain active in the program in the periods ahead, as we continue to believe that our stock is an attractive investment and, combined with the dividend, provides the best return to our shareholders.

That concludes our financial update. It was a solid fourth quarter and a record year; but as always there is opportunity for improvement in the periods ahead. We look forward to updating you on our future progress when we report again in April.

In closing I'd also like to thank all of our GPC associates for all their hard work and dedication. I will now turn it back over to Tom. Tom?

Well, thank you, Paul and Carol, for your updates. And thanks to both of you and your respective teams for the fine job being done, and also for the important role that each of you plays in the overall success of Genuine Parts Company.

That concludes our prepared remarks on 2014. In closing I would say that we are pleased with our overall results.

As we look back there were a number of notable achievements. Sales and earnings rose to record levels in all four of our business segments, and this enabled GPC to reporting record year with sales going over the $15 billion mark for the first time. A 9% sales increase follows an 8% improvement in 2013, indicating a good two-year progression.

Operating profit improved by 30 basis points, with three of the four business units contributing nicely. We kept the balance sheet strong and flexible, with debt to total capitalization being 18.8%.

Cash generation, although down from last year's historic levels, was still strong with cash from operations coming in at $790 million and free cash of $335 million. And working capital efficiency improved nicely again in 2014.

We returned over $440 million to our shareholders through a combination of share repurchase and dividends. And with the 7% dividend increase approved by our Board of Directors yesterday, we've now increased the dividend for the 59th consecutive year.

So in summary, we're proud of the achievements in 2014 and we're appreciative of the fine job that was done by the GPC associates throughout our organization. Now, in looking ahead we remain confident in the underlying fundamentals for each of our businesses, and all of the GPC businesses have well-thought-out growth strategies for 2015.

We're a bit less certain, however, of the overall impact of the strength of the US dollar as well as the impact of the global economic and geopolitical issues. But to the best of our ability, we have tried to take all of these factors into consideration as we set our expectations for the year ahead.

With that said, our initial revenue guidance for total GPC is to be up 3% to 4% for the year. But we want to quickly point out that this includes a 2.5% to 3% negative impact from currency over the course of the year. So you can see that currency will be a significant factor for us in 2015.

Adjusting for this translates to a 6% to 7% comparable revenue increase. This basically reflects core growth; so our underlying growth expectations remain in line with the core revenue growth that we experienced in 2014.

Looking at it by segment, for our Automotive business, which is the segment that will be most impacted by currency, our expectation is to be up 2% to 3% for the full year, which includes a 4% negative impact from currency. Adjusting for this currency impact, it represents a 6% to 7% increase in the underlying revenues for Automotive.

In Industrial, we anticipate a 5% to 6% increase. And this accounts for a 1% negative currency exchange; so before the impact of currency our Industrial sales should also increase 6% to 7%.

Office Products should be up 6% to 7% with no material currency impact. And we anticipate the Electrical segment to be up 5% to 6%, also with no material currency impact.

On the earnings side, our initial guidance would be for EPS to come in between $4.70 to $4.80. Included in this is approximately $0.15 per share that's due to unfavorable exchange rates and the related increase in the tax rate which Carol referenced in her remarks. Stated another way, before the impact of currency and the tax differences, we are guiding to a range of $4.85 to $4.95, which will be up 5% to 7% on a comparative basis.

That will conclude our prepared comments. At this point we would like to turn the call back to Nicole to take your questions. Nicole?

(Operator Instructions) Matthew Fassler, Goldman Sachs.

Just start by asking you briefly about Automotive margins. You alluded to the fact that they declined. I don't think you gave a lot of color as to why they were down as sharply as they were with very strong revenue growth. So any color you could give there would be terrific.

Yes, Matt, I'll speak to the fourth-quarter margins and then talk about it on a full-year basis. Our gross margin was down a bit in the fourth quarter within Automotive, and we talked about customer and product mix. We also difficulty) some of the foreign currency pressures, and some of that flows through to the gross margins as well.

In addition, our SG&A wasn't as favorable in the Automotive segment in the quarter. So what I'd point to is what we are really pleased to show is that for the full year Automotive margins were up 10 basis points. I would tell you that that primarily came from SG&A leverage.

