Genuine Parts Company (GPC) Q3 2012 Earnings Report, Transcript and Summary

Carol B. Yancey - Senior Vice President of Finance and Corporate Secretary Thomas C. Gallagher - Chairman, Chief Executive Officer and Chairman of Executive Committee Paul D. Donahue - President, President of The U S Automotive Parts Group and Director Jerry W. Nix - Vice Chairman, Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Finance, Director and Member of Executive Committee

Gregory S. Melich - ISI Group Inc., Research Division John Murphy - BofA Merrill Lynch, Research Division Scot Ciccarelli - RBC Capital Markets, LLC, Research Division Christopher Horvers - JP Morgan Chase & Co, Research Division Bret David Jordan - BB&T Capital Markets, Research Division Matthew J. Fassler - Goldman Sachs Group Inc., Research Division Brian Sponheimer - Gabelli & Company, Inc. Shaun Kolnick - Morgan Stanley, Research Division Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division Efraim Levy - S&P Equity Research Anjali R. Voria - Wunderlich Securities Inc., Research Division

Good morning. My name is Dawn, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2012 Earnings Conference Call for Genuine Parts Company. [Operator Instructions] Thank you. Ms. Carol Yancey, Senior Vice President, Finance and Corporate Secretary, you may begin your conference.

Thank you. Good morning, and thank you for joining us today for the Genuine Parts Third Quarter Earnings Conference Call to discuss our results as well as the outlook for the remainder of the year. 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 filing. 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 to be with us this morning. Jerry Nix, our Vice Chairman and Chief Financial Officer; Paul Donahue, our President; and I will each handle a portion of today's call and once we have concluded our remarks, we'll look forward to addressing any specific questions that you may have. Earlier this morning, we released our third 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 that sales for the quarter was $3,376 million, which was up 3%. Net income was $172.9 million, which was up 14%, and earnings per share were $1.11 this year, compared to $0.97 last year, and the EPS increase was also 14%. After being up 7% in revenue in the first quarter and 5% in Q2, the 3% increase in the third quarter does show deceleration over the past 2 quarters. We were short 1 sales day in the quarter this year, so on a per day basis, our third quarter revenues were up just over 4%. However, with that said, the third quarter results are a bit better on a per day basis, but we did experience a continued decelerating trend in demand in 3 of our 4 businesses, which we'll discuss in a bit more detail in a moment. Despite the softer sales results, we do feel that our team did a good job on the operating side of the business by leveraging a 3% sales increase to a 14% increase in both net income and earnings per share. A review of the results by business segments shows that our Industrial and Electrical/Electronic segments continue to generate the strongest results. Industrial was up 4.5% in the quarter and Electrical was up 5%. Both had challenging comparisons to go against, with Industrial being up 18% in the third quarter of last year and Electrical/Electronic was up 22%. With that said, however, the results in each case were a little lighter than we had anticipated going into the quarter. And looking a bit deeper into the Industrial performance, we see that their top 10 industry segments were up 2% in the quarter. These segments represent a little over 50% of the total Industrial revenues, so they're important to our overall performance. And the 2% increase in the quarter follows a 12% increase in these same segments in the first quarter, an 8% increase in Q2, indicating demand moderation across these key customer categories. Interestingly, the moderation is not consistent across all segments. Industries like automotive, iron and steel and chemicals have remained pretty steady over the first 3 quarters of the year. But then we have seen decelerating growth rates in Equipment and Machinery, Equipment Leasing and Coal segments reflectively feel of the overall economic slowdown over the past several months, as well as a slowdown in global demand for a number of these customers. And we see some of the same inconsistency in the EIS results as well, with Wire and Cable continuing to perform quite well, but then we're more challenged in the Electrical and Electronics segments, primarily in the solar and contract Manufacturing industries. So the current environment is a bit more challenging and choppy for our Industrial and Electrical/Electronic businesses, but the key external demand indicators, industrial production, manufacturing capacity utilization and the Purchasing Managers' Index all remain generally favorable, and our expectation is for each of these businesses to grow 6% to 8% over the final quarter of the year. Moving on to Office Products, we were down 1% in the quarter, which is pretty much in line with the 1.5% decrease in Q1 and the 1% decline in Q2. So no significant movement up or down, although on a per day basis the quarterly Office Products results were positive for the first time this year, which is a bit encouraging. As has been the case all year long, the Mega customers outpaced the independent customers in the quarter, with the Megas growing mid-single digits and the independents declining low single digit. On the product side, the Cleaning and breakroom category grew at mid-single digits, Tech Products were flat, Office Products down just slightly and Furniture was off low single digit. At this point, we don't see any material changes in the overall Office Products environment, with conditions remaining challenging for several more quarters at a minimum, and our expectation is for fourth quarter sales to be in a range of down 1% to up 1%, which would put S.P. Richards down 1% for the year. So that's a quick overview of the nonautomotive segments and at this point, we'll ask Paul to give you an update on our Automotive business. Paul?

