Genuine Parts (NYSE:GPC)
Q4 2012 profit call at 11: 00 a. m. on February 19, 2013. Yancey -
Thomas C, executive vice president of finance and secretary of the company. Gallagher -
Chairman, Chief Executive Officer and chairman of the Executive CommitteeDonahue -
Jerry W. , president and director of American auto parts group. Nix -
Vice President, Chief Financial Officer, Chief Accounting Officer, Executive Vice President of Finance, directors and members of the Executive Committee-
Research Department, JPMorgan ChaseMelich -ISI Group Inc.
Research Department John lovalo
Bank of America Ibuprofen Suspension Drops, Research Department
Research Department of RBC Capital Market Co. , Ltd. Fassler -
Goldman Sachs Group Limited
, Research Department brian bainheimer-
Gabelli & Company, Inc. David Gober -
David Jordan, Morgan Stanley Research-
Keith B, capital market research department, BB & T. Hughes -
Richard J. Hilgert -
Morning Star Company
Good morning, the operator of the Research Department.
My name is Chris. I will be your conference operator today.
At this time, I would like to welcome you all to the real parts company 2012 Quarter and Year-
End the call for revenue release. [
I now transfer the call to Carol Young, executive vice president of finance and secretary of the company.
Please continue. Carol B.
Good morning, thank you for attending our real part of the conference call for the fourth quarter today to discuss our earnings results and 2013 prospects.
Before we start this morning, please note that this call may involve forwarding-
Statement on the company and its business.
The actual results of the company may differ significantly from any forward
Due to several important factors described in the company\'s latest submission of SEC documents, we look forward to the presentation.
The company has no obligation to update any forwarding-
A statement made during the call.
We will start with comments from our Chairman and CEO, Tom Gallagher. Tom? Thomas C.
GallagherThank, Carol, I would like to welcome each of you on this call today and say we thank you for taking the time to be with us this morning.
It\'s a big call to us in many ways, but it\'s just the last call from Jerry Knicks.
As you know, after 34 years at the real parts company, Jerry will retire at the end of the month, the last 13 years of our CFO.
And looking back, it\'s interesting that Jerry has had a conference call every quarter because we started doing what they had in February 20, and today is Jerry\'s 49 calls.
He has also been on every investor tour for 25 years, every analyst meeting, and I think it\'s fair to say that Jerry has always been a part of the investment community.
He has won the respect and admiration of all the people inside and outside our company who are in contact with him.
He will be missed, but we thank him for his contribution to our company over the last 34 years.
Now, we\'re lucky that when Jerry retires, Carol Young West takes over as our chief financial officer, and many of you know Carol because she\'s been a part of 22 years of predictive control
Along the way, she served as director of investor relations for several years.
She has worked closely with Jerry over the past few years to prepare for this transition and she is very good --
Qualified as chief financial officer.
Jerry and Carol will report separately today.
Paul Donahue, who is also on call, will introduce us to the latest performance of car operations.
Early this morning, we released the fourth quarter and the year.
End 2012 Results
I hope you will have a chance to review it.
But for those who may not have seen these figures yet, a quick review shows that sales for the quarter were $3,119,000,000, up 3. 5%.
Net income was $160.
2 million, up 19%.
Earnings per share are $1.
Compared to $0 in 03.
EPS in the fourth quarter of 8, 20% year-on-year growth.
This led us to an end of 2012 with sales of $13,014,000,000, an increase of 4. 5%.
Net income was $0. 648 billion, up 15% year on year.
Earnings per share are $4.
The price this year is $3.
Last year was 58, with EPS up 16%.
These are our records on sales, net income and earnings per share.
But it is clear that we continue to encounter some of the top challenges in the fourth quarter, which are more obvious in the industrial and electrical fields. Although the 3.
Revenue grew by 5% in the fourth quarter, our softest revenue quarter of the year, and we are pleased that our employees are operating well and still produce twice as much revenue
Digital growth in operating profit, net income and earnings per share for the quarter and year.
According to the business department\'s review of sales results, our industrial business increased by 2% in the quarter and 7% in the whole year.
After an increase of 22% and 19% respectively in 2010 and 2011, an increase of 7% in 2012 showed a meaningful slowdown.
Then looking back at the year, we see a slowdown in demand as the year progresses.
After a 12% increase in the first quarter, industrial operations rose 8% in the second quarter.
The third quarter was 5% and the fourth quarter was 2%.
These trends are in line with what we \'ve seen throughout the industry, and it\'s interesting that the fourth-quarter slowdown has become more visible in the last few weeks of the year.
Power Transmission, hydraulic, electrical and automation products are one of the best performing products in the product category this year.
Cars, steel, wood and wood products are our top products
Instead, customers in the coal, aggregate and cement, equipment and machinery equipment leasing and leasing sectors lag behind our overall performance this year.
When we look at forecasting indices such as industrial production and capacity utilization, we see that they are still at a historically healthy level, which is encouraging.
At the same time, however, in the second half of this year, there seems to be a more cautious attitude among our customer base, which we expect will last until early 2013.
Nevertheless, we do believe that the economic manufacturing sector as our customer base is generally healthy and growing, which bodes well for our industrial business in the coming year.
Our electrical/electronic distributor EIS has also experienced a sharp slowdown in the manufacturing sector of the economy in the fourth quarter.
After growing 5% in the first quarter, 9% in the second quarter and 5% in the third quarter, EIS fell 2% in the fourth quarter and 5% at the end of last year.
As with the motion, the second half of the fourth quarter proved to be the most challenging.
One of the external indices we are closely following is the purchasing manager index at the Institute of Supply Management.
This is usually a very good lead indicator for our electrical business.
According to the information, the average PMI is 57.
Throughout 2010, our electronics business grew by 30%.
The average PMI was 55 in 2011.
We are up 24%.
PMI for the whole year was 2012, 51.
More importantly, the last seven months of 2012 averaged 50 months. 4.
This is a fairly typical number that indicates a slower terminal speed
Market conditions that our electrical/electronic business is currently experiencing.
