Genuine Parts Company (GPC) Q1 2012 Earnings Report, Transcript and Summary

Good morning. My name is Jodie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company First Quarter 2012 Earnings Release Conference Call. [Operator Instructions] I would now like to introduce Ms. Carol Yancey, Senior Vice President of Finance. Please go ahead.

Thank you. Good morning, and thank you for joining us today for the Genuine Parts First Quarter Conference Call, where we'll discuss our earnings results and the outlook for the remainder of 2012. Before we begin this morning, please be advised that this call may involve forward-looking statements regarding the company and its businesses. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. We will begin this morning with comments from Tom Gallagher, our Chairman and CEO. Tom?

Thank you, 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 be with us this morning. As we customarily do, Jerry Nix, our Vice Chairman and Chief Financial Officer, and I will each handle a portion of the call. And we're especially pleased to have Paul Donahue, our recently elected Genuine Parts Company President, with us as well. And once Paul, Jerry and I have concluded our remarks, we will look forward to answering any questions that you may have. Now earlier this morning, we released our first quarter 2012 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 sales for the quarter were $3,181,000,000, which was up 7%. Net income was $146.3 million, which was up 16%. And earnings per share were $0.93 this year, compared to $0.80 in the first quarter of 2011, and the EPS increase was also 16%. So we are pleased that the sales and earnings momentum that we saw throughout 2010 and 2011 continued on into the first quarter of this year. As a result, we feel that we're off to a good start to the year, and we look forward to another solid performance from the Genuine Parts team in 2012. A review of the results by business segment shows that our industrial operations continue to produce the largest increases. Motion Industries, our industrial distribution business, was up 12% in the quarter. This is on top of their 24% increase in the first quarter of last year, so it was a tough comparison. But they handled it well, and we continue to feel good about the progress being made by our Industrial operations. As we look at their numbers in a bit more detail, it shows that 11 of their top 12 product categories are running double-digit increases year-to-date. And as a group, these 12 categories are up 15% through the first 3 months. And Motion had strong results from their top 10 industry segments, as well. As a group, these top 10 segments are up 12% through March, and this is on top of a combined 30% increase in the first quarter of last year. The top 20 individual customers have a collective year-to-date increase of 14%, and additionally, the solid results are consistent across all geographic areas as well. So from a number of different viewpoints, the Industrial business remains strong currently, and with the industrial production and capacity utilization indices each continuing to remain at healthy levels and with good execution of their internal growth initiatives, we're optimistic about our prospects in the Industrial segment over the next several quarters. Moving onto the electrical/electronic segment. EIS was up 5% in the quarter. This is down from the 10% increase that we reported in the fourth quarter and well off of the full-year 2011 increase of 24%, but it's important to note that our first quarter 2011 increase of 39% was our strongest quarter of the year by far. So it was a tough comparison. But with that said, there has been a moderation in demand for our Electrical/Electronic business over the past 2 quarters. On the electrical side, this is primarily attributable to a slowdown in the Renewable Energy segment. And on the electronic side, it is largely due to a slowdown in the Contract Manufacturing segment. Our expectation is that these 2 segments of our business will lag the overall business through the first half of the year, but they will then start to show a gradual recovery over the remainder of the year. Importantly, the core segments of our Rlectrical business, such as Motor Repair and OEM manufacturing are, performing well as is the Wire and Cable business. Additionally, our top 25 customers combined for an 11% increase in the quarter, which is a solid performance in our opinion, and we're also pleased to see that our average daily sales showed good sequential improvement as the quarter progressed, which is encouraging, as is the fact that the Institute for Supply Management Purchasing Managers Index continues to be well above 50 through March, which should indicate favorable overall end market conditions in the quarters ahead. And as a result, we continue to feel good about our prospects for reasonable growth in this business over the remainder of the year. Moving on to Office Products. It was another challenging quarter for S.P. Richards, and they ended the first 3 months of the year down 1.5%. After generating positive results over the first 3 quarters of 2011, we saw a slowdown in demand across the industry during the fourth quarter of 2011, which is now carried over to the first quarter of this year. And looking at the results by customer segment, the Mega Channel actually turned in the strongest performance in the quarter of plus 1%, which was good to see, but this was offset by a 2% decrease with the independent office products resellers. On the Products side, cleaning and break-room supplies continue to grow at double-digit rates, while office supplies and furniture were down slightly, and technology products were down mid-single-digit. So clearly, conditions in the office products industry remain challenging, and the first quarter results fell a bit short of our expectations. However, while we don't anticipate any significant near-term improvement in the end market conditions, we do continue to feel that our Office Products team will end the year with a slight sales increase, with the second half performance being a bit stronger than the first half. So that's a quick recap of the non-automotive segments. And at this point, we'll ask Paul to comment on the automotive operations. Paul?