Thank you, Tom. I'd like to add my welcome to each of you this morning. I'm pleased to join both Jerry and Tom and to have the opportunity to provide with you all an update on the third quarter performance of our North American Automotive business. Automotive is our company's largest business segment and we ended the third quarter with sales up 2.5%. For the 9 months ended September 30, our Automotive business is up 4% over the same period in 2011. Our sales pattern in the third quarter was very similar to our second quarter results. In fact, when we account for the 1 less selling day in the third quarter this year versus 2011, total automotive sales were up 4%, in line with the 4% we delivered in the second quarter. I will say our overall sales were softer than what we expected at the beginning of the quarter. We believe there are a number of factors impacting our industry, including the mild winter temperatures experienced in the northern half of the country, along with the ongoing uncertainty in the economy. Fortunately, we'll begin to annualize the impact of the weather late in the fourth quarter and a more normalized winter weather pattern should serve to improve demand. In addition, we continue to believe that the underlying long-term fundamentals in the automotive aftermarket remain strong, and the industry will continue to benefit from the solid growth opportunities this offers us well into the future. The aging vehicle population now reported to be close to 11 years, the continued growth in the number of older vehicles and the positive year-over-year miles driven numbers bodes well for all of us in the industry. And we feel NAPA is well positioned to capture its share of the increase in demand generated by these positive trends. When we further analyze our third quarter results, the sales momentum we began to see in late June and early July softened in the middle of the quarter before bouncing back in September. Our average daily sales in the month of September were our strongest since back in March. As a result, our total automotive revenues, adjusted for 1 less selling day, improved 4% for the second consecutive quarter. The components of this revenue growth include a 1% same-store sales increase, the positive sales contribution from our acquisition of Quaker City Motor Parts, offset by a slight loss due to currency exchange. Regarding the increase in our core growth, it is important to point out that our results varied significantly by region of the country. The traditional cold weather regions, our Central, Midwest and Eastern divisions, which comprise about 1/3 of our overall business, consistently underperformed the other regions across the U.S. This likely is a direct reflection of the impact of the mild winter in these colder climate areas. The mild winter temperatures also impacted key weather-sensitive product categories in these regions, products like wipers, brakes and ignition products. We believe this type of regional disparity and product category impact is consistent across most of the industry. It also serves to reason that a return to a more normal winter weather pattern should drive a potential upswing in demand in the upcoming winter months. Moving along, we're very pleased with the positive contribution from our Quaker City Motor Parts acquisition. Their third quarter and year-to-date sales contribution was in line with our expectations. We have a strong team in place, our transition plans are on track and we are excited with the opportunities that Quaker City will provide to us in the future. Turning to the results for our company-owned store group. In the quarter, our Commercial business continued to outperform our Retail business. Taking a look at the Retail business first, the quarter trended down 1%, which follows a 2% decline in the second quarter. Our average number of invoices per day was down slightly, while our average dollar value increased. On the commercial side, in our company-owned stores, the quarter ended up 1%, consistent with our growth in this segment in the second quarter. Our average number of invoices was flat, while our average dollar value per invoice increased. So we're somewhat encouraged to see that while our overall store traffic is down slightly, our average order size is increasing. It's also encouraging to see both our retail and our commercial businesses showing steady results on a sequential basis. Likewise, this is reflected in both our NAPA AutoCare and Major Account business results as well. Sales for these 2 important customer groups were up low to mid-single digits in the third quarter. We're pleased to report we reached a record number of NAPA AutoCare centers in the third quarter, which bodes well for future revenue growth. So in summary, demand in the automotive aftermarket in the third quarter proved very similar to what we experienced in the April to June quarter. We do remain bullish about the core fundamentals impacting the automotive aftermarket and our Automotive Parts Group. These core fundamentals, combined with our own internal growth initiatives, provide us ample growth opportunities for the fourth quarter and well into the future. In light of that, our expectations for our North American Automotive Parts business is to generate a fourth quarter sales increase in the range of 6% to 8%. So that completes our overview on the Automotive business in the third 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 third quarter and 9-month income statements and segment information, then touch on a few key balance sheet and other financial items. Tom will come back to wrap it up, then we'll open the call up to your questions. View of the income statement shows the following: Total sales at a record high of $3.4 billion for the third quarter, an increase of 3% from last year and this reflects a 4% increase on a daily sales basis. For the 9 months, total sales of $9.9 billion, up 5% from 2011. And you've heard from Tom and Paul, the sales environment remained challenging in the quarter, but we're proud of our team for working through these difficult conditions and reaching another record sales level for the company. We remain focused on achieving continuous, steady growth in the fourth quarter for 2012 -- of 2012 and beyond. Gross profit for the third quarter, 28.9% of sales is even with the gross margin achieved in the third quarter of last year. For the 9 months, gross margin of 29.0% was up 30 basis points from the 28.7% from the same period in 2011. So we made nice progress on improving our gross margin for the year, although the third quarter's a little bit