As with our industrial operations, we believe these conditions will last for a quarter or two, but we remain optimistic about the stable performance of our electrical sector in 2013.
Turn to office products.
In fact, we spent the best quarter of the year in the fourth quarter.
After being knocked down.
The first quarter fell by 5%, while the second and third quarters fell by 1%. P.
Richards rose 3% in the last quarter, allowing them to end the year even in the previous year.
Independent dealers and large customers have achieved positive results in the fourth quarter, which is good.
Cleaning and rest in terms of products
Rooms and furniture were the best in the quarter.
We are happy to clean and rest all 4 product categories
In the fourth quarter of last year, sales of rooms, furniture, technology and office supplies were good.
Although the office product environment is still challenging, with the implementation of plans and initiatives,P.
Richards is in place and we are looking for a year of moderate growth from this segment of our business in 2013.
This is a brief overview of our business in industrial, electrical and Office products.
At this point, I will ask Paul to update you on the status of car operations. Paul? Paul D.
Thank you, Tom. I want to welcome each of you this morning.
I am happy to join Jerry, Carol and Tom and have the opportunity to present the latest performance of our North American automotive business in the fourth quarter.
As we all know, cars are the biggest business unit of the company.
In the fourth quarter of last year, our sales increased by 5%, twice as much as the same period last year.
We reported a growth rate of 5% in the third quarter.
In the 12 months ended December 31, our car business grew by 4% to more than 2011.
Revenue growth of 5% in the fourth quarter included relatively smooth comparable store sales and our positive sales contribution to the acquisition of Quaker City auto parts.
As the leading part of our business, our business customers continue to sell more than our retail sales.
We have not seen significant changes in external factors that continue to affect our industry this quarter, the headwinds associated with mild winter temperatures in the north of the country, uncertainty continues with the economy and consumer confidence.
In line with the past two quarters, our performance varies greatly depending on the region of the quarter ---
The fourth quarter was divided by national regions.
In traditional cold weather areas, our central, Midwest and eastern sectors account for more than 1/3 of our overall business, and they have consistently performed poorly in the rest of the USS.
Despite the continuous consistency of comps in these regions, regional differences are still large and affect key weather --
Sensitive product categories in these regions.
On a positive note, we believe that reverting to the more normal winter weather patterns we are beginning to see should drive a potential rise in demand in the coming months.
We are still satisfied with the positive contribution of the Quaker City auto parts, which we received back in May 1 ---of 2012.
Their fourth quarter and yearto-
The date sales contribution is in line with our expectations and we are excited about the opportunities that the Quaker City will offer us in the future.
Our Quaker City team and our strong team of independent owners are dynamic and focused on key initiatives to drive growth in 2013.
As mentioned earlier, our business continued to exceed the retail business in the fourth quarter.
Inside our company
Owned store groups, the business sector of our business ended 1% growth in the second and third quarters, in line with our growth in this area. Non-fleet-
The related business performed well and was led by our NAPA AutoCare and our key customer business, up 4%.
The increase in our average face value drives gains, while our average number of invoices is flat.
Turn to our retail business.
Sales fell in the medium term
Single digits for the quarter.
So while we are not happy with our retail performance, we are encouraged by the initiatives our team has implemented to positively impact retail sales in 2013.
Our average daily invoice count has declined slightly over the last few quarters, while our average dollar value has increased.
We believe that both the after-sales market and the retail market are consistent with the trend of retail sales.
So, as we look ahead to 2013, we expect more normal winter weather patterns to improve demand.
We are pleased to note that while it is still too early this year, we are seeing an improvement in sales trends in the northern United StatesS.
We also saw some sales pick up in winter.
Related product categories such as our battery and our rotating electrical category.
The population of vehicles is aging, the number of elderly vehicles continues to grow, andover-
The number of annual mileage, up 0.
From 006% to November, it is a good sign of the automobile after-sales market.
We believe that the National Adaptation Programme of Action is well positioned to capture the share of demand growth from these positive trends.
So overall, the overall demand in the aftermarket for the fourth quarter was similar to what we experienced in the second and third quarters of 2012.
We maintain a positive attitude towards affecting the automotive aftermarket and the core foundation of our automotive parts group.
These positive industry foundations, combined with our internal growth plans, provide us with ample growth opportunities for 2013 and beyond.
So we completed an overview of the car business in the fourth quarter and 2012.
I will hand it over to Jerry at this time and let\'s start reviewing the financial results. Jerry? Jerry W.
Thank you, Paul.
Tom, I would like to thank you for the kind words you said.
A lot of years, a lot of phone calls, we have built a lot of good relationships, I will definitely miss it.
Most importantly, with Tom and Paul and many other great leaders in our business, the real part is in the hands.
Of course, Carol is in this category too, and we are lucky that she will be the chief financial officer.
Carol and I have been in the company for 22 years and I can tell you that she is one of the best and brightest people to lead this company as chief financial officer.
So we appreciate you calling with us today.
Next, I will first review the profit and loss statement and segment information for the fourth quarter and throughout the year, and then Carol will pick up some key balance sheets and other financial items to review.
Tom will come back and summarize and then we will answer your question.
The view of the income statement shows as follows: Total sales of $3.
The fourth quarter was 1 billion, an increase of 3.
Growth of 5% over the same period last year, relatively consistent with the third quarter growth.
Total sales hit a record high this year at $13.
0 billion, up 4. 5% from 2011.
While the sales environment for our industrial and electrical business became more challenging in the fourth quarter, our car sales remained stable and the Office Products Group released its best quarterly results this year.
We maintain confidence in our growth plan and plan to achieve another significant sales growth in 2013.
Gross profit in the fourth quarter was 29.
2% of sales, down about 40 basis points from the fourth quarter and 2011.
But the gross profit margin for the whole year is 29.
0% rose by about 10 basis points from 28. 9% in 2011.
So even though we experienced a decline in the fourth quarter, we attribute this to the overall competitive sales environment and the reduction in incentive levels for industrial parts group suppliers, and we are pleased that the gross profit margin has improved at least slightly this year.
