Genuine Parts Company (GPC) Q1 2011 Earnings Report, Transcript and Summary

Good morning, my name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts' First Quarter 2011 Earnings Release Conference Call. [Operator Instructions] I will now turn the call over to our host, Ms. Carol Yancey, Senior Vice President of Finance. You may begin.

Thank you. Good morning, and thank you for joining us today for the Genuine Parts' First Quarter Conference Call, where we will discuss our earnings results and our outlook for the remainder of the 2011. 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, President and CEO. Tom?

Thank you, Carol. And I would like to add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. As we customarily do, Jerry Nix, our Vice Chairman and Chief Financial Officer, and I will split the duties on this call. And once we have concluded our remarks, we will look forward to answering any questions that you may have. Earlier this morning, we released our first quarter 2011 results and hopefully, you've had an opportunity to review them. But for those who may not have seen the numbers as yet, a quick recap shows that sales for the quarter were $2,974,000 which was up 14%. Net income was $126.5 million, which was up 26%, and earnings per share were $0.80 this year compared to $0.63 in the first quarter of 2010 and the EPS increase was 27%. So we're pleased that the sales and earnings momentum that we saw throughout 2010 continued on into the first quarter of this year. As a result, we feel that we're off to a good start, and we look forward to another solid performance in 2011. A review of the results by business segment shows that our Industrial and Electrical operations continue to produce the largest increases. Motion Industries, our Industrial Distribution business, was up 24%. This is their fourth consecutive quarter of better than 20% increases, and we are very pleased with the progress that is being made in our Industrial segment. As we look at the numbers in a bit more detail, acquisitions added 5% to the increase. But importantly, we continue to see that the good results and the ongoing operations are broad based across their business as evidenced by the fact that every one of their top 12 product categories is running double-digit increases year-to-date. And as a group, these 12 categories are up 25%. And the same can be said about their top 10 customer segments. Double-digit increases in each case. And as a group, these top 10 customer segments are up 30% through the first quarter. And the top 20 individual customers have a collective year-to-date increase of 30% as well. And finally, all geographic areas are showing strong double-digit improvement throughout the first quarter. So from a number of different viewpoints, the Industrial business remain strong and with the industrial production and capacity utilization indices each continuing to remain at healthy levels. And with good execution on the growth initiatives, we're optimistic about our prospects in the Industrial segment over the next several quarters. Moving on to the Electrical segment. EIS turned in another strong performance as well, with revenues being up 39% in the quarter. This is their fourth consecutive quarter better than 30% increases, so as with the Industrial business, the Electrical segment remains quite strong. The Seacoast Wire and Cable acquisition completed in September of last year gave us a nice boost in the quarter, as did the increase in copper pricing, but the ongoing operation still generated a strong 19% increase over the first three months of the year. So the underlying business in the Electrical/Electronic segment remains quite healthy. And as with the Industrial operations, the increases across the customer segments, as well as the product categories, were broad based and consistent. And we're encouraged by the fact that our primary external leading demand indicator, the Institute for Supply Management Purchasing Managers Index, remained well above 50 through February, reflective of a continued expansion in the industry. And this bodes well for our Electrical business in the months ahead. S.P. Richards, our Office Products company, was up 5%, continuing a pattern of gradual improvement that started in the second half of 2010. You may recall that Office Products was running 1% behind through midyear last year. Then they were even in the third quarter, plus 3% in the fourth quarter, and now up 5% this past quarter, so the trend is a bit encouraging. As has been the case for some time now, our sales for the independent Office Products resellers have outpaced our performance with the Mega Channel. The Independent business was up high single digits in the quarter, and we are pleased that this segment of our business has been on a gradually improving trend for five consecutive quarters now. But then our Mega business continues to run behind prior year, and this segment had a high single-digit decrease in the quarter. On the product side, all four of our major product categories, technology, office supplies, furniture, and cleaning and break room, showed positive growth in the quarter. This follows a similar pattern in the fourth quarter of 2010, and it's another indication to us that our Office Supply business is on a very gradual improving trend, and we expect this to continue in the quarters ahead. And finally, a few comments about Automotive. You will recall that this business showed good sequential progress on a quarterly basis during 2010, and we ended the year with a 9% increase in the final quarter. We were pleased to see this carryover to the first quarter of this year, with our Automotive operations being up 9% once again. And this is essentially a same-store sales increase, which we think shows good progress on the part of our Automotive team. Both our independently-owned and company-owned store groups grew at steady rates. And in looking at the detail within the company stores, our Retail business was up 4% in the quarter, our Fleet business was up 5% and our Installer business was up low double digits once again. And we're especially pleased with the steady and consistent double-digit growth that we have seen in our Installer business for over a year now. And this is largely attributable to the continued progress being made in our two primary installer initiatives, NAPA AutoCare and Major Accounts. You will recall that they both grew at double-digit rates in 2010 and this held true to the first quarter as well. So good progress continues to be made in each of these important areas. When we put it all together, we feel that our Automotive team came through the first quarter in good shape, and we're optimistic about their prospects over the remainder of the year. So that's a quick overview of our first quarter sales results. And at this point, we'll ask Jerry to take a few minutes to comment on the financial performance. Jerry?