more challenging, due to the competitive sales environment and slightly lower levels of vendor incentives earned for the quarter. We'll continue to look opportunities to expand our gross margin through ongoing initiatives to effectively manage supply chain cost, increase distribution efficiencies and maximize our pricing potential. Our management teams across all of our businesses are committed to this effort. For the year, cumulative pricing, which represents supplier increases to us, was a negative 0.3% in automotive, plus 1.2% in industrial, plus 2.7% in Office Products and a negative 0.7% in electrical. Turning to SG&A. Total expenses, $705 million in the third quarter and that's up 2% from 2011 and at 20.9% of sales, is down from 21.3% in the third quarter of last year. For the 9 months, total SG&A expenses, $2.1 billion, that's up 3% and at 21.2% of total sales compared to 21.5% for the same 9 months in 2011. We attribute our steady improvement in this area to the combined benefits of greater leverage associated with our sales growth and our intense focus on managing our expenses. Throughout the organization, we've made solid progress in controlling our expenses and we'll continue to assess and align the proper cost structure of our businesses as we move through the year and beyond. We continue to benefit from ongoing cost saving initiatives, including investments in technology, which have positively impacted the operating efficiency in our distribution centers and stores, as well as supply chain costs in areas such as freight and logistics, among others. For the third quarter, we also experienced savings in our corporate expenses, which we'll discuss further in a few moments. Now let's discuss the results by segment. Automotive had revenue in the quarter of $1,650.9 million. That represents 49% of the total, and is up 2.5%. And operating profit of $150.6 million, up 7%, so very nice margin expansion from 8.8% to 9.1% of revenue. The Industrial Group had revenue in the quarter, $1,138.9 million. That represents 34% of the total, and it's up 4.5% and they had operating profit of $94.6 million, down 3%. So poor leverage and little less incentives in the quarter caused our operating margin to slip from 8.9% to 8.3% in the quarter. Office Products, $444.3 million in sales for the quarter, represents 13% of the total. That's down 1%, and they had operating profit of $29.9 million and that's up 10%. So very strong margin expansion there going from 6.1% to 6.7% of revenue. Electrical Group's sales in the quarter, $150.9 million, represent 4% of the total, that's up 5%, and operating profit $13.6 million, up 22%. So outstanding margin expansion there due to the leverage off the sales and lower copper pricing, but that's a record half at 9.0% in the quarter. And moving to the 9 months. Automotive had revenue of $4,789.3 million, up 4%. Operating profit of $418.2 million, up 11%. Again, very strong margin expansion for that group, going from 8.2% to 8.7%. The Industrial Group had revenue for the 9 months of $3,398.8 million, up 8%. Operating profit $274.0 million, up 10%. So again, even though with a slight decline in the quarter, they were up solid for the year, for the 9 months 7.9%, prior year, 8.1% for the current year. Office Products had revenue for the 9 months, $1,283.7 million, down 1%. Operating profit of $98.1 million, that's up 2%. So again, excellent margin expansion from 7.4% to 7.6%, considering a negative sales increase, they've done a good job of taking infrastructure costs out and managing their expenses downward. Electrical Group had revenue at -- for the 9 months, $447.4 million, up 7%. Operating profit $38.5 million, up 27%. So again, very strong margin expansion from 7.2% to 8.6% at a record high, and I would not expected for them to continue to show that kind of improvement in their operating margin, but we're extremely pleased with the level that they are at this time. Total operating profit was up approximately 4% in the third quarter, and operating profit margin improved 20 basis points to 8.6% from 8.4% in the third quarter 2011. This follows margin improvement of 70 and 40 basis points for the first and second quarters of 2012, respectively, and total operating margin for the 9 months is 8.4%, and that's up 40 basis points from 8.0% last year. We're pleased with this level of margin expansion and expect to show continued year-over-year operating margin expansion in the fourth quarter as well. We had net interest expense of $5.0 million and $14.7 million for the third quarter and 9 months, respectively, which is down from 2011 due mainly to the lower interest rate on our $250 million debt agreement that was funded in November of last year. We'll discuss our debt position later, but we currently expect our net interest expense to be approximately $20 million to $22 million for the full year. Other category, which includes corporate expense, amortization of intangibles and noncontrolling interest was $12.3 million expense in the third quarter, and is $47.0 million for the 9 months of September. This last [indiscernible] improvement in the third quarter due primarily to the company's favorable retirement plan valuation adjustment and the income recorded for our 30% investment in Exego. These 2 factors, as well as the positive impact of our ongoing cost savings served to improve this expense line, and we currently project the total other category to be in the $60 million to $65 million range for the full year, which is relatively consistent with 2011. For the quarter, tax rate approximately 36.3% was down from 38.6% last year, due to the nontaxable status of the favorable retirement plan I just -- we just discussed. And for the 9 months, the 36.4% rate compares to 36.8% for the same period last year, and we'd expect our full year tax rate for 2012 to be approximately 36.5%. Net income for the quarter, $172.9 million is up 14%. EPS increased to $1.11, compared to $0.97 last year, also up 14%. For the year, through September, net income is up 13%, EPS of $3.11 is up 14% over the prior year. The third quarter was another record level of earnings for us, and we want to recognize all of our associates at Genuine Parts Company for achieving this milestone. This requires a great deal of hard work and dedication on their part, and we're proud of their accomplishment. Now let's touch base on a few key balance sheet items. Cash at September 30 was strong, at $398 million, up from approximately $172 million at June 30, although down from over $500 million at September last year and at December 31 of 2011. Our current cash position reflects the more than $500 million used for several investing activities earlier this year, including the January 1 investment in Exego, the leading automotive distribution company in Australia and New Zealand, the Electrical Group's Light Fab acquisition on February 1 and Automotive's Quaker City acquisition closed on May 1. These significant uses of cash were partially offset by the increase in earnings, effective asset management and cost reductions. Accounts receivable, $1.6 billion September 30 increased 5% from September 30 last year, on a 3% sales increase for the third quarter. As we said before, our goal is to grow receivables at a rate less than revenue growth, so we have work to do in this area and we expect to see progress toward this goal in the fourth quarter. Overall, though, we're satisfied with the quality of our receivables. Inventory. 