Genuine Parts Company announced its results for the third quarter and nine months ended September 30, 2020, reporting a 6% increase in its Automotive Group sales for the quarter.
This increase for the Automotive segment was largely driven by Europe and Autstralasia regions, where comp sales increased more 11% and 14% respectively. In North America, as in Europe, the performance does reflect a significant bounce back from the pandemic related trough of Q2.
- U.S. comp sales down 2.8% compared to a 14% decrease in Q2
- Positive DIY sales / DIFM still pressured but recovering
- Continued strong on line sales growth, 2X pre COVID levels
- Segment profit margin expansion +60 bps
- Canada comp sales up 0.5% compared to a 15% decrease in Q2
- Segment profit margin expansion +200 bps
- Sales to independent store owners in U.S. and Canada in line with company-owned stores
“The GPC team remained focused on our top priorities through the third quarter, aggressively managing our operations through the challenges of COVID-19. We are proud of everyone’s hard work and commitment to operational excellence, which has required effective measures to maintain a safe work environment while also providing first class customer service,” said Paul Donahue, Chairman and Chief Executive Officer of Genuine Parts Company.
Third Quarter 2020 Results
Sales from continuing operations were $4.4 billion, a 3.4% decrease compared to $4.5 billion in the same period of the prior year. The decrease in sales is attributable to a 1.8% decline in comparable sales and a 4.2% impact from divestitures. These items were partially offset by a 1.3% benefit from acquisitions and a 1.3% net impact of foreign currency and other. Excluding divestitures, net sales from continuing operations were up 0.8% in the third quarter, which compares to a 10.1% sales decrease in the second quarter.
All figures in USD.
Net income from continuing operations was $232.9 million, or a diluted earnings per share of $1.61. This compares to net income from continuing operations of $212.3 million, or $1.45 per diluted share in the prior year period. Excluding the impact of restructuring and transaction and other costs, the company’s adjusted net income from continuing operations was $236.8 million, compared to $203.8 million a year ago. On a per share diluted basis, adjusted net income from continuing operations was $1.63, an increase of 17.3% compared to $1.39 per diluted share last year.
“We entered the third quarter focused on driving profitable growth and productivity initiatives for our streamlined Automotive and Industrial portfolio,” says Donahue. “Our progress for the quarter reflects the resiliency in our businesses and the benefits of these initiatives. Our financial performance was highlighted by strengthening sales trends, continued gross margin expansion, significant cost savings, operating margin expansion in each of our businesses, a stronger balance sheet, enhanced liquidity and substantial cash flows. We were pleased to report a strong financial performance for the quarter.”
Third Quarter 2020 Segment Highlights
Automotive Parts Group
Sales for the Automotive Group were $3.0 billion in the third quarter, up 6.0% from 2019 and representing 68% of total company revenues. The increase consisted of an approximate 2.2% increase in comparable sales, a 2.2% net impact of favourable foreign currency and other and a 1.6% benefit from acquisitions. Segment profit of $266 million was up 19.6%, with profit margin at 9.0%, up 100 basis points from 2019.
Industrial Parts Group
Sales for the Industrial Parts Group were $1.4 billion, down 18.6%, or down 8.7% excluding the EIS divestiture, and representing 32% of total company revenues. The decrease in sales and sales excluding divestitures includes an approximate 9.2% decrease in comparable sales, slightly offset by a 0.4% benefit from acquisitions and a favorable foreign currency impact. Segment profit of $126 million was down 8.7%, with profit margin up at 8.9%, up 100 basis points from 2019.
Nine Months 2020 Results
Sales from continuing operations for the nine months ended September 30, 2020 were $12.3 billion, a 7.2% decrease compared to $13.2 billion for the same period in 2019. Excluding divestitures, net sales from continuing operations were down 2.8% for the nine months. The net loss from continuing operations for the nine months was $8.2 million, or a loss of $0.06 per diluted share. Excluding items which impact comparability with prior periods, as noted above, the Company’s adjusted net income from continuing operations was $544.1 million, or $3.76 per diluted share1.
Balance Sheet, Cash Flow and Capital Allocation
GPC generated operating cash flow from continuing operations of $1.4 billion during the first nine months of 2020, a significant increase from the prior year, driven primarily by entering into an agreement to sell accounts receivable which provided $500 million of operating cash flows and the effective management of our working capital. Free cash flow was $1.3 billion for the first nine months of 2020, also up significantly.
The company returned $435 million to shareholders during the nine months ended September 30, 2020, including $339 million in the form of quarterly dividends and $96 million in share repurchases. As previously announced, the company decided to suspend its share repurchase program and limit its M&A activities to smaller, bolt-on acquisitions until there is greater visibility into the macro environment.
GPC ended the quarter with $2.8 billion of total liquidity (comprising $1.9 billion availability on the revolving credit facility and $0.9 billion of cash and cash equivalents). The company reduced debt by $300 million during the quarter and is in compliance with all its debt covenants.
Donahue concluded, “As we move forward through the balance of 2020, our teams will execute on a number of strategic initiatives to build on the positive momentum of the third quarter. Our plans focus on maximizing the value of our Automotive and Industrial business segments and positioning GPC for sustained long-term growth and improved profitability. We look forward to reporting on our progress in the quarters ahead.”
On April 6, 2020, the company withdrew its full-year 2020 guidance due to the economic uncertainty relating to the rapidly evolving COVID-19 pandemic and the limited visibility on the impacts to our businesses. Given the continued lack of visibility, we will not be providing annual guidance updates until macro-economic conditions stabilize further.
Genuine Parts Company held a conference call October 22 at 11:00 a.m. Eastern time to discuss the results of the quarter. A supplemental earnings deck is also be available for reference. Interested parties may listen to the call and view the supplemental earnings deck on the Company’s website at http://genuineparts.investorroom.com. A replay is available on the Company’s website or at 844-512-2921, conference ID 13710500, two hours after the completion of the call until 12:00 a.m. Eastern time on November 5, 2020.