Thank you, Tom. Good morning. I appreciate you joining us on the call today. But first, I'll review the first quarter income statement and segment information, then touch on a few key balance sheet and other financial items. Tom will come back to wrap it up, and then we'll open the call up to your questions. We incurred a total sale to a record high at $2.97 billion and at 14% for the second consecutive quarter. We're also encouraged by the positive sales momentum in all four of our business units, which is a testament to the hard work by everyone across our organization. We look forward to reporting continued growth over the balance of the year. Gross profit for the first quarter, 28.5% which is down 70 basis points from 29.2% in the first quarter last year. Although we see many good things happening in our businesses, this area remains a challenge for us due to several reasons. For example, competitive pricing pressures and changes in product mix across our businesses continues to negatively impact our gross margin. In addition, we are seeing a growing mix of sales through our national accounts and most of our businesses, which generally come with lower margins, but higher sales volumes. We're implementing both buy- and sell-side initiatives to offset these factors, and they should help stabilize gross margins in the coming quarters. We're working to reduce supply chain costs, increase distribution efficiencies and maximize pricing potential. For the year, our cumulative pricing, which represents the prior increases to us, was 0.5% in Automotive, 0.6% in Industrial, 0.9% in Office Products and 1.6% in Electrical. Turning to SG&A. Expenses of $657 million were up 9.8% from $598 million for the same period in 2010. And as a percent to sales, this marks a 90 basis point improvement to 22.1% versus 23.0% last year. Decrease in expenses as a percentage of sales is largely due to benefit of greater leverage associated with our 14% sales growth for the quarter, as well as benefit of our ongoing cost control measures. We entered 2011 with approximately $55 million in permanent cost saving from previous initiatives to significantly reduced employee headcount, consolidate facilities and more effectively manage freight routes and transportation costs. Of our 12% headcount reduction in '08 and '09, we only added back 1% in 2010, including acquisitions. And we've added another 0.7% with acquisitions thus far in 2011. In addition, our ongoing cost initiative have produced further savings of approximately $7 million to the first quarter this year. These initiatives have addressed cost scenarios such as freight, utility and warehouse management, and we expect to see additional savings coming from these initiatives over the balance of the year. These savings continue to positively impact our overall results, and our management team understands we must remain focused in this area. We'll continue to assess the proper cost structure of our businesses as revenue growth continues. Tightly managing our expenses remains a top priority. Now let's look at the business units by segment. Automotive had revenue in the quarter of $1,404,900,000, that represents 47% of the total and is up 9%. They had operating profit, $97.9 million, and that was up 10%. So margin expansion from 6.9% to 7.0%. The Industrial Group had revenue in the quarter of $999.8 million, representing 34% of the total, up 24.5% with operating profit, $66.0 million, up 35%. So very nice expansion from 6.1% to 6.6% of sales on operating margin. Office Products had revenue in the quarter of $432.7 million, 14% of the total, up 5% with operating profit, $37.4 million, up 2%. So they had slight margin degradation, 8.9% to 8.6%, but that's still a strong operating margin. The Electrical Group had revenue in the quarter of $139.8 million, 5% of the total. They were up 39%. Operating profit, $10.7 million (sic) [$10.07 million], up 48%. So nice expansion there from 6.8% to 7.2% of sales. Putting it all together, total operating profit margin for the first quarter improved 10 basis points to 7.1% from 7.0% in the first quarter of 2010 as our improved SG&A leverage was partially offset the gross margin compression. We had net interest expense of $6.5 million in the first quarter, which is down slightly from 2010. And we expect our net interest to be approximately $25 million to $26 million for the full year. In other category, which includes corporate expense, amortization of intangibles and non-controlling interest was $12.9 million expense in the quarter, up slightly from $12.3 million in the first quarter last year. The increase on this line is primarily due to higher expenses for incentive-based compensation, such as bonuses and stock options. And we continue to project the total other category to be in the $45 million to $55 million range for the full year. Now this assumes consistent levels of incentive-based compensation over the balance of the year, which we would expect to incur with normalized levels of growth. For the quarter, tax rate was approximately 34.1% compared to 37.9% for the first quarter in 2010, a decrease in the rate from last year is due to favorable adjustment associated with the expiration of a statute of limitations related to international taxes. Currently, we expect the tax rate for 2011 to be about 36.5%. Net income for the quarter, $126.5 million, up 26%. EPS of $0.80 compared to $0.63 last year was up 27%. Now let's touch base on a few key balance sheet items. Cash at March 31 of $466 million is up $132 million from $334 million in March 31, 2010. We continue to build our cash position from increased earnings and improved working capital, and we've used our cash to fund several ongoing priorities, such as the increase in the dividend, capital expenditures, acquisitions and share repurchases, which we'll discuss in more detail in a moment. We expect to continue