Our ongoing initiatives to effectively manage supply chain costs, improve distribution efficiency and maximize pricing potential provide us with more opportunities to further increase gross margin, the management team of all our businesses is committed to this effort.
Our cumulative pricing is negative 0 this year, which represents our previous growth.
Cars 003%, plus 1.
6% for industrial use, plus 2.
There are 7% in Office products, 0 negative.
Now go to SG & A.
The total cost for the fourth quarter was $0. 659 billion, down 2% from 2011 and 21.
1% of sales, 22.
6% in the fourth quarter of last year.
SG & A charges total $2 this year.
8 billion, an increase of 2%, to 21.
Accounting for 2% of total sales, compared to 21.
The same period in 2011 was 8% per cent.
Our management team did a great job of managing our expenses throughout the year, and our ongoing cost savings plan has made great improvements in this regard.
We continue to control costs through continuous technology investment, which has a positive impact on the operational efficiency of our distribution centers and stores, as well as supply chain initiatives in areas such as freight and logistics.
In addition, in December 20, the company\'s future benefit accrual plan was revised in order to freeze the validity of all participants in January 1, 2014.
In connection with the amendment, the Company recorded a one-time non-cash cut of $23.
5 million, included in our SG & A series for the fourth quarter and year.
Therefore, throughout the organization, we have made solid progress in controlling costs, and we will continue to evaluate and adjust the appropriate cost structure of our business this year and beyond.
Now let\'s discuss the results in sections.
In the fourth quarter, the company earned $1,531.
6 million per cent, an increase of 5% per cent;
Operating profit was $122.
5 million, up 36%.
So the outstanding profit expansion from 6. 2% to 8. 0% of sales.
Industrial group revenue for the quarter was $1,054.
8 million per cent, an increase of 2% per cent;
Operating profit of $78.
1 million, down 12%.
So degraded from the edge of 8. 6% to 7. 4%.
In the first quarter, office product revenue was $402.
9 million, up 3%;
Operating profit was $36.
4 million, down 5%.
So, profit margin again from 9. 7% to 9.
0%, this is still the outstanding operating profit of the business.
Electrical Group revenue for the quarter was $135. 4 million.
The decline was 2%.
Their operating profit is $12.
5 million, an increase of 21%.
So from 7, the operation here is excellent. 5% to 9.
Operating profit margin for the quarter was 2%.
This year, the car company earned $6,320.
9 million, representing 49% per cent of the total, an increase of 4% per cent;
Operating profit of $540.
7 million, up 16%.
Again, just super margin 8. 6% from 7.
7% of the previous year.
The industrial group earned $4,453 this year.
6 million, accounting for 34% of the total, an increase of 7%.
Operating profit of $352.
1 million up 4%.
So a slight drop from 8. 1% to 7. 9%.
Office product revenue for the year was $1,686.
7 million, accounting for 13% of the total, fell by 0. 002%.
Their operating profit is $134.
4 million, up 0. 002%.
As a result, the profit margin for seven years has increased slightly. 9% to 8. 0% of sales.
The electric Group earned $582 a year.
8 million, accounting for 44% of the total, an increase of 4. 5%;
Operating profit is $50.
9 million, up 25%.
Therefore, the operating margin of the Electrical Group is recorded at 8 points. 7% of sales.
In the fourth quarter, the total operating profit increased by about 10%, and the operating profit margin increased by 50 basis points to 8 basis points. 0% from 7.
The fourth quarter of 2011 was 5%.
Now, profit margins in the first, second and third quarters of 2012 have increased by 70, 40 and 20 basis points, respectively.
Our total operating margin this year is 8.
3%, an increase of 40 basis points from 7. 9% last year.
We are very satisfied with the expansion of this margin and continue to believe that we have more opportunities to expand our operating margin again in 2013, although it is more likely to be within 10 to 20 basis points.
We have a net interest expense of $4.
$9 million and $19.
6 million the main reason for the decline in the fourth quarter and the year in 2011, respectively, was the new low interest rate of $0. 25 billion in the November 2011 debt agreement, which provided funds.
We will discuss our debt situation later, but we currently expect our net interest expenditure to be close to $28 million again in 2013.
Starting from this quarter, we separate Amortization from other categories, as our Amortization of intangible assets is more important in 2012 due to the acquisition of Quaker.
The total amortization costs for the fourth quarter and the year were approximately $4 million and $13 million, respectively.
The other line now represents the company\'s fees and non-controlling equity, which is $11.
Revenue for the fourth quarter was $2 million, or $26.
Cost 6 million for the whole year.
This has improved significantly over 2011, mainly reflecting the pension reduction gains discussed above.
In addition, our 30% investment-related income in Exego is also accounted for on this line.
For 2013, we currently expect the combination of amortization and other lines to be within the cost range of $60 million and $70 million, which is relatively consistent with the 2012 before the cut adjustment.
We have a tax rate of about 36 this quarter.
4%, this is from 35.
8% due to the non-taxable status of the adjustment of the favourable retirement plan recorded in 2011, last year.
A full year, 36 years old.
The ratio of 4% is 36.
The same period in 2011 was 6%, and we expect the annual tax rate of 2013 to be within the range of 36. 0% to 36. 5%.
Net income for the quarter was $160.
2 million, an increase of 19%.
Earnings per share increased to $1.
03 compared to $0.
Last year was 86, up 20%.
Net income has increased by 15% this year. EPS of $4.
14 than 16% rise 2011.
Excluding the previously discussed December 2012 pension cuts, net income rose 8% to $0. 145 billion in the fourth quarter, up 12% to $0. 633 billion this year.
Earnings per share rose 8% to $0 before the adjustment.
The quarter rose 13% to $4. 05 years.
Now, this record level of income realized in 2012, both before and after pension income, reflects the third consecutive year of double income.
The company\'s revenue has grown in numbers.
To achieve this important milestone, we would like to recognize all employees of the real parts company.
We are very proud of their achievements.
So I\'m going to hand it over to Carol to discuss several key balance sheet items. Carol B.
Thank you, Jerry.
Before I begin, I would like to thank you all for giving me this great opportunity.