I think all my follow-ups are probably going to relate to this question. First of all, if you think about FX and you think about translational impact versus transactional impact, it seems like you have some transactional friction in there. If you could just tell us whether I'm right and how big a hit that was to you; in other words, paying in dollars and selling in foreign currency.

You know what? We're not going to quantify what the transactional impact is, but just to say that it was somewhat of a headwind in our margins in Automotive in the fourth quarter. The currency was a little worse than what was anticipated, and you certainly saw that on the top line; you saw that a bit in the margins as well.

Was there -- go ahead, sorry.

This is Tom. I might also add -- perhaps this might be helpful to you and others on the call. And that is that our core NAPA business, the operating margins were strong and improved more than our overall Automotive margins. The biggest contributor in the quarter, and frankly even on a year to date, was the currency exchange.

If you recall back to my guidance comments a few moments earlier, we said that Automotive was going to be impacted by our estimate 4 points on the revenue side in 2015. So what's happening outside of the US with the strength of the dollar is causing us to see the impact in a pretty heavy way.

Totally understood. Just two more very quick ones that follow from that initial response. As we think about -- was incentive compensation part of the equation? You clearly had a very good year in Automotive from a revenue perspective. Was there any catch-up for bonuses in fourth quarter?

Absolutely. I'd point out again, while we're very pleased to see the great results in Automotive, the expense that we had on the top line, that flowed through on the incentives. So we had less of a favorable year, if you will, in the fourth quarter, as it related to that incentive compensations. You're exactly right.

Then my final question relates to mix. I know you spoke about customer mix and product mix really across the collective enterprise. If you think about Automotive, obviously the standout number was DIY or retail. Was that a part of the mix impact on margin?

And if so, was that the innate mix, the innate characteristic of that business, or what you had to do to capture that business?

I guess I would say on the quarterly margins again for Automotive, when we talk about the customer and product mix, the examples that we would point to, our major account business and the AutoCare business, as those businesses continue to have the strong growth. And we've we talked about that being at a lower margin.

Also, Paul called out a couple product categories, one of them being T&E, batteries, our heavy-duty products. Those -- that is the product and customer mix that we are talking about.

Certainly you had something that was more favorable on the retail side. But those are unfavorable on the other side, on the commercial side.

Thank you so much.

Scot Ciccarelli, RBC Capital Markets.

Good morning, guys. Tom, you were able to outline the expected EPS impact for 2015 of roughly $0.15. Do you guys have a number for the fourth quarter? Is there a reason we can't get a little bit more detail on that?

I don't think we have that number here. You can follow up with Sid, and he might be able to give you a little more input on that, Scot.

Okay, all right; got it. Then I guess a little bit of follow-up on Matt's question. You had retail sales outpace commercial in the quarter. I know it's on a lower base.

But I guess, why do you think you saw that shift? Because that's a little bit more pronounced than what you guys have typically seen, given your commercial focus, number one.

Number two, is that a trend that you are expecting to continue for the next couple quarters there?

Scot, this is Paul. Our retail business, we did have a good fourth quarter and we had a good year. Our overall retail business was high single digit year-over-year.

That's an area that we intend to continue to focus on. Now I do want to point out that we are not going to forget where we came from, and that's our commercial wholesale business. That's still -- that's our bread-and-butter.

But if we can pick up some share on the retail side -- and as I mentioned, Scot, it's with some of the very basic blocking and tackling in relation to some of the things our team is doing on the store hours side, staffing side, just compliant side with our planogram. So we're very pleased with our retail business. And honestly, if we can you to grow that mid to high single digit in 2015, we will be pleased.

Got it. How much would you attribute -- I know this is always tricky to figure out. I mean, historically, we've seen a little bit bigger impact from change in gas prices on the retail side than the commercial side.

A, do you think that is an accurate statement? And B, any way to estimate that? And that will be my last question; thanks.

I'll give it a shot, Scot. I think -- listen, the consumer has got, I think I read recently, about $70 more disposable income in their pocket. Does that help our retail business? I think absolutely it does.

How it impacts the commercial business -- well, if you look at what's happened with miles driven, and the spike that we saw in late Q3, early Q4 in miles driven, which are at some of the highest levels we've seen in a number of years, that's going to drive -- obviously that drives our miles driven number up. And that's going to increase our parts business overall.

Scot, I might add just one additional comment to Paul's. And that is, if we look at some of the discretionary items, I think we saw a little bit of an uptick in the flow-through of those, which perhaps is attributable to more discretionary income.