to generate consistently strong cash flows and expect our cash position to remain sound. Accounts receivable, $1.5 billion, increased 13% for March 31, 2010, on a 14% increase in sales for the first quarter. We're pleased to have shown progress in managing this account and remain satisfied with the quality of our receivables. Our goal at GPC remains to grow receivables at a rate less than revenue growth. Inventory at 3/31/2011 was $2.24 billion, up approximately 1% or $25 million from March 31 last year. That is including acquisitions. In consideration of our sales growth, we believe that our management team continues to manage this key investment very well, and we'll remain focused on further improving our inventory levels over the balance of 2011. We improved our accounts payable position again this quarter with trade payables increasing to $1.4 billion, which is up 16% from March 31 in the prior year. Primarily, our progress in trade payables reflects the impact of increased inventory purchases associated with our higher sales volume, as well as extended payment terms and other payable initiatives with our vendors. With the improvement in our accounts payable position, our DPO continues to improve and we remain pleased with the positive direction of this working capital account. With progress in the key areas of receivable, inventory and payables, working capital is $2.5 billion at March 31, is down 5% from last year. But for comparison purposes, if we add back the $250 million current portion of debt at March 31, working capital is up approximately 4% from March 31 last year. We're encouraged with our ongoing progress in managing working capital and our balance sheet remains in excellent condition. After several consecutive years of strong cash flows, we expect to generate strong cash flows again in 2011 and currently estimate from operations of approximately $700 million for the year. At this level, free cash flow after deducting capital expenditures and dividends should be approximately $325 million, which is in line with last year. We're encouraged by the continued strength of our cash flows and remain committed to our ongoing priorities for use of the cash. These priorities are: first, the dividend, which we paid every year since going public in 1948 and raised for 55 consecutive years. As you may recall, in our February board meeting, our directors authorized $1.80 annual dividend for 2011, up 10% from $1.64 in 2010. This new dividend represents a payout of approximately 60% of our 2010 earnings per share and currently yields about 3% to 3.5%. Additional priorities for cash includes the ongoing reinvestment in each of the four businesses, strategic acquisitions where appropriate and share repurchases. Capital expenditures, $14.5 million for the first quarter, is up from $10 million invested in the first quarter last year. Currently, we expect our CapEx spend to pick up over the balance of the year and be in the range of $100 million to $110 million for the full year with the vast majority of these investments weighted toward total productivity enhancing projects, primarily in technology. Depreciation and amortization was $22.5 million in the quarter, in line with 2010. We expect D&A to remain level with last year and be approximately $90 million for the full year. Strategic acquisitions continue to be an ongoing important use of cash and are integral to our growth plans for the company. As you may recall on January 31 of this year, we completed two acquisitions in our Industrial business with combined annual revenues of approximately $60 million. We continue to anticipate additional opportunities for acquisitions over the balance of the year and remain disciplined in our approach to this element of our growth strategy. Generally, we're targeting those both on tax and acquisitions with annual revenues in the $25 million to $125 million, although there are certain exceptions to this rule. In the first quarter of 2011, we used our cash to repurchase approximately 177,000 shares of our company stock on a company share repurchase program. This follows the purchase of approximately 1.9 million shares in 2010 and today, we have right at 15.8 million shares authorized and available for repurchase. We have no set pattern for these repurchases, but we expect to remain active in the program, as we continue to believe our stock's an attractive investment and combined with the dividend, provides the best return to our shareholders. Total debt at March 31, 2011, remains unchanged at $500 million, and a $250 million credit facility maturing in November 2011 is accounted for in current liabilities. The second $250 million in debt is due in November 2013. And regards to the portion of the debt due this November, we can tell you that we're currently well in the process of negotiating a new debt agreement and a private placement with several insurance companies. We expect to have a signed agreement before the end of third quarter, and we'll update you on that when we have more details. Total debt to total capitalization at March 31, 14.8%. We're comfortable with our capital structure at this time. We ended the second quarter of 2011 optimistic that we could show continued progress in growing our sales and earnings over the remainder of the year. Steady and consistent growth has defined Genuine Parts Company for much of our history, and we remain committed to continuing this trend. We'll continue to support this growth with a strong and healthy balance sheet, sound cash flows, further maximizing our return to shareholders. That concludes our financial review, and I'll conclude my comments by expressing our appreciation to all our dedicated GPC associates. We're truly very proud of this group and can't say it enough. I also want to thank our customers and suppliers. We appreciate their continued support as well. Tom, back to you.