Thank you so much, it\'s just a pleasure to work with Jerry over the years.
We had a good time.
Planning and preparing for the transition, I look forward to the opportunity.
We will start by discussing several key balance sheet items.
Cash in December 31 was $0. 403 billion, which is consistent with our cash position in September 30, although it is lower than $0. 525 billion in December 31, 2011.
Our current cash position reflects an increase in our income, effective asset management and a reduction in costs resulting in a strong cash flow of 2012.
This was offset by the $0. 5 billion spent on some investment activities in 2012, including our investment in Exego, Australia and New Zealand\'s leading car distribution companies, in January 1;
The acquisition of optical Fab by Electrical Group in February 1;
In May 1, Quaker bought the car group.
Accounts receivable $1.
5 billion per cent in December 31 was 2% per cent higher than in 2011.
Sales rose 5% in the fourth quarter.
Our goal is to grow accounts receivable at a rate below revenue growth, so we are very encouraged by the progress of accounts receivable.
We will continue to focus on this area in 2013 and we are very satisfied with the quality of accounts receivable currently.
Inventory was $2 as of December 31, 2012.
6 billion, an increase of about 7% over December 31, 2011.
This growth is mainly related to the impact of our acquisition in 2012.
If there is no acquisition, our inventory has only increased by 2%.
We continue to believe that our team has done a great job in managing inventory levels, and as we move forward in 2013, we remain focused on keeping this important investment at the right level.
Now, we will add here that our comparison with the previous year\'s inventory reflects the revision of the 2011 balance sheet we previously disclosed in the third quarter 10 --Q.
Our balance of accounts payable for December 31 was $1.
7 billion, an increase of 17% over the previous year.
The significant increase in trade payables reflects the impact of our extended terms of payment and other payables initiatives negotiated with suppliers.
We are very pleased with the progress we have made in this area.
Over the past few years, improving our accounts payable status has been an important priority for us, which has had a positive impact on our days and accounts payable.
$2 working capital.
December 31 3 Billion Day decreased about 15% December 2011 day of report.
Given our current $ 6% debt, it is also down 0. 25 billion from the same period last year.
Effective management of accounts receivable, inventory and accounts payable is very important to us, and our continued progress in these key accounts has had a huge impact on improving our working capital position and cash flow.
Our balance sheet is still in good shape as of December 31, 2012.
By the end of the year, our total debt remained unchanged at $0. 5 billion.
The reason for the total debt of $0. 25 billion in November 20 was seen as the end of the existing debt in December 31.
While we have not announced any specific debt plans after the due date, it is likely that we will update the debt amount later this year.
There is also a $0. 25 billion debt due in November 2016.
Our total debt as at December 31, 2012 was 14. 3%.
Although comfortable with our current capital structure, we would like to remind everyone that in September 20, we have reached an agreement on a multi-currency syndicated financing facility of $0. 85 billion.
This one has 5-
Year, the LIBOR rate plus 75 basis points, replaced the $0. 35 billion unsecured Revolving Loan line as planned for December 20.
This new facility provides us with expanded lending capacity to support the growth opportunities we need from time to time.
As at December 31, 2012, there was no loan amount under this new agreement.
The company continues to create stable cash flow.
As we mentioned earlier, 2012 is a very strong year for us.
Operating cash is over $0. 9 billion, setting a new record for us.
After deducting capital expenditures and dividends, free cash flow was about $0. 5 billion, a new record.
The continued strength of our cash flow is encouraging, and we remain committed to several ongoing priorities for using our cash, which we believe contribute to maximizing shareholder value.
Our top priority in cash is dividends we have paid this money every year since we went public in 1948, and now we have raised money for 57 consecutive years, and yesterday the board approved $2.
15 shares per share, with an annual dividend of 2013.
This is 9% more than $1.
The £ 98 per share paid in 2012 is about 52% of our earnings per share of £ 2012.
Our target is a payment rate of 50% to 55%.
Our goal is to maintain this payment ratio in the future.
Our other priorities for cash include continuous reinvestment in each of our core businesses.
Conduct strategic acquisitions and share buybacks where appropriate.
Our investment in capital expenditure is $30.
Fourth quarter 4 million.
Total capital expenditure for the year was $0. 102 billion, compared with $103.
The same period in the previous year was 5 million.
This is the low end of our expected 2012 range.
Based on the timing of certain projects and the overall plan for this year, we expect the cash use of capital expenditures for 2013 to be between $0. 115 billion and $0. 135 billion.
The vast majority of these investments will continue to target production.
Strengthen projects mainly in technical aspects.
Our Depreciation and amortization is $25.
This quarter was $1 million, $98.
This year was 4 million, up slightly from 2011.
Looking ahead to 2013, we expect that expenditure, mainly related to amortization and increased capital expenditure, will increase again.
We currently expect Depreciation and amortization for the full year to be approximately $0. 105 billion to $0. 115 billion.
Strategic acquisitions remain an ongoing and important use of our cash and an integral part of the company\'s growth plan.
Our investment in Exego and Quaker City in the automotive group, as well as a small acquisition in the electrical group, which went as planned during 2012, we are encouraged by their continued growth opportunities.
In 2013, we will continue to actively seek new acquisitions for our business, mainly for those of bolt-
Types of acquisitions with annual revenues ranging from $25 million to $0. 125 billion.
Finally, on 2012, we bought back about 1 with our cash.
According to our stock repurchase program, we have 4 million shares of our common stock.
We have 12 more.
2 million shares authorized and available for repurchase today.
While we don\'t have a fixed pattern for these repos, we expect to be active again in this project in 2013 as we continue to believe that our stock is an attractive investment, combine with dividends to provide the best return for our shareholders.
Finally, we would like to acknowledge and thank all of our colleagues in the GP for their excellent work.
Another year of record sales and revenue is a great achievement and we are very proud of it.
The company has entered 2013 and is ready for the continued growth of our business.
As always, we will support our growth with strong cash flow, a healthy balance sheet and further maximizing shareholder returns. Tom? Thomas C.