That would be mostly on the retail side, where you saw that, Tom?

Yes. Yes, it would be.

Got it. Okay. Thanks a lot, guys.

Mark Becks, JPMorgan.

Hi, thanks for taking my question. Just a follow-up on that. With the decline in gas prices, if you look at the 7% comps in the fourth quarter, it was roughly a 200 basis point improvement on the two-year. Any way to get a sense of how much of that is gas versus weather versus some of the internal Company initiatives that you guys have been delivering upon? Thanks.

Mark, I don't think we can get that granular. There are just so many variables, it's really hard to try to pinpoint specifically which one is impacting it.

We would just say that with the lower gas prices it is a positive and a significant positive for the automotive aftermarket, in our opinion.

Okay. Then on the gross margin side, just trying to get an idea of the direction going forward in 4Q more specifically. Just curious; why was it so severe in the fourth quarter?

Was it simply a compare issue, a LIFO? Is there any one-time things in there? And how do you feel about the ability for gross margin expansion in 2015?

If you look -- I might take a stab at it and then Carol will add more color. But if you look, first of all, at Q4 last year it was clearly the strongest gross margin quarter of the year; and we were going up against a tough comparison there.

As we think about gross margin across the enterprise in 2015, all of our businesses have gross margin improvement initiatives, and our expectation is that we will show some gross profit improvement over the course of 2015.

I guess the only other thing I would add, the prior-year fourth quarter we had more of a one-time nonrecurring adjustment that didn't repeat in this year fourth quarter, which we knew all along, because we've been saying around 30%.

The second thing I would say is, as you think about the volume incentives and -- our inventory was only up 3% for the year, and our team has done a very good job of keeping that inventory down, certainly a good bit less than the sales increase. So to the extent that we have volume incentives and those wouldn't have been necessarily at the same level, that was some pressure on our gross margins.

And also the Office Products margins were down 10 basis points for the year. That was primarily attributed to gross margin.

But again we were in line with where we were for the full year at 30%, and I think that's a reasonable assumption going forward.

Tom, you alluded to some gross margin initiatives. To the extent on the call in a public forum you would be willing to, can you share some of the specific margin improvement initiatives that you guys are working on?

No, we wouldn't want to get into the specifics. I would just say that we are looking at both sides of the equation. You've got buy side and sell side initiatives, and we're working both of those.

Okay. Then one just quick follow-up then lastly. On the guidance, if you look at Automotive you are expecting up 2% to 3% in the year, which is a little bit below what you delivered in fourth quarter. If we think about the Automotive margin profile in 2014, assuming you guys hit your sales guidance, what does that suggest for Automotive margins in 2015?

I would first respond to that by just reminding that we're looking for our core Automotive to be up 6% to 7% before the impact of exchange rates. We think that all of our businesses can and should show operating margin improvement over the course of 2015.

Great. Thank you.

John Lovallo, Bank of America Merrill Lynch.

Brian Sponheimer, Gabelli.

Hey, it's Brian. Good morning, everybody. A few things here.

One, within Motion, any impact from the decline in price of oil in the quarter, particularly in some of those Western Canada markets you got into?

Yes, Brian; this is Tom. Certainly we're going to be impacted like anybody else that services the oil patch. I would say that for us it's a low single-digit percentage of our total volume. So while it's significant in terms of gross dollars, it's not as big as it might be for some others.

Low single digit of Motion?

Of Motion. And the other thing I would say is that, importantly, we are going to see a near-term decline in demand coming out of those areas; but the segment is not going to go away. It's going to contract, but it's still going to be there.

And potentially an offset for Motion is the lower fuel prices that Paul referenced give the consumer more discretionary income. And as that money starts to get spent, it will flow through other segments of the economy, which could and should impact in a positive way some of the other manufacturing customers that Motion deals with.

So near term we think it will be a bit of a headwind. Medium and longer term, we think it will probably balance out.

All right. Just thinking about the port shutdown, have you guys seen any impact on some of your vendors being able to get product to you?

We look at it a couple of ways. One, with what's happening with some of our vendors; and two, what's happening on some of the direct importing that we are doing. What we've seen is I think most people are doing a pretty good job of working through the situation.

I know in our own case we've had to divert shipments to other ports. So it has not had a significant impact on service levels, but it has added to our leadtimes. But it's something we are watching pretty carefully.