Thank you, Jerry. So that's a recap of our first quarter numbers, and we're proud of the results that were produced by the GPC team. Thanks to their efforts, we feel that we're off to a good start to 2011. Now as far as the remainder of the year is concerned, we continue to be optimistic about our prospects in each of our four businesses. There are a few uncertainties, however, including the increase in the price of gasoline, specifically, and the fragility yet in the economic recovery in general. But to this point, we seem to be weathering the situation fairly well. Additionally, we point out that our comps get even more challenging over the remaining three quarters of the year, with revenues being up 13% over the final nine months of 2010 and earnings per share being up 22%. With all of this in mind, our expectations are to grow total revenues by 9% to 11% for the full year, which implies an 8% to 10% increase over the remainder of the year, and this is up from our prior full year guidance of 6% to 8%. And this is based on Automotive being up 6% to 8%; Industrial, 15% to 17%; Office Products, 4% to 6%; and the Electrical/Electronic being up 16% to 18%. And by achieving revenue increases in these ranges, we think earnings will be in the range of $3.32 to $3.42, which is up $0.10 from our prior guidance of $3.22 to $3.32, and would represent an EPS increase of 11% to 14% for the full year. At this time, we'd like to take your questions, and we'll turn the call back over to Andrea.

[Operator Instructions] Your first question comes from the line of Scot Ciccarelli of RBC Capital Markets.

Scot Ciccarelli. Question, can you expand a little bit, Jerry, on the gross margin pressure? I guess when I kind of look at the P&L for the quarter, revenue was a little bit better than we were looking for. But if there was a spot that kind of took us a little by surprise, it was the gross margin, and you talked about some pricing issues. But is there anything else going on there? Is there some commodity impact? Or is it really just competitive pricing in various businesses? Or is there one business being hurt more than the others?