Thank you, Paul, Jerry and Carol.
Jerry, thank you again for making such an important contribution over the years to the overall success of the real parts company.
We wish you and Cheryl all the best in the years to come.
Now to sum up our views in 2012, we feel that there is a lot to be proud of in our team.
In the positive achievements of the past year, sales, net profit and earnings per share records and operating profit margins increased by 40 basis points to 8 basis points. 3%.
Operating cash and free cash flow have also created new records.
Operating capital decreased by about 6%, and the efficiency of working capital increased to fulltime low.
The average return on assets and return on investment also showed good improvement again in 2012.
With the action taken yesterday by our board, the dividend has increased for 57 consecutive years.
Therefore, we are satisfied with the team\'s achievements in these areas.
One area where we don\'t do as well as we hope is the growth side.
After 11% and 2010 rose 2011, we entered 2012, which is expected to exceed 4.
Sales rose 5%.
But, after a solid first quarter, we saw a slowdown over the years, reflecting the overall industry slowdown we saw in our respective businesses.
When we look forward to 2013, we see that the market situation is very similar, at least in the first half of the year, we experienced the situation in the second half of 2012, and our expectation is, in the first half of this year, each of the four industries we operate has moderate growth, and the growth in the second half will be stronger.
This seems to be in line with the general consensus of the overall economy in the coming year.
Nevertheless, we expect car revenue to grow by 5% to 7% throughout the year;
4% to 6% of industry;
Electrical, also 4% to 6%;
And office products 1% to 3%.
This will increase our total revenue by 4% to 6% this year.
As revenue at this level grows, our guidance is that earnings per share are at $4. 30 to $4.
40, up 6% to 9% from $4.
05 received in 2012 before the cut in earnings.
This concludes our prepared remarks.
At this point, we will give your questions back to Chris. Chris? Question-and-
Your first question comes from Chris Horvers at JPMorgan Chase.
Chris Christopher Hofer
Congratulate Jerry, the research arm of JPMorgan Chase.
We will miss you on the road and on the phone. Jerry W.
Thank you, Chris.
Chris Christopher Hofer
The research arm of JPMorgan Chase hopes to start with cars.
It\'s really encouraging to hear that the north of the country is starting to see some improvements and starting to see it in batteries and rotating appliances.
I mean, when you think about last year, you see a lot of attraction.
Due to the warm weather in January and February, spring demand has increased?
Does this mean that we have to wait for 2Q in order to really see these trends and see some acceleration in top trends in the automotive industry? Paul D.
Chris, this is Paul.
There are only a few comments and your question is valid.
Our three divisions make up the Northern Division, the central, eastern and central western divisions, which were very stable in the first quarter of last year.
Now absolutely looking back, we can see that the business is moving forward because the second, third and fourth quarters are moderatesingle-
The numbers in Q3 and q4 are soft.
But I\'m glad to see-
Again, it\'s only a month, but the three sectors rebounded well in January, really led by the Midwest, with a sharp rise in the Midwest.
So we are cautiously optimistic, Chris, we will see some growth in the north of the country this year.
Chris Christopher Hofer
JPMorgan Chase, research, do you see a lot of brake
s and rotors? Paul D.
Last year, DonahueBrakes and rotors were a challenging category for us.
We did something and we hope to see a rebound in 2013, but this is one of the categories that was absolutely affected in 2012.
Chris, you mentioned the battery and the rotating appliances on the other side, because we are several other categories, so these are very powerful for us in 2012, such as tools and equipment, our filter business was good last year.
So we would like to see and plan to see our brake business resume in 2013. Thomas C.
I think it\'s Paul Gallagher. -
Chris, sorry, I just wanted to add that we did not see any substantial improvements in the brake and rotor business in January.
Our expectation is that we will begin to see some improvements as we work throughout the year.
Chris Christopher Hofer
The research department is perfect.
Then in terms of EBIT profits in the automotive industry, can you look more closely at what is driving this expansion?
The synergy of the Quaker?
Is it a supplier allowance?
There were some surprises there, of course, so just wanted to get some details. Jerry W.
Our inventory grew well in the fourth quarter and you will see ---
This is where most of the profits have increased.
They rose 50 basis points in nine months.
They have also taken significant cost reductions, costing $20 million, or $25 million. So between --
For a few years-end write-
We make bad debt payments based on the percentage of sales.
When we start to actually write, our bad debt expenditure
Younger than before.
So these are the three main contributors to this improvement.
Chris Christopher Hofer
JPMorgan Chase, research, how should we look at the future expansion of EBIT margins?
Or how many of them are sustainable? Jerry W.
NixWell, look, the cost they cut is sustainable and they also have additional cost cuts now.
I\'m sure we won\'t show this improvement in bad debt spending, but we should see an increase in operating margins of another 10 or 20 basis points.
This is what we have been looking.
The next question comes from Greg Melich with ISI. Gregory S. Melich -ISI Group Inc.
Congratulate and thank you again for everything. Jerry W.
I appreciate it. Gregory S. Melich -ISI Group Inc.
Cathy, Research Department (sic)[Carol]
You mentioned that inventory increased by 2% when you adjusted your acquisition balance sheet.
Can you give us the adjusted Accounts payable and accounts receivable? Carol B.
The impact of YanceyThe on Accounts payable is not that great.
It is about $50 million on the payable line.
In terms of receivables, the amount of receivables was approximately $30 million.
But obviously, it\'s more on the inventory line.
Most of the improvements in our accounts receivable are actually due to improvements in the terms of the suppliers we talk.
This has indeed driven much of this growth. Thomas C.
Accounts payable galahronCarol B.
Payable eyon accounts payable. Gregory S. Melich -ISI Group Inc.
Research the department, and then Paul, talk about the sales trends you saw in the fourth quarter.
If I remember, there is a slight difference in the day shift in terms of sales.
I think we might be back in the fourth quarter and we don\'t seem to be back if we look at the sales of the comp store.
Can you help us understand the relationship between this flat pay and the increase in the third quarter? What really drives this continuous decline? Paul D.
Well, Greg, you ask.