Thank you, Tom, and I would add my welcome to each of you and say that I'm pleased to join Tom and Jerry this morning to review the first quarter performance of our Automotive business. As you may know, this is our largest segment. We ended the first quarter up 6%. This follows a 6% increase in the fourth quarter and an 8% increase for the full year in 2011. So our Automotive operations continue to perform well. We'd like to point out that these results are essentially same-store sales increases, and this demonstrates the solid progress being made by our Automotive management team. Let's begin with the result of company-owned store group. We can tell you that our commercial business continues to outperform our retail business, although we did see a marked improvement in retail this quarter relative to the trend experienced in 2011. Turning to our retail business first. The quarter ended up 6%. This compares to a 1% increase in 2011, and we are encouraged by the strength we saw in our retail business in the first quarter. On the commercial side, the quarter ended up 7%, which is fairly consistent with the 8% growth we reported in 2011. And we're encouraged by the strong and consistent growth in our commercial business. Our NAPA AutoCare and our major account business showed another quarter of double-digit sales growth, and this follows back-to-back years of double-digit increases in these 2 very important commercial initiatives. The steady progress in each of these businesses continues to drive our overall commercial sales growth. Our fleet business was up mid-single digits again, in the first quarter, which is consistent with the growth we saw in this channel all of last year. The underlying factors for the Automotive aftermarket remain positive. A bit of an unknown is the impact of fuel cost, and while fuel prices were up in the first quarter, we've seen the average cost of a gallon of gasoline nationwide has fallen the past 2 weeks. We've yet to see a significant impact either way, but it's a factor that we'll continue to monitor. So we continue to feel very positive about the progress being made by our Automotive management team, and we begin the second quarter of the year optimistic for continued growth. Lastly, we'd like to discuss our acquisition of Quaker City Motor Parts, which was announced back on February 28. Quaker City is a long-standing NAPA distributor and the last non-GPC NAPA member. They're headquartered in Middletown, Delaware, and service approximately 270 NAPA parts stores across the mid-Atlantic region of the U.S. We expect to close on the acquisition May 1, 2012, and we're excited about the opportunity this acquisition will produce for the Automotive Parts group. Quaker City is an important strategic fit, and it offers an excellent growth opportunity in the mid-Atlantic area. They bring with them an experienced and talented management team, and we are pleased to bring onboard such a high-quality organization. So that completes our overview of the Automotive business in the first quarter. And at this time, I'll hand it over to Jerry for a review of the financial results. Jerry?