No, if there was just one thing, it would be a lot easier to solve the problem. This affects all four of our business units. And as I mentioned, we do have a lot of Major Accounts in all of them, and while they have lower margin, they generate a lot more volume. But it's a pricing issue, it's a purchasing issue, it's a combination of all of those. And some of the issues that we have in place, we have some pricing software that we're looking at to improve that. But if you look back, Scot, this was going on last year as well. And so it's continued and some of that is just the nature of the economic climate that we're operating in. A lot of our customers refuse to take any increases. And at this point, we push back on taking any increases, as you could tell from the price increase that had been passed through to us. But it may be some of it is commodity driven, but we don't have anything that detailed on it at this point. But there are a number of things that we're working at, and I think we can stabilize that over the remainder. It's not something you can correct in one quarter, but it's something we can stabilize over the remainder of this year.

Is the impact more severe in any particular category? Is it really across-the-board?

No, it truly is across-the-board. Each of the business units, one maybe down 20 basis points more than the others, something like that, but they're all down.

I guess, my only last question about that is, you guys have obviously been operating this business very well for a long period of time. Given the robustness of the recovery and the revenue growth that you're experiencing, are you surprised at all that people are being so tough on the pricing right now?

Not really, Scot. As you say, a lot of the customers just are in the climate that they're pushing back on all the costs, all the cost increases, including the cost of a product. And so are we, frankly. We're just not doing a good a job pushing back, I guess, as our customers are. But Scot, this is a concern of ours, and I think we can address it if the gross margin stabilizes, then we can certainly continue to take out in the SG&A line to offset that as we did this quarter. But yes, I think as long as we're under that pressure, we're going to continue to push back to our supplier as our customers are pushing back to us.

And Scot, I think it's important to also to just emphasize something Jerry just said, and that is we see the trends on the margin, we're working on it, and I'm confident we'll show some improvement. But when we see the trends like they are, we work hard on the cost side of it as well to protect the bottom line, and we're pleased with the fact that we were able to keep our SG&A growth to less than what our gross profit situation would dictate.

Scot, I'm just glad you got that question out of the way right off the top.

Your next question comes from the line of Tony Cristello of BB&T Capital Markets. Anthony Cristello - BB&T Capital Markets: Couple of questions for you this morning. The first, with respect to the guidance that you sort of updated, it seems like you're seeing from the last call an acceleration, not only in Motion, SPR [S.P. Richards], as well as EIS, but you kept sort of the Auto expectations flat. And I'm wondering, is there something that gives you more confidence today from the visibility standpoint in those other three areas versus your Auto that perhaps is keeping you a little bit more conservative right now?

Well, we're looking at the Industrial and the Electrical/Electronic first, you saw today the March Industrial production and capacity utilization numbers, and they continue to remain at very healthy and encouraging levels. So we feel pretty good about our prospects in each of those businesses for several quarters at least. On the Office Products side, we would just say that we have been able to show some sequential improvement since midyear last year, and our expectation is that we'll be able to generate increases at least in line with what we've done over the past quarter or two. On the Automotive side, there's nothing that causes us to have any real concern other than the price of fuel. And we don't know what the impact is going to be on that. We've held up well thus far on the sales side. It has impacted our SG&A across all of the businesses. But what we have seen in terms of outbound sales is we have seen some reduction in the demand for any discretionary type items, and we saw that late February, early March and on through the month of March. But I think maybe we're just reading what the same things you guys are putting out in terms of some concern about fuel pricing and what it might do to demand. But as I said earlier, at least through our latest report in April, things are holding up pretty well for us. Anthony Cristello - BB&T Capital Markets: With respect to the Office category, and I know there's been initiatives that you've had and it's certainly reflected in the results. Is there anything else or more color you can share with us in terms of updating us on some of those initiatives and what's underway right now?

Well, I don't think we can get too specific on the initiatives that are underway. I would say that the last two quarters, we have seen 400,000 plus increases in service sector employment. And that's the first time we've seen anything like that going all the way back to 2007. So I think that the external demand is a little better than what it had been this time last year. And then that coupled with some of the specific things that the Office Products team is doing, I think give us some encouragement, some optimism for the remainder of the year.

Your next question comes from the line of John Murphy from Bank of America.