9/30 of 2012, $2.4 billion, that's an increase of approximately 4% compared to September 30 and December 31 of 2011. The increase is attributable to impact of our acquisitions thus far in 2012 and inventories are actually down slightly from both September and December, when you break the acquisitions out. Our team is doing an excellent job of managing our inventory levels and we remain focused on maintaining this key investment at the appropriate levels as we move through the final quarter of 2012. Accounts payable balance at September 30, $1.8 billion, that's up 11% from September 30 last year and up 22% from December 31. Significant increase in trade payables reflects the impact of extended payment terms and other payable initiatives that we've negotiated with our vendors. Improving our payables position has been a priority for us over the last couple of years and had a -- has a positive impact on our days and payables, with DPO up 2 days from 62 -- to 62 from 60 last year. Working capital of $2.6 billion at September 30 is up approximately 17% -- 7% from September 30 last year as reported, but is down 3% after adding back the $250 million in current debt at September 30 of 2011, which was converted and reclassified to long-term debt in the fourth quarter of that year. Effectively managing accounts receivable and inventory payables is very important to us, and our ongoing progress with these accounts has had a tremendous impact on improving our working capital position and cash flow. Our balance sheet remains in excellent condition. Total debt September 30, 2012, remains unchanged at $500 million. First $250 million in debt is due in November of 2013, and the debt with agreement signed in November of last year is due in November of 2016. Total debt, total capitalization at September 30 was 14.0 and although comfortable with our capital structure, we want to remind you that back on September 11, we entered into a multicurrency syndicated credit facility agreement of $850 million. And this agreement, which carried a 5-year term and an interest rate of LIBOR plus 75 basis points, replaces a $350 million unsecured revolving line of credit that was scheduled to mature this December. New facility provides us with expanding borrowing capacities to support our growth opportunities as may be needed from time to time. No amounts are borrowed under this agreement at September 30 of this year. The company continued to generate solid cash flows and 2012 is shaping up to be another very strong year for us. We currently estimate cash from operations, $775 million to $825 million for the full year and at this level, free cash flow, after deducting CapEx and dividends, should be approximate $350 million to $400 million. Continuous strength of our cash flows is encouraging. We remain committed to several ongoing priorities for the use of this cash, which we believe serves to maximize shareholder value. First priority's the dividend, which we've paid every year since going public in 1948, and have increased for 56 consecutive years. The company's 2012 annual dividend of $1.98, represents a 10% increase from $1.80 paid in 2011 and represents a payout ratio of approximately 55% of our 2011 earnings per share. Our goal would be maintain this level of payout ratio going forward. Our other priorities for cash include the ongoing reinvestment in each of the 4 businesses, strategic acquisitions where appropriate and share repurchases. Our investment capital expenditures were $20.0 million for the third quarter and that's down from $22.2 million invested in the third quarter last year. For the 9 months, CapEx totaled $71.6 million, compared to $63.9 million for the same period the prior year. We planned for this level of increase and expect our CapEx spending for the full year to be in the range of $100 million to $120 million. Vast majority of these investments will continue to be weighted toward productivity-enhancing projects, primarily in technology. Appreciation and amortization, $25.6 million in the quarter, is $73.3 million for the 9 months. Both the quarter and the 9-month number's up slightly and we continue to expect D&A to be approximately $100 million to $110 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. We're pleased that our investment in Exego and the Quaker City acquisition in the Automotive Group, as well as a small acquisition in the Electrical business, continue to perform as planned and are contributing nicely to our results. We remain active in seeking new acquisitions for our businesses, generally targeting those bolt-on types of acquisitions with annual revenues in the $25 million to $125 million range. Finally, thus far in 2012, we used our cash to repurchase approximately 980,000 shares of our common stock under the company's share repurchase program and have another 12.6 million shares authorized and available for repurchase today. We've no set pattern for these repurchases, but expect to be active in the program over the balance of 2012, and we continue to believe our stock is an attractive investment and combined with the dividend, provides the best return to our shareholders. In closing, we want to once again thank all of our GPC associates for their great job they're doing. They are to be commended for achieving another quarter of record sales and earnings. We're well-positioned for continued growth in our businesses. We remain optimistic in our outlook for the fourth quarter of 2012, due primarily to the many positive initiatives in place throughout our organization. As always, we'll support our growth with a strong cash flow and healthy balance sheet, further maximizing our return to shareholders. That concludes our financial review, so I'll turn it back to Tom. Tom?