Thank you, Paul. Good morning. We appreciate you joining us on the call today. We'll first review the 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. A review of the income statement showed the following: Total sales in the first quarter were up 7% to $3.2 billion, and this follows a 7% sales increase in the fourth quarter of 2011. And this is the kind of steady and consistent growth we look for in our businesses, and we're excited about the opportunity to improve on this record again at 2012 and beyond. Gross profit improved by 8% in the first quarter and was 28.9% of sales, up from 28.5% in the first quarter of 2011. We've made good progress on improving our gross margin over the last few quarters, including the most recent quarter. We expect our ongoing initiatives to effectively manage supply chain costs, increase distribution efficiencies and maximize our pricing potential to continue -- to generate continued gross margin expansion over a year -- on a year-over-year basis for the next several quarters. Our management teams are committed to this effort. We currently project a 10- to 20-basis-point increase in gross margin for the full year. For the year, our cumulative pricing, which represents supply increases to us, was a negative 0.2% in Automotive, plus 0.3% in Industrial, plus 2.1% in Office Products and a negative 1.0% in Electrical. Turning to SG&A. Total expenses were $691 million in the first quarter and improved to 21.7% of sales versus 22.1% in 2011. We're pleased to show the continued improvement in controlling our expenses again this quarter as we made solid progress on this line in 2010 and 2011. We attribute the improvement to the combined benefits of greater leverage associated with our sales growth and ongoing measures to control costs. For the last few years, we've benefited from cost-saving initiatives in several areas, including warehouse and infrastructure, freight and utilities, among others. In addition, after a 12% workforce reduction in '08, '09 timeframe, we've only added back another 2% to 3% to our labor force, including acquisitions, over the last 2 years. Without the acquisitions, our headcount is actually down about 1% over the same time period, which we believe is a pretty good indication of the excellent job by our entire organization to effectively control costs. This also reflects the positive impact of our investments in technology over the last several years. These efforts have been meaningful to our overall results, and for the first quarter of 2012, the cost savings across all our expense categories was approximately $10 million. Effective cost management is an ongoing priority for us, and we will remain focused on these efforts throughout the year. Now let's discuss the results by segment. Automotive had revenue in the quarter of $1,493,500,000. That represents 47% of the total and is up 6%. They had operating profit of $114.6 million, that's up 17%, so a strong operating margin expansion from 7.0% to 7.7%. The Industrial group had revenue in the quarter of $1,121,200,000, representing 35% of the total and was up 12%. They had operating profit of $84.3 million, up 28%, so very nice margin expansion from 6.6% to 7.5%. Office Products had revenue in the quarter $426.2 million, representing 13% of the total, down 1.5%. Operating profit, $37.5 million; up 0.3%, so solid margin expansion considering the sales decreased from 8.6% to 8.8% of sales. The Electrical group had revenue in the quarter $147.1 million, represents 5% of the total and is up 5%. Operating profit of $12.0 million, up 19%, and so excellent margin expansion from 7.2% to 8.1%. Total operating profit increased by 17% in the first quarter, and operating profit margin improved 70 basis points to 7.8% from 7.1% in the first quarter of 2011. This is tremendous progress for us and we are especially encouraged that all 4 business segments contributed to the gain. We're optimistic that we can show continued year-over-year operating margin expansion in the quarters ahead and currently expect our overall improvement -- an overall improvement of approximately 20 to 30 basis points for the full year. We had net interest expense of $4.7 million in the first quarter, and this is down from 2011 due to lower interest rate on our new $250 million debt agreement that was signed in November 2011. We'll discuss our debt position later, but we currently expect our net interest expense to be approximately $20 million to $22 million for 2012. Other category, which includes corporate expense, amortization of intangibles and non-controlling interest, was $15.5 million expense in the first quarter, and that's up from $12.9 million in the first quarter last year. Increase primarily reflects higher expenses for benefits, legal and professional costs, as well as the increase in amortization relative to last year. We continue to project the total of the category to be in the $60 million to $70 million range for the full year, which is consistent with 2011. For the quarter, tax rate approximately 35.9%, compared to 34.1% for the first quarter of 2011. Primarily the increase in rate is related to a favorable adjustment recorded in the first quarter of last year associated with the expiration of the statute of limitations related to international taxes. Currently, we expect our full-year tax rate for 2012 to be approximately 36.5% to 37%. Net income for the quarter, $146.3 million, up 16%. EPS improved to $0.93, compared to $0.80 last year, and that's also up 16%. We're very proud of the hard work by all of our associates at Genuine Parts Company. They certainly deserve the credit for helping us achieve another quarter of strong earnings growth. Now let's touch on a few key balance sheet items. Cash at March 31 of $424 million remains strong, although