You\'re right, there\'s an extra billing day this quarter.
I think we may be a little underrated how the holiday falls this year and last year, and Christmas is on Tuesday instead of Sunday last year.
We may have returned some or all of the extra days we received this quarter.
So I think we\'re a little underrated.
December is undoubtedly soft for us.
When we reported last time, we came out from September and we saw good growth in September.
Of course, we hope that this will last until the fourth quarter.
But this is not the case.
Again, I think the plan that our team has already implemented will go to 2013 and we are optimistic about it. -
Be cautiously optimistic that our sales will return to normal in 2013. Gregory S. Melich -ISI Group Inc.
The research department is great.
Finally, about inflationdeflation [indiscernible]
In Auto, especially negative 0.
3, the same as the third quarter.
Can you tell us what you think will happen this year?
Will we go back to a little bit of inflation in auto parts? Thomas C.
This is Tom.
Let me answer this question.
At this point, I would like to say that in 2013, we may get more inflation in each business.
Cars, we saw some discussion about the price increase because we worked a little deeper in the year.
So I expect that the inflation rate in the automotive industry will drop somewhat, but not actually.
Your next question comes from John lovalo of Bank of America. John Lovallo -
Ibuprofen Suspension Drops Bank of America, Jerry, research. Good luck. Jerry W.
Thank you again, John. John Lovallo -
Bank of America Ibuprofen Suspension Drops, Research Department, starting from industrial customers--
From your industrial customers, do you feel that the uncertainty they are talking about is actually due to government policy and this uncertainty?
Or is this really at the heart of the business environment? Thomas C.
Gallahli believes that the former is more important than the latter.
At this point, people pay more attention to the unknown.
Knowing that we haven\'t seen any cancellations in our project work, this may help you.
However, we have seen this data rolled out in either the 1 or 2 quarter and I think that again highlights the uncertainty.
I think people will say that we will be very cautious about how we spend money before we know a little more.
So the fact that we are eliminated may eventually lead to some cancellations.
But at this point we have not received any notice yet. John Lovallo -
The research department of Bank of America Ibuprofen Suspension Drops is very helpful.
Then, given that at least in the first few quarters, there may be some top-level pressure on industry and EIS, from the cost structure base to the offset, can you do something? Thomas C.
Yes, I think our team has done a good job in helping to reduce the cost structure over the last few years.
When we see a period like this, things seem to be a bit slow, then they also tighten some in terms of cost.
As a result, some actions have been taken to try to align costs with revenues. John Lovallo -
Ibuprofen Suspension Drops Bank of America, great research department.
Last one, I missed it in terms of interest expense guidance.
Would you please repeat it again? Carol B.
YanceyWell, we currently estimate interest expenses of £ 20 million to be around $2013, and the two parts we are talking about are $0. 25 billion.
The next question comes from Ciccarelli, a Scot in RBC Capital Markets.
Ciccicciccarelli, Research Department, RBC Capital Market Co. , Ltd.
I know you said that the traditional cold weather market is very different from other businesses in the automotive industry.
Can you get more specific information than that? Paul D.
This is Paul.
The impact of the fourth quarter was about 300 basis points.
RBC Capital Markets, LLC, research, so that\'s a narrower gap than we \'ve seen in the last few quarters. Correct? Paul D.
In fact, it is quite consistent.
We ran away in all three departments. -
I\'m talking about the impact on the whole business.
So these three departments of our company
The single digits fell in the fourth quarter, while our business balance rose slightly.
Research Department of RBC Capital Market Co. , Ltd.
Understand. Paul D.
Do you know the impact of the whole?
The research department of RBC Capital Market Co. , Ltd. Yes, OK.
This is what I want to achieve. Okay.
And then it\'s about--
I know we talked about car profits.
We do see the EBIT profits of industrial compression.
What is the right way to think in the future?
I mean, is this another basis point improvement we expect in auto?
Or is the current revenue trend preventing this from happening this year? Thomas C.
This is Tom.
What I want to say is, first of all, our expectation is that the revenue trend will improve over the course of the year.
But I think in terms of modeling, I will look for improvements of 10 to 20 basis points in the annual industrial profit margin.
RBC Capital Markets, LLC, Research Department, is it going to be natural leverage?
Is this because you guys try to take the image out of the car and take the cost out?
Just trying to figure out what is--
What are the different moving parts there, Tom? Thomas C.
GallagherWell, we expect revenue growth to be slightly stronger, not in the first or second quarter, but in the second half.
There are ongoing cost control and cost reduction initiatives.
In terms of the profit margin of the business, that is, the gross profit margin of the business, there is quite a lot of work to be done.
It is therefore hoped that during this year we will see some improvements in this area.
So there are a lot of levers that are being pulled at the same time to make sure our profit margins are improving.
I think if you go back and look at the industrial performance this year.
In the first and second quarters, our revenue grew by 12% and 8%, respectively.
Then we saw a very good profit margin increase in the first half of this year, then we gave it back to me, and then we got a little more in the second half of this year.
But our expectations of 2013 may be the opposite.
Your next question comes from Matthew faisler of Goldman Sachs. Matthew J. Fassler -
Goldman Sachs Group Limited
Jerry, I will miss you very much.
It\'s always a pleasure to work with you over the years. Jerry W.
Thanks, Matt. You\'re the man. Matthew J. Fassler -
Goldman Sachs Group Limited
First of all, the research department about cars.
Obviously, we have chosen this area this morning.
But if you look at the difference between DIY or retail and traditional business, anything related to the automotive age and target customers ---
Target cars, that is, in the segment where you look at digital and retail stagnation, do you think this could be caused by structural factors like this? Thomas C.
This is Tom.
I don\'t think any changes are enough to cause any substantial changes in performance in a short period of time.
Paul mentioned in his comments on the business side that if we move the fleet to one side for the time being, I will return to the fleet in a moment, but if you move it to one side in this quarter, our non-fleet-
The business is actually in the medium term.
I think this is a very good performance in the current environment.
But what we see in this regard is that we see some increase in the value of our tickets, but the number of tickets is actually insignificant.