Thank you, Jerry and Paul, for the fine updates. So that's a quick overview of our third quarter results, and in looking back over the quarter, we would say that we were a bit disappointed in the sales results in each of our 4 businesses, but at the same time, they seem to be in line with the respective trends in each of the businesses. We do think that our team operated pretty well and made some good progress on the operating side of the business despite the revenue challenges, and we continue to keep the balance sheet in good shape. Now as far as the fourth quarter is concerned, the individual sales guidance that was provided during our comments was for Automotive, Industrial and Electrical/Electronic to each be up 6% to 8% in the quarter, and for Office Products to be in a range of down 1% to plus 1%. This would give the total company an increase of 6% to 7% for the quarter, and would put us up 5% to 6% for the year. On the earnings side, we remain comfortable with our prior full year guidance of $4 to $4.10, with a bias toward the middle part of the range, and this would give us an EPS increase of 12% to 14% for the year. And with full year sales being up 5% to 6%, and earnings per share up 12% to 14%, we feel that 2012 will turn out to be another respectable year for the GPC team. So that will conclude our planned comments, and we'll now turn back over to Dawn to take your questions. Dawn?

[Operator Instructions] Your first question comes from the line of Greg Melich with ISI.

I really just want to get into the Automotive sales acceleration that you expect from the fourth quarter. If I'm doing this right, you were up around 4% on a real basis in the third quarter. And you think you'll up 6% to 8% in the fourth. What gives you the confidence there? Is there a shift in how sales are running quarter-to-date, is it acquisition, did FX -- give us a roadmap there?

Greg, this is Tom, and I think the primary difference is the fact that we were short 1 day in the third quarter, but we get that day back in the fourth quarter, so our expectation is that on a per day basis, we'll see a little bit of an uptick from what we saw in the third quarter, and then the benefit of that extra day. We're actually expecting just a bit of improvement on a day-to-day basis.