it's down 9% from $466 million in March last year and down 19% from $525 million at December 31. Decrease in cash reflects a net impact of the increase in earnings, effective asset management and cost reductions but is offset by cash used for the 10% increase in the dividend, capital expenditures, acquisitions and share repurchases over the last 12 months. In the first quarter, we used more than $200 million in investing activities, primarily for the Exego investment in early January and the Light Fab acquisition by EIS on February 1. Accounts receivable, $1.61 billion at March 31 increased 8% from March 31 last year, and that's slightly higher than our 7% sales increase for the first quarter. Our focus is on growing receivables at a rate less than revenue growth, and we'll continue to emphasize the improvement in this area over the balance of the year. I would point at that we remain satisfied with the quality of our receivables. Inventory at 3/31, $2.26 billion, and that's flat with inventory December 31 last year and up just 1% from $2.24 billion at March 31, 2011. Our team is doing a very good job managing our inventory levels, and we remain focused on further improving our position as we move through 2012. Accounts payable balance at March 31, $1.56 billion. That's up 8% from December 31 and is up 14% from March 31 last year. Increase in trade payables reflects the impact of extended payment terms and other payables initiatives negotiated with our vendors. Improving our payables has been a priority for us over the last couple of years, and as a result, our date in payable has improved over this period. We remain pleased with the positive direction of this important account. Working capital, $2.67 billion at March 31, is up 7% from March 31 last year as reported but is down 3% after adding back the $250 million current portion of debt presented last year, which was converted and reclassified to long-term debt in the fourth quarter of 2011. So we're encouraged with our ongoing progress in managing working capital, and our balance sheet is in excellent condition. Total debt at March 31, 2012 remains unchanged at $500 million. The first $250 million of debt is due in November 2013, and the debt for the new agreement signed in November of last year is due in November 2016. Total debt to total capitalization March 31 was 14.7%, and we're comfortable with our capital structure at this time. We generated solid cash flows again in 2011 and expect to improve on that in 2012. We currently expect to generate cash from operations of approximately $700 million to $750 million for the year and free cash flow after deducting capital expenditures and dividends should be approximately $300 million to $350 million. We're encouraged by the continuing strength of our cash flows, and we remain committed to our ongoing priorities for the use of our cash, which we believe serve to maximize shareholder value. Our first priority is the dividend, which we've paid every year since going public in 1948 and have raised 56 consecutive years. As you may recall, in our February board meeting, our directors approved a 10% increase in the company's annual dividend for 2012 to $1.98 per share from $1.80 per share paid in 2011. New dividend represents approximately 55% of our 2011 earnings per share and is our second consecutive year to raise the dividend by 10%. Our other priorities for cash include the ongoing reinvestment in each of the 4 businesses, strategic acquisitions where appropriate and share repurchases. Our investment in capital expenditures, $16.9 million for the first quarter, up from $14.5 million invested in the first quarter last year. We continue to expect our CapEx spending for the full year to outpace 2011 and be in the range of approximately $110 million to $125 million. The vast majority of these investments will continue to be weighted toward productivity-enhancing projects, primarily in technology. Appreciation, amortization, $23.0 million in the quarter, compared to $22.5 million last year, with the increase due to the growth in capital spending. We expect D&A to be approximately $90 million to $100 million in 2012. Strategic acquisitions continue to be an ongoing important use of our cash and are integral to our growth plans for the company. In addition to Automotive's investment in Exego and the Quaker City acquisition covered by Paul, we made a small acquisition in the Electrical business in the quarter and anticipate additional opportunities for acquisition over the balance of 2012. We remain disciplined in our approach to this element of our growth strategy and continue to target those bolt-on types of acquisitions with annual revenues in a $25 million to $125 million range. We repurchased 2.4 million shares of our common stock in 2011 under the company's stock repurchase program, with only minimal purchases thus far in 2012, and have approximately 13.5 million shares authorized and available for repurchase at the current time. We have no set pattern for these repurchases but expect to remain active in the program over the balance of 2012 as we continue to believe that our stock is an attractive investment and combined with the dividend provides the best return to our shareholders. In closing, we want to again thank all of our dedicated GPC associates for their hard work. They truly are the best. We're pleased with our first quarter performance and optimistic for continued progress in our results over the balance of 2012. We're encouraged by the many good things happening throughout our organization that will support our growth, and with a strong and healthy balance sheet and solid cash flows, we are well positioned to further maximize our return to shareholders. And that concludes our financial review, so I'll return it back to Tom.