All right. As I'm thinking about the guidance, up 4%, that implies roughly speaking at the high end $16 billion in revenue for 2015. What impact do you factor acquisitions for that? Is that the $390 million you referenced before?

No, in that would be the acquisitions that were completed in 2014. But we have not factored in anything for any future acquisitions.

We do have the Miller Bearing acquisition in there that we mentioned for Motion; $40 million on an annualized run rate. That anything that happened subsequent is not factored in there.

What is the noncomp revenue number that you are implying with that $16 billion?

When you say noncomp --

Acquired business that you expect to flow through. Is it upwards of $250 million?

We don't have that here, Brian. We can have Sid get back to you.

I'll follow up. I'll get back in line. Thank you very much.

Seth Basham, Wedbush Securities.

Good morning. Hey, my question is around NAPA. You mentioned that core NAPA operating margins were strong and improved more than overall Auto margins in 4Q. Just to clarify, did NAPA US margins increase year-over-year in the fourth quarter? And how does that compare to recent quarters' trends?

The margins improved on a quarterly basis and for the full year. So the NAPA organization performed quite well for us this year again.

Got it. So the entire drag was really driven by business outside of the US?

That's right.

All right; very good. And then --

And, Seth, just one other thing. That was due to currency exchange. As Paul referenced, we had local currency growth and improvement in these other businesses. But when we translated, we lost all of that.

Got it; understood. Clearly you guys put up some good core numbers for NAPA US. Do you have a sense of where you might be taking share from?

Hey, Seth; this is Paul. That's always difficult to tell, especially as you look at some of the good numbers our publicly traded competitors put out. But I would have to think that if we are taking a bit of share it may be from some of the smaller regional players that are out there, that perhaps are not growing quite at the levels that we are and perhaps some of our publicly traded competitors.

Okay. What about the independent side of the business in the US? How did that perform, and are you acquiring more independents for that business?

The independent, the thing we liked about the performance honestly is how balanced it was. Both our Company-store group and our independent group grew at comparable levels.

And to answer the second part of that question, Seth, in terms of continue to expand our independent business and/or convert other independent owners out there, absolutely. That is core to our business and something that our team is very focused on every year.

Very good. Thank you.

Robert Higginbotham, SunTrust.

Good morning, everyone. Question about a recent transaction in the Automotive space. Uni-Select recently sold their US automotive business to Icahn. So I am wondering if you have any thoughts about what the new owner of that business might do with that asset; how you view that as either an opportunity maybe to pick up jobber stores, or a threat competitively.

And actually on that front, when you look at other wholesale independent versus owned store business models, you guys have been a clear standout in terms of consistently executing that business, where others have struggled. What would you point to ask your secret sauce to success? And what is and would be difficult for others to replicate?

Hey, Robert; this is Paul. I'll take the first part of that question, and I know you're referring to Uni-Select US and the acquisition by Carl Icahn. Very early on in the process; and honestly, we probably know about as much as you do at this point.

It does not change the competitive landscape. Uni-Select US, I think I read where they were ranked as the number five player in the US. So that doesn't really change the competitive landscape at all for us at this point, and it may open up some opportunities.

And I would say that in terms of the other Icahn-owned business which of course is Federal-Mogul, they are a long-time supplier to NAPA. They're a long-time supplier to our industry, and they are a good supplier.

So for us at this point until we learn a whole lot more, Robert, it's essentially business as usual.

The second part of your question, then, as it relates to the secret sauce, I don't know that we have any secret sauce. We have a good strategy each year. We tend to stick to our core.

We have a very good group of independent entrepreneurial owners in the marketplace who are very good at what they do. And we provide them what we think is best-in-class training and programs to enable them to compete every day out there on the street. So if there is any secret sauce, that may be the takeaway.

Okay, great; thanks. Switching gears to Office Products, how should we think about the potential impact of the pending Staples/Office Depot merger? Could you help us at least maybe size what you see the opportunity -- and risk on the flip side of that -- being to maybe gaining some first call volumes; and again on the flip side maybe potentially losing some first call volumes.

And then how to think about just overall margin trends, as presumably that bigger entity will push you on price.

Robert, I'll take a stab at that. I'd start by saying that these are both good companies and this transaction seems to make good strategic sense for each of them. As you probably know, they are both fine customers to S.P. Richards; we're first call with Office Depot; and we've got a significant second call position with Staples.