Therefore, this will show us that this is driven to some extent by consumer discretionary consumption habits.
If we go to the fleet side, as we go deep into the second quarter of this year, and then in the third and fourth quarters, the fleet side of the business actually starts to show signs of easing, and the fleet\'s business actually slows down a bit.
This is consistent with what we have seen throughout the industry and with what we have seen in some indices.
If you look at the traffic service index, you will find that, as the year goes on, the index is down in turn, and in fact it has entered negative growth in the second half of this year.
So I don\'t think we see any major changes in the business structure at this point.
I think it\'s probably more driven by consumer spending.
I think this could last for a quarter or two because we continue to digest the impact of rising fuel prices and the impact of the increase in payroll taxes that people are adjusting. Matthew J. Fassler -
Goldman Sachs Group Limited
Research Department Tom, whether it\'s for you or Paul, in the cold weather market and cold weather products, have you seen some recovery, is this even in retail and business
Or is it biased towards one of the segments? Paul D.
This is Paul.
At this point in time, time is still early.
But at this point in time, it\'s definitely more business than retail. Matthew J. Fassler -
Goldman Sachs Group Limited
Considering that everyone\'s car does the same thing, the research department is a little curious about the functionality.
Because of the type of transaction caused by cold weather, maybe failure will perform more commercially?
Or is there any other reason? Thomas C.
Matt, one of the reasons gallahli thinks.
But the other thing is, I think business is stronger in the area we\'re talking about, and retail may be stronger in the sunshine --related areas. Matthew J. Fassler -
Goldman Sachs Group Limited
The research department is great.
Then just the last cleanup issue on the coaching side, $4. 30 to $4. 40 of 2013 EPS.
Please embed the repo assumption in that number? Thomas C. GallagherNo.
Matt, our buyback plan is just to expand further, at least we want to buy back the number of shares we have issued over the long term
Reward grants on a regular basis.
We want to avoid any dilution.
So I think you can model something for $1. 2 million, $1.
3 million is in line with what we have done this year. Matthew J. Fassler -
Goldman Sachs Group Limited
, Research Department, but there is no decrease in the number of embedded shares in this number that exceeds this number? Thomas C. GallagherNo.
Your next question is from Brian bainheimer of Gabelli & Company.
Gabelli & Company, Inc.
Congratulate you again, Jerry, and best wishes. Jerry W.
Thanks again to Brian.
Gabelli & Company, Inc.
I just want to talk about Exego here for a few minutes.
Just from a clarification point of view, it\'s already on the other line when you break through your operation section, right? Carol B. YanceyYes, yes. Thomas C.
Gabelli & Company, Inc.
First of all, in terms of achieving your profit goals, how do we develop on Exego? Thomas C.
They actually planned ahead.
If we go back to our original expectations, we think they will reach that level by the end of 2013 or early 2014.
In fact, they will get there faster and at this point we will make a decision.
As you understand from the point of view that they really reach the threshold, we have 6 months to exercise our rights.
Gabelli & Company, Inc. All right. Terrific. And then --
Most of my questions have been answered, but there is speculation that two of your main customers in terms of office products may get together.
If so, do you think you will see some pricing pressure in the office product department that might hurt your profits?
Gabelli & Company, Inc.
Well, this is speculative at this point.
What I want to say is, first of all, this is something that has been guessing for a long time, and there seems to be something substantial right now.
In the medium and long term, if the industry has excess capacity and is eliminated, I think this is basically healthy for the industry.
In terms of 3 competitors falling to 2, this may lead to more rational competition between the 3 competitors.
How it came into play and how it supported us, I can\'t answer at this point.
But what we usually feel is that if it is fundamentally good for the whole business and industry, it will be good for us in the end.
Your next question is from David Gober at Morgan Stanley. David Gober -
Morgan Stanley, the research department is just a quick one on gross margin.
I just wanted to try and analyze where you saw a little gross margin compression in this quarter.
I mean, it\'s clear that industry and EIS are two parts that lead to a compression of overall profits.
Is this where gross is under pressure?
If so, what are the key drivers, is it fixed cost deleveraging or something else in these areas? Thomas C.
First of all, I won\'t pay too much attention to this quarter.
I suggest that maybe we focus on the whole year and we are able to show some improvement in gross profit at 9 basis points throughout the year.
This is not an overwhelming improvement, but after two years of moderate decline, I think the team has done a very good job overall in stabilizing gross margin and then bringing it back.
In Jerry\'s comments, he mentioned a contributing factor for this quarter, that we do not have a quantity incentive rebate in the industrial sector, so we do not have the benefit of doing so.
We also didn\'t use the balance sheet to support the profit and loss statement because we didn\'t go out for mass purchases at the end of the year to try to capture some of them.
Carol mentioned in his comments that our inventory had increased by 2% without the acquisition of Quaker City.
So I think, as a general statement, our employees are doing a good job of controlling inventory, and we may have given up a little margin boost.
But we believe it is prudent to operate in the way we operate in the fourth quarter.
What I want to say is that in terms of modeling, you can model with gross profit, which is at least the same as last year.
Frankly, we plan to raise our gross profit slightly again in 2013. David Gober -
Morgan Stanley, the research department is very helpful.
Don\'t kill horses in the auto parts business.
But Paul, I was wondering if you could tell us what you saw in the DIY space from the fall in the category for the fourth quarter.
Do you see the discretionary category of weakness?
Or more weather-
Because of the regional concentration, the related categories there may be different? Paul D.
More more of is free discretion.
As I said in my opening remarks, our retail business is certainly not satisfied with our retail performance.
I believe they are quite consistent in our industry, and in general retail is under some pressure.
But I will tell you that we already have some moves when we get into 2013, and I hope that some of the things we have installed will start to move the needle in a positive direction. Thomas C.
David Gallagher, I \'d like to add-
Paul mentioned this in his previous comments, which is that the average fare actually increases in retail, which is very encouraging for us.
But we \'ve seen a slight drop in the number of tickets, so I think the challenge we\'re facing is to add a little bit more foot traffic.