Thank you, Jerry and Paul. So that's a recap of our first quarter results, and we're pleased to start the year with a solid performance, and we feel that we are positioned to produce another good year in 2012. As far as the remainder of the year is concerned, we remain comfortable with the full-year revenue guidance that was provided on our February call. At that time, we said that we expected Automotive to be up 5% to 7%, Industrial and the Electrical/Electronic to each be up 8% to 10%, and Office Products to be up 1% to 3%. Through the first quarter, Automotive is right in, line, Industrial is a bit above, and Office Products and Electrical are each a little bit below. However, we continue to feel that these are generally appropriate expectations at this time, and this would give us a full-year revenue increase of 6% to 8% for the entire company. On the earnings side, our prior guidance was for earnings per share to be $3.85 to $4. And at this point, we feel that it would be appropriate to raise this to a new range of $3.93 to $4.05, which would be up 10% to 13%. Additionally, assuming that we close on the Quaker City Motor Parts transaction on May 1 as planned, this would add approximately 1% to the full-year revenue and $0.04 to $0.05 to the earnings numbers. So that will conclude our planned comments this morning, and we would like to now address any questions that you may have. And we'll turn the call back over to Jodie.

[Operator Instructions] Your first question comes from the line of John Murphy from Bank of America Merrill Lynch.

Elizabeth Lane on for John. My first question is regarding the recent production disruption of CDT and Nylon 12. And I'm just wondering if a potential global shortage of fuel lines and brake lines and other auto parts that use Nylon 12 is likely to have any kind of material impact on your NAPA business?

No, it will not impact our business in a material way. At this point, we don't see any supply disruption. That's not to say we won't experience some as we move through the next few months. But those 2 product categories are not large categories for us.

Okay. Great. And second, it looks like the Aftermarket Auto Parts business is doing pretty well, but we keep seeing continued weakness in the tire replacement market in the U.S. So what do you think is the disconnect there? And why are people buying certain replacement auto parts but not tires?

I think it may have something to do with the financial situation of the consumer, and if they can defer any maintenance type items, they'll defer it. And on the things that we see, the outbound flow, it's largely nondiscretionary and we see the strength there.

Your next question comes from the line of Scott Ciccarelli from RBC Capital Markets.

This is Patrick Palfrey sitting in for Scott today. I guess, first off, could you talk a little bit about why gross margins were so strong, especially on the NAPA side of business. Industrial, I understand because it has more leverage, but NAPA hasn't proven to work that way, at least in recent times.

Patrick, this is Jerry. I'll take that. Actually, gross margins in the Automotive were not up for the quarter. The other 3 segments' gross margins were all up, and some of that -- the strong operating margin in the Automotive is strictly from the controlling of their SG&A-type expenses. Some of the contribution in the gross margin improvement in our Office Products -- they had a nice increase in gross margin, and they did some year-end buys. And you heard our numbers, they had some inflation in the first quarter, so that improved their gross margin. And we have specific initiatives in all the businesses and they just started to pay off in the first quarter. So we did see the 40-basis-point improvement in gross margin, but that was not a contributing factor to the strong operating margins in Automotive.