Got it. So if that day was 150 bps in the third quarter, it would be 150 bps help in the fourth quarter?

That's right.

Got it. And then secondly, you mentioned on Auto, the deflation. It's been a while since we've seen deflation in that category, if I remember correctly. How should we expect that to flow through to the top line and gross margin?

Greg, just quickly, the last time we saw deflation in Automotive was 2009.

And in terms of the effect on top line, the levels that we're at, we're down 30 basis points year-to-date. That will be a pretty modest impact on that. If we see further deflation, obviously, it'll be a little bit of a headwind, but right now, our expectation is a very modest impact.

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

Just wanted to follow up on the auto sales question as well. I mean, as we think about the industry, it's -- we're getting sort of conflicting signals of, some weakness, some relative stability. Just curious what you're seeing in general, you think in the end market there. And also, really just curious if you've seen anything change in inventory in the channel. Is the inventory heavy or light and then hopefully at some point as we see a pickup, would there be sort of an inventory pull-through for your auto sales numbers?

Well, John, I'll take a first stab at that. One thing to keep in mind is what Paul referenced in his comments, and that's the geographic differences that we've experienced thus far this year with our cold weather operations being much more challenged than the remainder of the operations and it's a fairly significant delta in performance when we look at that. And our expectation is that delta will start to reduce some as we work our way through the fourth quarter and on into next year. In terms of what we're seeing in the end markets, what we're hearing from some of our good installer customers pretty much mirrors what we've reported in our own results, and they're talking about big [ph] counts, the traffic actually holding relatively steady, but the work orders, the value of the work orders is under a little bit of pressure, which we think is indicative of the consumer being a bit more discretionary with how they're spending their dollars currently. On the inventory side of it, we don't see any material difference in the inventory, and keep in mind, the main inventory that we would have would be at the store level, and that has, I think held pretty constant so we don't see any reduction nor do we see any opportunity for a great run-up in inventory. At the installer level, the commercial side of it, there's very little inventory that's really held and we don't think that, that's going to change one way or the other going forward. Won't have any impact.

Great. And then, Jerry, just on the new bank facility that's put in -- been put in place, you said you've -- that has now been changed to a multicurrency facility. So obviously, that would help you out with Exego or any other international acquisitions in the future. I'm just curious, is the upsizing and changing that to a multicurrency facility really just in preparation of what may happen with Exego? Are there other international acquisitions that you guys see that could be real attractive to you in the future?

Well, we haven't seen any of any significant size. We'd still be open to making it, if made sense, but this is primarily in preparation for the Exego transaction.

Okay. And the 14% debt to cap that you're at right now obviously is – it's real solid and fairly low. I mean, would you be willing to take that up materially in the course of the Exego transaction or any other transaction?

Yes, we would if it made sense to maximize the shareholder value. But yes, we would -- if we do the Exego transaction, we'll definitely have to have some debt.

So are you thinking about an absolute ceiling there in the 30% to 40% range, or is it something much lower than that?

It's lower than 30% to 40%, but we've done a little work and it could -- if we had -- depending on our cash flow and how well we do in managing working capital, it could be in the high -- in the mid-20%, not high-20% range, so.

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

I guess one of the questions I had is, l this is really another follow-up on the auto commentary. I guess, Tom, you've mentioned consumers seem to be a bit more discerning on their spending. And I know this is an opinion, but would you attribute that to weaker consumer spending trends? Maybe higher gas prices? Or do you think it's possible that consumers are potentially just doing less work, maintenance and repair work on their vehicles because they're interested in new car sales at this point?

I think and again, it's just an opinion, as you said, my thought is that the consumer has a finite amount of discretionary spending, and I think part of that may have been geared more toward electronics with the new iPhone or the new iPad, or other electronic items. I think part of it might have gone to back-to-school, because it was a regionally good back-to-school season this year. I think when it comes to the Automotive, what we're seeing and what we're being told is that the repair that's absolutely critical, or anything that affects drivability, they're in fact getting done, but then their bias is to try to do it for the least amount of money possible, so if we look at our good, better, best product outflow, we see strong performance in the good and better categories and less strong performance in the best product category. And then we also see if there are multiple things that need to be worked on, or should be worked on, on the vehicle, if it's not critical, we're seeing deferral on some of that. And we've some of this at times in the past, and at least in the past, what we've seen happen is there is a point in time when some of this maintenance that's been deferred winds up coming back into the aftermarket, and we all have an opportunity to benefit from that.