In the published reports, and that's all we can go on, but from the published reports that we've seen the transaction is probably going to be consummated toward the latter part of the year. So between now and then it's business as usual, and we're going to continue to provide the best service that we can provide and the best support that we can provide to both entities. Certainly post-transaction we will hope to be the first call wholesale provider to the new entity.

As far as trying to size it, we wouldn't want to get into that here. But we're optimistic about what can happen in the future. We think there's a lot of upside potentially.

Fair enough. Thanks so much.

Bret Jordan, BB&T.

Good morning. Most have been hit, but could we talk a little bit about the Mexico initiative? I think you were ramping that up in the fall of 2014; and maybe some early signs on success there.

Yes, absolutely, Bret. We did launch our NAPA Mexico initiative back in October. We opened our distribution center and a number of Company-owned stores in the marketplace.

It's very early on. We're pleased with the progress that we're making, and it's going to be a long initiative for us for sure. But in the early days we are pleased with the progress that our team is making down there.

Okay. Then one follow-up question on an earlier topic, picking up independent distributors. Clearly there has been some transition out there on the Carquest side.

Could you give us any color? Have you added -- in the numbers that you have added to Carquest, ex-Carquest distributors?

This is Tom, Bret. I think the way we would like to answer that is that we are pleased with the progress we've made to date. We continue to see opportunities, and we think we will continue to make progress. But we would not want to disclose the absolute numbers.

Okay, thank you.

Greg Melich, Evercore ISI.

Hi, thanks. One follow-up on the margin progression on the guidance, and then a little more mechanical question for Carol. First, it sounds like on the margins we're down only because of FX in the fourth quarter.

So when you look at your guidance for this year, when you say that you expect the margins to be up, is that in core in Auto? Or do you think that once you bring in the FX they could actually be down a bit at least for the first few quarters?

I guess our gross margin guidance that we would be giving would be in total, since we don't really get into it by segment. I think our around 30% guidance assumes probably flattish in all of our businesses.

I think the operating margin improvement that we've talked about in each of our segments -- and we've talked about the 10 to 20 basis point improvement -- and look, coming off of this year and having 30 basis point, we've been really pleased to see that. But we've got certainly some headwinds going into 2015. That's primarily going to probably more come through the SG&A line more so than the gross margin line.

Okay, that's helpful. Then, Carol, on working capital, given the nice improvement that you saw, if I'm not mistaken the cash from ops actually came in a little bit lower than the guidance you had earlier in the year. I think it was $900 million and ended up being about $100 million less than that.

What was driving that? Was that the receivable growth that you talked about? Could you help explain a little bit what your business has been and how that will normalize? Thanks.

Yes. You're right. We were a little bit short on what we had anticipated from our cash from operating activities.

I would tell you the two primary areas were accounts receivable, that you mentioned -- and that's primarily in the Automotive and Office sector. Again, with the stronger revenue growth -- and what we had on some of that is we had additional terms -- I would tell you that our days sales outstanding we look at over the course of a couple years. In the past four years that's been flat, so we've been pleased to see that.

The second factor in working capital was accounts payable, which you mentioned. It goes back to a little bit earlier when I mentioned our team really did a good job in the inventory area. So we had in a couple of these segments -- and it was certainly Industrial and Electrical that slowed down their purchases, if you will, so you didn't see as much on the accounts payable side.

Then the other thing is on Automotive, which is certainly where we see a lot of the improved terms, we have anniversaried some of those. And it was largely a timing thing that we didn't have as much coming into the quarter.

So we are looking for improvement on those lines. Again, it was a strong number but not quite where we thought it would be.

Would it be fair to sum up that last year's earlier goal, the $900 million, included a bigger working capital benefit? Instead now you're going to see that benefit over a few years, and that's why now we're using $800 million and $850 million. Is that a fair summary?

I think that's a fair summary, yes. I think the other thing -- and we don't talk about it as much -- is our AP to inventory was 84% this year and 77% last year. So it's improvement each year, but I think it's spread out over a little longer period.

That's great. Good luck, guys.

I would now like to turn the call back over to management for closing remarks.

We want to thank you for your participation today and your support of Genuine Parts Company. We look forward to reporting back to you in April after our first-quarter numbers. Thank you.

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