Okay. And then I guess, just another question, if I may. Within the Automotive business, could you talk about the cadence of the quarter and maybe how the mild weather and gas would have affected sales trends?

The quarter was relatively consistent. The weaker of the 3 months was February. The other 2 months were pretty consistent. And then as far as weather impact, we did see some impact on products like rotating electrical and some under-hood product, but the offset might have been the fact that we really had quite a nice quarter on the retail side. So the mild weather might have actually helped the retail business, in our opinion, anyway.

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

A couple of questions. First of all, if you think about the DIY and the commercial business, just to try to understand the relative size of DIY. To the extent that DIY picked up 5 percentage points or so from Q4 to Q1 and the aggregate sales increase was roughly unchanged, is it that small a piece of the business that it can't really move the needle or is it a rounding factor? Or is there a third issue that would have kept the number flat even though DIY got down as good as it did?

No. The DIY business, I think you probably will recall, is 20% to 25% of the total business and the remainder of the business is on the commercial side. Our commercial business performed well in the quarter. Additionally, we feel good about the progress that was made, especially as Paul said in our 2 key commercial businesses: Auto Care and major accounts, double-digit increases. So it's just the way the numbers came together.

Got it. And then within the Automotive business, I'm interested what you saw. If you think about failure, and you think about maintenance and you think about discretionary, obviously discretionary numbers aren't going to be that big of a business for you in general. How did the trend look in the quarter and how did it concur to what might have seen in 2011?

The trend on what, Matt? I'm not sure I got the question.

I guess the mix among failure-related products, maintenance-related products, and then any discretionary that you might sell, where you saw the relative strength within the Automotive business.

I'll try to take it from the latter part back. The product categories that performed well for us in the quarter, quite well, were things like brake products, undercar products, showed good strength as the quarter progressed. And then as I mentioned, things like rotating electrical and some of the underhood categories were softer. But the things that performed pretty well for us were, in our opinion, non-discretionary-type items that are things that needed to be replaced for vehicle safety or performance.

Got it. And then the final question. Your read on the Office product sector over the past several quarters has been spot on. That being said, it was very interesting that the Megas really showed that first signs of life for quite a while and the independents maybe more of a problem this quarter. If you think about what drove the Megas to the extent that you can discern, whether it's full forward on the manner of restocking, or whether there might be a more sustained recovery evident in your businesses?

We actually don't have a read on that, Matt. We're anxious to see the reports as they come out from the Megas and see how their contract segments all perform in the North American delivery segments. But you know they strengthened a bit, comparatively speaking, in the fourth quarter. They range from being down 1 flat to up 2, which was a stronger performance than what any other individual companies had experienced prior. So we think that maybe they're doing a pretty good job right now. They're comparing -- in our case, they're comparing against some subdued results in the prior quarter. So we don't know enough about it to know whether this is a trend or whether it's just the way it came together in the quarter.

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

I was going to ask on the Automotive side just following up on weather, if I could for a moment. Historically, when you guys have seen perhaps bit more moderate temperatures in the winter, would you say that, that potentially could have a slowing effect as we get into the spring because there may not be as much breakage, or is that sort of premature to speculate on?

I think it's a bit premature to try to draw any conclusions like that. The best thing that can happen for the Aftermarket is that when we get into this summer, we get some extreme heat, and that will create some additional demand in the Aftermarket.

Okay. And then I guess if I could follow up for a minute. On AP to inventory ratio, I mean, you guys continue to make progress there, now 66%, I guess, in total. Can you give us a feel for maybe where the Automotive side of the business might be and how you would compared to some of your competitors there, like Autozone. Is it 110%?