Actually, John Lovallo on for John Murphy. A few questions for you here. And I don't know if this had been touched on earlier, I got on a little bit late. But are you guys sourcing any parts from Japan at this point in any of your businesses?

We have a very small amount that comes directly from in country, and we don't see as yet any disruptions there. What we don't know at this point, John, is any component pieces that maybe some of our other vendors maybe sourcing out of Japan. But we've talked to every vendor and at this point, we think the supply line looks pretty good going forward. We don't anticipate any disruption right now.

Okay, fair enough. And you talked about kind of your target range for acquisitions. Anyway, you said there could be some exceptions. I mean, do you see any kind of bigger, kind of chunky acquisition targets out there?

Not right now, we don't. We've got some discussions that are going and they're only discussions at this point. But they're pretty much in the range that Jerry mentioned.

Okay, fair enough. And finally, in terms of segment margins, looking at the Auto business, I mean, do you think, I mean, how are you kind of thinking about that longer term? I mean, are we at levels that are getting kind of peakish or do you see further room for expansion?

We think that we can improve the operating margins in each of the four businesses. We don't think that there's anything dramatic that's going to happen from one quarter to the next. But we have stated before that our longer-term expectations for Automotive will be 8% to 8.5%. And at this point, we continue to think that, that's achievable over a several year period.

Your next question comes from the line of Christopher Horvers from JPMorgan. Mark Becks - JP Morgan Chase & Co: This is actually Mark on for Chris. I was hoping, given unfavorability on weather in January, can you maybe speak to some of the changing trends on a monthly basis? And then, I guess, it seems like you're not really seeing any impact from the rising fuel prices? Maybe if there's an idea or a number in your head, perhaps that you think about that you see the consumer pullback a little bit in terms of mileage driven?

Well, taking the first part of the question first, we did -- we were impacted by the weather in January and, to a degree, in February as well. But we were able to recover from that impact in the latter part of February and on into March. As far as the impact of fuel pricing, we haven't seen it materially yet, but that's not to say that we might not. We have seen discretionary spending tighten up a little bit in the Automotive business, and we think that there may be some further tightening that might come. But the way we're structured, our model is that we're 25% to 30% retail and we're 70% to 75% wholesale or commercial. And the Commercial business will be a little less impacted by that than the Retail business will be. But again, looking sequentially at the quarter, our weakest quarter on the retail side or weakest month on the retail side was actually in the month of March. So that may be an early indicator, but we're not ready to categorically say it's a trend. Mark Becks - JP Morgan Chase & Co: Got you. And I guess in terms of just the overall businesses, it seems like in terms of your comments that there was a steady improvement from January, February to March?

I think that's right, yes. Mark Becks - JP Morgan Chase & Co: Okay. And then I was hoping you might be able to talk a little bit about the Fleet business, mid-single digits for a while, now you start to comp some tougher comparisons in the next few quarters. Do you think that's sustainable and maybe what you're seeing in the Fleet business?

We were up in our Fleet business 5% in the quarter, which we think just shows some good stabilization in that business. And at this point, based upon the indices that we track and talking to customers, we think that, that is sustainable over the remainder of the year. We're not looking for a return to high single or low double-digit growth in that segment, at least not in the foreseeable future. But if we can continue to maintain something in the mid-single digits, I think we'd be happy with that. Mark Becks - JP Morgan Chase & Co: Great. And then just my final question, coming back to the Office segment, the Mega has really been a drag on that segment in general. Is there anything you're seeing now that gives you any sort of optimism on that part?

Well, if we look at the Megas, the three primary ones, and we sell -- understand, we sell into the commercial side of their businesses, not to the retail side. So our sales patterns were more -- reflect what they're able to do on their Contract business. And if you look back to last year, you could see that, for the most part, it was a tough year on that business for them and our results reflected that. We did see one of them turn low single-digit positive on the Contract business in the fourth quarter. The other two remained low single-digit negative. We have not seen first quarter results as yet, but we think it's going to continue to be a gradual improvement there. Our business is roughly 82% with the Independents and 18% with the Megas. So right now, we're fortunate that the Independent business remains reasonably healthy for us.

Your next question comes from the line of Matthew Fassler from Goldman Sachs.