This in itself will help the entire retail business. Paul D.
Donahuand is just a follower.
David, of course we are optimistic at this point.
We have launched a new advertising campaign and we fully expect the Super Bowl to bring some traffic, and we will continue with an additional advertising campaign as NASCAR launches in Daytona this Sunday
The next question comes from the Bret Jordan series of BB & T Capital Markets.
BB & T Capital Markets, Research Department, this may be a little bit for Carol.
When you are talking about working capital management, expanding payables, do you have an initial target and do you think you are raising the AP inventory ratio to 2013? Carol B.
We have no real goal.
We hope to continue to improve in this area, perhaps not everything we have this year.
However, we certainly hope to continue to improve in this area, but there are no specific goals.
BB & T Capital Markets, research departments, and then back to the last question just raised on the DIY side.
I think, do you have a feeling that, in terms of market share, your performance in the region is ---
Do you feel the same way as your peers?
Or, will some competitors in the market introduce aggressive prices to keep or increase their share of DIY, which may limit regional sales in some of your comp stores? Paul D.
This is Paul.
I think the pricing of our peers this year is quite reasonable.
We believe that it will not be more difficult in any particular market than in another particular market.
Again, I think there is some pressure on both retail and retail consumers in general.
Of course, as Tom mentioned earlier, payroll taxes, 2% will have an impact on some of them ---that walk-in traffic.
However, in a difficult environment, we have to take responsibility again. We must go out and be aggressive and occupy some market share.
This is our plan.
Your next question comes from the lines of Keith Hughes and SunTrust. Keith B. Hughes -
Most of my questions have been answered.
But soon, can you tell me how much the acquisition in the industrial and electrical sector contributed this quarter? Carol B.
YanceyWell, the industry did not have any acquisitions this quarter.
Electrical bought Light Fab, a small factory we talked about earlier, but that doesn\'t matter.
This, of course, has some incremental income on the balance sheet.
Your next question comes from Richard Hilgert of the Morning Star. Richard J. Hilgert -
Morning Star Company
Jerry, let me add my congratulation and hope you can retire happily for many years. Jerry W.
Thank you very much, Rich. Richard J. Hilgert -
Morning Star Company
The research department wants to go a little deeper into the fleet business in the automotive industry.
You mentioned on the phone that you saw this decline steadily over the course of the year.
You also mentioned on the phone that some uncertainty surrounding government regulation and taxation has led to some silence among businesses.
I wonder if these two are relevant?
Over time, with the aging of these fleet vehicles, will we see them catching up with repairs before they start replacing fleet vehicles? Thomas C.
The first part is Gallagher Zinc Citrate Tablets I don\'t think we have any statistics that can be directly linked between the uncertainty of what\'s going on in Washington and some freight or transport indices.
But people will think that there are some international
The connection between the two.
If people postpone or postpone certain purchases, it will eventually lead to a decrease in the number of products being shipped.
As an information point, the TSI index includesthe-
It includes rail and barge, as well as air transportation.
So this is a fairly comprehensive index that has shown signs of slowing down over the course of the year.
The second part, in terms of the continued aging of the fleet, at some point these vehicles will need some degree of repair.
What we \'ve seen recently is that we see spending if it affects safety or driving ability.
But if this is entirely discretionary, we will see more judgment as to whether repairs will be made.
So I think it will continue to push the need for replacement parts as long as these vehicles continue to age. Richard J. Hilgert -
Morning Star Company
The second area I want to wear more colors is the office product group.
A previous question somewhat hinted at this, but it seems to me that pricing pressure will continue, and if so, the combination of office software and office warehouse, in fact, is going to happen, it will happen because they are looking for obvious scale efficiency and being able to compete better in the industry because you have Wal-Mart Stores, Costco and Amazon are all in the field.
So your previous comment said you saw it and I think you said it was a 2.
The price of office products rose 7% during the year.
I was wondering, is this because you focus on areas other than what other players are doing?
As you mentioned, you are in the furniture, you are cleaning and resting --room.
I wonder if other competitors will start to focus on these areas? Thomas C.
Gallahwell, we may take them away in the opposite order.
As far as the product category we are in is concerned, all of these companies belong to each of these categories to some extent.
In two ways.
7% inflation impact on office products, which is calculated based on the manufacturer\'s price increase for us, not necessarily the price increase for our customer base.
Then take a look at the potential acquisitions or combinations of Office Depot and Office emax, and obviously they see the huge potential for synergies, and I think they come across many different categories.
They are not just buying price synergies.
I think they will end, maybe even bigger, in the non-
Just because there is redundancy with the two independent companies today, the procurement side of the business. Richard J. Hilgert -
Morning Star Company
But assuming companies like Amazon enter the field, we\'ll see more pricing competition because of online entry, which is still reasonable? Thomas C.
This seems to be the case.
But keep in mind that we are already a product provider for online dealers.
Many of our customers have online services.
I think staples will be second only to Amazon in terms of online business.
So we have new entrants, and that doesn\'t mean the industry is new.
This is something that has been around for a while and I think it is reasonable to say that they will put some pricing pressure on different channels.
But we are already competing and our customers are already competing with very, very good e-commerce.
The tail company outside today. Richard J. Hilgert -
Morning Star Company
Okay, research. Great, great.
Last room cleaning item for $23.
Get 5 million of the proceeds from SG & A\'s pension.
I would like to know, is this separate in the segment?
Or is this mainly the operating income of the automobile department? Carol B.
YanceyAll\'s pension cut earnings at $23.
5 million, on the other line.
So it\'s not in the clip.
This is the time allocated for all our problems.
I will now transfer the call to the management to close the speech. Thomas C.
GallagherWell, thank you very much.
Thank you for calling today.
We look forward to giving you more updates when working in the first quarter.
Finally, we will once again thank Jerry Knicks for his outstanding performance for 34 years and wish him all the best in the years to come. Jerry W.
NixI also thanks each and every one of you.
It was a great journey.
You hold a great stock here and look forward to continuing to improve.
This is the end of today\'s conference call, ladies and gentlemen.
You can disconnect now.
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