Mike, this is Jerry. We don't have that information to give you, but you're comparing apples and oranges there. We're a wholesaler with local distribution centers, and we continue to push up vendors for extended terms and we'll continue to do so, and some initiative we have there. But we are just going to continue to push it out, and we don't have a specific target. We don't know where it will take us. But every quarter, we try to do better. And I don't think it's reasonable for us to expect to take our terms out as far as some of the retailers have.

Okay. And just the last question I had was on Quaker City. Is there anything you can share at this point in time as it relates to potential purchase price or multiples on that?

No, not at this time. Maybe as we get further along, but not currently.

Your next question comes from the line of Brian Sponheimer from Gabelli and Company. Brian Sponheimer - Gabelli & Company, Inc.: Just a question on Office Products here. You really had an outstanding performance from an operating profit perspective in the quarter. What levers are you pulling there to help keep that margin above that 8.5% level? And how sustainable do you think that, that is going forward in maybe a 1% to 2% GDP growth-type environment?

I'll try to take that one, Brian. I'll preface my comments by saying that from an operating point of view, we think the Office Products team has done a terrific job and not just in this quarter but in the past year or so. If we get any kind of top line growth in that business, they're going to do a heck of a job for us. Among the things that they've done a good job on would be managing their margins. They're showing good progress in that initiative. They've done a very good job on expense control in a number of different areas, and we think that, that will continue. And if we can get revenue growth even in the low single-digits with all the good work that's been done over there on all these other categories, I think that the margin will continue to show some improvement for us.

Brian, I'd also point out that the cyclicality of their business, the first quarter and the fourth quarter are strongest operating margin quarters. So if we get to the second quarter and they drift under 8%, that doesn't mean that they're not as good a job. Brian Sponheimer - Gabelli & Company, Inc.: No, I certainly -- we've got a long history of seasonality here. I understand. And just talking about share repurchases, very light in the first quarter. Anything driving that? Was it giving working capital build out, it just wasn't a priority?

Couple of things there, Brian. Certainly, we've been conservative with our balance sheet and our cash, knowing that we have the acquisition of Quaker City that we expect to close on May 1. And then we have another acquisition, a smaller one that we're looking at. We will continue to buy shares and our intent for the year is to buy at least enough shares to cover any options that we grant. And the board granted about 1.1 million, 1.2 million shares in options at their last meeting. And so we will still say it is fully our intent to buy at least that many shares in the year. And we do try to buy on pullback, and if we see that we'll be more active than we are at the current time. Brian Sponheimer - Gabelli & Company, Inc.: Great. And just one number that I missed. The pricing for Auto within the quarter, was that up 1%? Did I hear that correctly?

That was down 20 basis point.

Negative. Negative.

[Operator Instructions] Your next question comes from the line of Keith Hughes from SunTrust.

This is Judy in for Keith. I just want to clarify on the Quaker City acquisition that you're going to close in May. You said that it's about 1% for the full-year revenue and 4% to 5% for earnings. Was that for the full year?

No, that's not 4% to 5%, that's $0.04 to $0.05.

For the full-year of earnings?

For the impact of the -- from May 1 to the end of the year.

Okay. That's from May 1, fine. Okay. And just to touch back on the Exego acquisition now that that's closed. Are you seeing similar trends there with your core North American market or is there any difference between their commercial and retail, or any areas you can improve there on that acquisition?

If we look at it from a revenue standpoint, of the Aftermarket in North America is a bit healthier heavier than the Aftermarket in that part of the world, but the folks there are doing a good job in view of what the circumstances look like. From an operating standpoint, they continue to do a nice job there as well, so they're performing in line with what our expectations were going into the transaction.

Okay. So you're still looking for maybe about $0.04 to $0.05 contribution from that for this year?

For this year, that's right.

Your next question comes from the line of Mario Gabelli from Gabelli.

Unfortunately, I've been grazing on other calls. How much did you indicate you're paying for Quaker?