Ben for Matt Fassler. Just again on the Automotive growth that you showed in the quarter, it was unchanged on a year-over-year basis from what you've seen in 4Q. And also in 1Q, your growth was well above what has been guided to by your competitors which have yet to report first quarter results. Do you think that your strong performance in the first quarter there, is it more indicative of the industry overall holding momentum from the fourth quarter to the first? Or do you think it is more a function of your having gained share?

I don't know that I could give you an absolute answer on that. But what I would say is that it's clearly driven by the double-digit growth that we're getting on the Installer side of the business. As I mentioned in my remarks, we have seen double-digit growth there for four quarters now, and we feel quite good about the job that our teams are doing in growing that business. So we'll have to wait and see what the rest of the industry reports. But the Installer business has been and continues to be pretty healthy for us, and our expectation is that it will continue to be that in the quarters ahead.

Okay. And then, gross margins were talked about a lot, but it seems that expense growth may also be accelerating. The year-over-year change in SG&A was much faster in the first quarter than in the fourth quarter, despite the fact that sales growth was fairly similar. So what is driving the expenses higher at this stage? And is it more of a temporary factor, or is it something that is likely to remain with us?

I don't think it's anything significant. Certainly, a part of that is increased fuel costs that we are absorbing. And at this point, we had less than 1% of the headcount that we reduced added back to support the 14% sales growth. So we have to continue to be focused on the service to our customers. We're going to have an expense increase, I wouldn't expect to see it at 9%. But then, it also depends on the level of revenue growth that we see. You will continue to see improvement in the percent of sales on the SG&A side. I can say that, I think, with confidence, but what percent increase in the total category, you're going to see, we just can't give you an answer.

Just a little more color, Jerry mentioned the fuel cost. It was several million dollars in the quarter. So it was significant, it was material.

Your next question comes from the line of Michael Montani of ISI Group.

Just had actually two. The first was on the pricing side. Looking out for this year, obviously taking the sales guidance up effectively by 3%, it looks like, based on the pricing into you all, which seems to be about 1% or less that, that would be largely driven by volume. Can you just talk about, I guess, in terms of, first of all, input pricing that you're seeing from your vendors, how does that compare to what you had planned at this point and what is your outlook for the rest of the year in light of the 3% increase in the sales guidance?

Mike, I'll take that. In terms of what we expect for the remainder of the year, at this point, we would say that there'll be more price increases coming over the remainder of the year than what we've seen through the first quarter. We hear discussions and conversations today that a number of the vendors are looking for some price adjustments in and around the midyear time frame. And we have some idea of the range in most cases, so our expectation is that we'll see more impact as the year progresses. But our expectation in the guidance is that we'll continue to enjoy reasonably healthy unit growth as well.

And the other question I have was on vendor rebates and just wondering if you can give us an update there? I noticed, obviously, a little bit of growth in inventory, but not a lot. Is there anything you can say with respect to what you might have seen so far this year and what your outlook is?

Mike, we were basically flat in what we accrued for in the first quarter. We expect for the year to be up less than 10% in rebates for the whole company, and we accrued that and we were right at 25% in the first quarter based on the best estimates we can make for the full year. We're not going to grow our inventory to gain incentives. So if business continues strong, we'll hit those incentive targets just by the share purchases to support those sales.

Your next question comes from the line of Brian Sponheimer of Gabelli Capital [Gabelli & Company]. Brian Sponheimer - Gabelli & Company, Inc.: It's Brian Sponheimer. I want to stay in pricing here for a second. So if we assume that inflation is going to pick up and you're going to have to pass on some pricing as the year progresses, what mechanisms do you have to potentially keep margins flat? Or are we really looking at operating profit dollars staying flat while margins decline?

I don't -- in terms of what mechanisms, I think as price increases flow through the channel, we'll have an opportunity not to just pass along the price increase, but maybe to do some adjustments in the process. So our hope and expectation, frankly, is that we will start to show some stability on the gross profit line and then continue to do a pretty decent job on the SG&A line. But we'll just have to wait until we get the opportunity to make some of those adjustments. Brian Sponheimer - Gabelli & Company, Inc.: Okay. And just in discussions with your installer group in the Automotive side, and obviously there has been a supply disruption for a week, parts coming out of Japan. Is there any business at least for 2Q or 3Q that you think you can pick up, whether it's -- it's obviously a warranty work, whether it's on the customer pay or any dealer business that you may benefit from?