But have you seen that kind of reaction or behavior on the part of consumers, let's call it any in the last 4 years?

Well, what we've seen going back to 2008 and '09 is we saw very significant evidence of deferral of the some of the items that needed to be purchased, and we came back with strong overall industry results and good positive results for GPC in '10 and '11. There is a question out there, and you alluded to it and that is, what's the impact of the increased vehicle sales this year, and depending upon whose number, I guess, it'll be something, let's call it $14.5 million. If you look back to 2004 through 2007, we had anywhere from $16.1 million to, I think it was $16.9 million in new car sales. And all of those years were really good years for the aftermarket. So we had a higher rate of new car sales on a base that's about the same as what it is today, and the new car dealers benefited and the aftermarket performed well in that period of time. Then we went into the recession and we saw new car sales go down, aftermarket went down and the aftermarket has come back well in '10 and '11. We see some of the geographic diversity that we see right now in 2012 and some of the consumer spending patterns that we think we're living through, but the fundamentals, as Paul pointed out, the fundamentals are still generally positive and favorable and we'll see this thing come back to a more normal state, I think, as the quarters progress.

Okay, very helpful. And then just a quickie. Jerry, what was the size of the retirement plan adjustment?

About $4.5 million, $5 million. The one positive about it was a negative adjustment in the third quarter of last year, and it was a positive adjustment and the pickup this quarter was $3 million, but we had a swing compared to the third quarter of last year.

Your next question comes from the line of Christopher Horvers with JPMorgan. Christopher Horvers - JP Morgan Chase & Co, Research Division: I'll stick with the auto thread here. You talked about September being better on a per day basis. Was that true versus July, as well as August? And is there anything that you saw on the regional side or the category side that could either support or refute the weather thesis?

Chris, this is Paul. I would just tell you that our September same-store business was low to mid-single-digit year-over-year. So we did see a nice lift in September. And that was across most of our divisions. So even those divisions that -- those cold weather divisions that we mentioned, the Central part of the country, Midwest and Northeast saw a bit of a lift in September as well. So we're encouraged, and I would tell you that back to a question that Scot asked, when you look at some of the things happening in the economy, consumer confidence does seem to be growing somewhat, at least that's what was reported in September and housing starts are moving in the right direction. So there is -- there does seem to be a bit of optimism out here that we haven't seen in a while. Christopher Horvers - JP Morgan Chase & Co, Research Division: And that low to mid-single-digit per day compares to the 4% adjusted for the quarter -- for the third quarter?

Correct. Christopher Horvers - JP Morgan Chase & Co, Research Division: Okay, so a little bit. So maybe if that was 4%, so maybe a little bit better than 4%, is what you're trying to say, right?

We'll stick with the low to mid-single digit there, Chris. Christopher Horvers - JP Morgan Chase & Co, Research Division: Okay, fair enough. And I was just curious, on the brakes side of the business, I think, as a consumer I can understand batteries not failing because the cold and wipers, perhaps as well. I mean, what's your view on the brake business, whether that -- is that a macro thing? Or is that a weather thing, because our understanding is, brakes are pretty tough, so will the weather actually result in improved sales in that category?

The brake business, as we understand it, Chris, it's been a challenge for us. We've down low single digits for the year, and it is geographical. Certainly, in those northern territories, we have seen more of a decline in our brake business and we do believe that's weather-related. And we do believe it's across the industry as well. Christopher Horvers - JP Morgan Chase & Co, Research Division: Okay. And then just finally on the Industrial side, you talk about some haves and have-nots in terms of the category. Is there anything changing in terms of some of the weaker categories, some of that trend throughout the quarter?

Well, the 3 that I highlighted, we saw a decelerating trend sequentially from Q1 through Q3. I can't give you the specifics about the month sequence. In terms of any changes, we are seeing evidence that some of the housing-related industries have picked up just a little bit, as Paul mentioned, housing starts have gone up. Some of the plywood mills are opening back up or increasing production, so hopefully, that's something that will sustain in the quarters ahead. Where we see some weakness is where some of these companies are larger exporters and some of what's happening in the global economy is starting to have an impact on their North American production. Christopher Horvers - JP Morgan Chase & Co, Research Division: And then one final one, just have you seen anything in terms of a drought impact in terms of some of your Ag customers?