We have not given that information out, Mario, and because it hadn't been determined. There's still due diligence going on. We expect to close at May 1. And we'll have some numbers. They will be in the 10-Q that we file in the Subsequent Events section.

All right. And the number that was given in terms of increased earnings, was that largely the range increase in part because of the initial inclusion of this acquisition or was it -- or does that exclude the increased number?

That excludes the Quaker City.

Okay. So that would be -- that Quaker stated incremental to the range that was given earlier?

That's right.

That's right.

All right. And then just to hitchhike on the question of Auto Parts prices, and I'll talk to you, Paul, maybe off the line about the changes in discount structure that may or may not be going on, but what do you think the price increase for the basket of what you're selling would be like in the second quarter and for the full year?

We would think that for the full year, it's going to be positive, not negative, would be our expectation for the full year. And at this point because...

So, Tom, I'm a little confused. In other words, it was negative 0.2% in the first quarter. That will incrementally change and accelerate as you sell the constant mix, constant number of units, it's going to increase revenues?

As the year progresses, and I'd say at this point, Mario, well, we think it would be something between 1% and 2% for the full year.

This is for Jerry. I mean, Jerry, you look at the tale of 2 cities. You read O'Reilly, you read Autozone, they're at 2.3x EBITDA in terms of leverage. Any comments?

We're not looking to match them in leverage. We're pleased with our balance sheet. But I would tell you we may have to incur some leverage with the acquisition of Quaker City.

Yes, I understand. That's for about 2 days. I got it. You're going to be at a billion-dollar run rate in EBITDA this year then?

I hope that's correct.

Well, come on. You've got Quaker State (sic) [Quaker City] coming in. How many stores? How many jobbing stores and how big is the D.C.?

They've got 271 stores that they service, and they've got 6 distribution centers in that mid-Atlantic corridor.

Tom, what percentage of the NAPA system brand do they -- stores -- that are still open other than Quaker? Or is that the last -- that's obviously the last big one?

That is it. This will complete the initiative, that's right.

Okay. So you started this, what, 30 years ago?

There abouts, if not longer.

We deliver and we're persistent.

We've got the drill, Jerry, I just now want to figure out what you're going to do going from Australia to New Zealand to China.

Your next question comes from Michael Montani from ISI Group.

I just had a quick follow-up for you. Was going to ask on the Automotive gross margins, Tom or Paul, if you can just elaborate a bit on why those gross margins were down in the quarter. That seems to be a little bit of change from what last year's then.

No, that's -- I don't believe that statement is accurate. Our Automotive margins, you may recall in prior calls, we said were under pressure. What we've seen is a steady progression, but still not back to the point of stability. And we would expect that we'll see some of that as the year progresses and they're just lagging the other 3 businesses in terms of the progression through this process.

Okay. And just if I could, on Office Products, I mean, obviously the outlook seems more positive, or constructive, for the back half. Is that primarily due to product line extensions or is there certain initiatives, Tom, that you can share with us?

Well, it's a combination of things. There will be some product line extensions that we think will be beneficial. There's some specific sales initiatives that we prefer not to get into on the call, but some pretty impactful, we think, potentially impactful initiatives that will help us as the year progresses. And we are hoping for some stability in the marketplace. The data that we have would suggest that the Office Products industry still is experiencing modest contraction. So we're hoping to see that turn here in the next quarter or 2 but we're not counting on it necessarily. We're trying to do the things that we have direct control over, but we're not in a position to give out specific sales initiatives.

[Operator Instructions] At this time, there are no further questions. I will now turn the conference back over to management for any closing remarks.

Jodie, thank you very much. We appreciate your joining us on the call today and we appreciate your continued interest and support of Genuine Parts Company. We look forward to talking to you in our second quarter conference call, if not sooner. Have a good day.

Thank you. That concludes today's Genuine Parts Company First Quarter 2012 Earnings Release Conference Call. You may now disconnect.