Well, we won't pick up anything on the warranty side, Brian, because they have to use OE part from their channel. But on the customer pay, if there are some supply disruptions, and we do have an opportunity there and we have an opportunity both through our NAPA AutoCare and Major Accounts side of business. And also, if there are disruptions through the OE channels, we have an opportunity with the dealers for non-warranty repair work. So we think that may be a positive for us to one degree or another in the quarter or two ahead. Brian Sponheimer - Gabelli & Company, Inc.: Okay. And just one more, if I may. You had a very noticeable ad campaign for a sporting event during the first quarter of this year. Is that something that we can continue to see throughout the remainder of the year and maybe a larger pickup in national advertising versus, say, radio or local television?

Well, first of all, I'd complement our team on the NAPA side that worked with the agency to create those ads. We've heard they're a bit edgy, but we also know that they drove awareness quite well. So I do think they're encouraged by what they saw in the results, and you may see a bit more. But you won't see anything dramatically more. And then you'll see a lot of local advertising over the course of the year as well. But all geared toward playing up the idea that our people that work on our stores are pretty knowledgeable. They're good parts professionals, and we're proud of them, and we want to tout that fact.

Your next question comes from the line of Keith Hughes of SunTrust.

Within Motion Industries, as you look at your various end-user markets, are there any that have been underperforming that could ramp up? I think a little bit of petrochemical, which I think you do some there. But is there anywhere that's -- you could see things improve over the next several quarters?

Well, the one area across our entire customer set, the one area that continues to be challenged is any of the industries that are related to commercial or residential construction. So we don't anticipate any material change in the demand patterns in those areas. Conversely, we do think that there are several that we could see continued strength and perhaps even a little further strengthening as we go forward. Petrochem would be one. Some of the oil exploration-related businesses could be another. Some of the infrastructure-related businesses that might be positively impacted as we get into the warmer weather and see more of that work being done. So we continue to remain quite optimistic about the prospects in that business over the remainder this year, honestly.

On the residential, commercial construction, have you ever been able to narrow down how much of sales that represents?

No, because it's direct and indirect. So no, we don't have a number for you.

But most of it would be in Electrical and in Motion, correct?

Yes, that's right. Although I should say Automotive would have that too, because we deal with a lot of independent contractors on the Automotive side.

Your final question comes from the line of Bill Selesky of Argus Research.

I just had a couple of quick questions. With reference to the earnings per share guidance for fiscal 2011, does that assume any buyback activity, or would buyback activity be incremental?

That's got the buyback numbers in there.

Okay. And I wanted to ask a question about inflation. Can you tell me what you guys are seeing as far as price increases going forward through the remainder of 2011? Or what your forecast might be for inflation?

We can't give you an absolute forecast or one number. What we can tell you is that there is more discussion going on right now than what we have seen in some time in terms of vendors proposing and needing price increases. We do think we will see more of an impact from inflation as we work our way through the remainder of the year. Much of it, I think will come in the second half of the year, Q3 and Q4.

Okay. And I just had one last question as it applies to headcount. I think back in 2010, Jerry might have mentioned it, you added back maybe 1% to headcount. And so far, year-to-date, I think you mentioned 0.7% of an increase due to recent acquisitions. Could you say how that would turn out by the end of the year?

Well, unless we make additional acquisitions, I mean, our intent is to keep that headcount growth that we took out, out of there. And unless we, an additional acquisition or two depending on the size could add to that number, but I don't see it growing over 1% again in 2011.

And there are no further questions. I would like to hand the floor over to management for closing remarks.

Thank you, Andrea. We appreciate each of you joining us on the call today. We're grateful to those of you that continue to support and have an interest in Genuine Parts Company. We look forward to talking to you when we release our second quarter results or if anything happens of any significance prior to that. Have a good day.

Thank you for your participation. This concludes today's call. You may now disconnect.