Absolutely, absolutely. So if you go into the farm communities, you see some real impact there. So that's had an impact both in Automotive, as well as in our Industrial business.

Your next question comes from the line of Bret Jordan with BB&T Capital Markets. Bret David Jordan - BB&T Capital Markets, Research Division: Follow-up question on your comments about September being the best since March. Within that, and I think it was partially addressed earlier, do you see an improvement in the maintenance category in that trend as well? It seems that Maintenance has underperformed, failure industry-wide, but are you seeing some improving demand in what had been lagging categories?

Some modest improvement there, yes. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. And then, I guess, regionally, and it's tough to look at it, you said about 1/3 of your business was in the geographically more challenged markets. And could you sort of break out the relative delta on that performance? Or maybe a way to look at it without doing that would be to give us some idea of the comp, maybe for Quaker City year-over-year? I mean you didn't own it last year, but if you could -- was it a positive comp or do we actually slide negative in some of these Eastern and East -- North Central markets?

Well, I'll take the first part of that, Bret. The northern divisions that we mentioned, their comps are running low to mid-single-digit down, year-over-year. The balance of our business, which is 6 divisions comprising the West, Southwest, Southern, is up mid-single -- low to mid-single digits.

Your next question comes from the line of Matt Vigneau with Goldman Sachs.

It's actually Matt Fassler, along with Matt Vigneau. A couple questions here. First of all, as you think about the underlying run rate, adjusted for days, I want to confirm that the acquisition probably contributed a bit more this quarter than it did at the last quarter, when you only had it in place for a partial period. Is that the right way to think about it?

Yes, that's right. We had 2 months in the prior quarter, 3 months this quarter.

So it's only 1 month difference, so a fairly small difference. And when you talk about the -- September being the best year-on-year performance that you had since March, is that including or excluding the impact of the acquisition?

In both cases. On a per day basis, if we look at average daily sales volume for the month of September, the ongoing operations had a record as did the -- with the Quaker City, but in Quaker City, we had a very strong performance in September.

Understood. And then secondly, the Industrial -- there's been a lot of focus on the fourth quarter guidance for Automotive. I want to look for a moment in Industrial, with I guess 2 questions, interrelated. The first is that, there seems to have been some disconnect between the macro factors that you used to project your business and the revenue growth that you reported. And then, if you could correct me if I'm wrong, whether the extra day kind of hits Industrial similarly to the way it does Automotive, such that x the day hit, you would have been close to 6%, and the acceleration you expect is not that substantial?

The -- we were, on a per day basis, we were up 6.1% in the quarter, on a per day basis.

And in terms of the micro versus macro, your numbers and your experience sequentially, versus some of the macro indicators still looking good, and your expectation that the third quarter represents kind of the lower bounds of performance. Any insights that you have either, trends through the quarter, quarter to date, that give you the confidence for that pick up?

Well, we're too early in this quarter to try to comment on any trends, but some of the industries that we service, the industry segments are very strong right now. I mentioned Automotive as a for instance, we're benefiting from the strength in the new car sales, the improvement that we're seeing there. The thing we don't know is, what the impact is going to be for some of the companies or segments that are a little bit more export-dependent because we have seen deceleration there, coal would be an example, and primarily the Eastern coal has been really hard hit over the last couple of quarters, and we don't know that it's going to come back this quarter.

Your next question comes from the line of Brian Sponheimer with Gabelli & Company. Brian Sponheimer - Gabelli & Company, Inc.: Just want to spend a little bit more time on the operating profit in motion, with sales up $50 million, but operating profit off by $2.5 million. I know you called out some puts and takes there, but maybe just spend another minute going through how you can see -- how you see that operating profit moving through the fourth quarter, maybe early into next year?

Brian, this is Jerry. If you look, and Industrial business was 8% -- up 8% in sales in the second quarter and ending up 4.5% here in the third quarter, and so we're not going to build inventory to get incentive. And so we took in less incentives in the third quarter as we had through the 6 months and last time we did, last year we're basically down slightly in incentives this third quarter compared to 2011. So both of those contribute to that slowing in that growth and the operating margin in the quarter. But if you look for the 9 months, they're still doing a good job with their operating margin, they're still up 20 basis points, and we would expect to see that kind of improvement for the year. Brian Sponheimer - Gabelli & Company, Inc.: Okay. And just going to the multicurrency facility again. You've talked about Exego as a good opportunity on a kind of a go-forward basis, and owning the 30% is kind of putting the balloon out there to see if you like the business or not. With the multicurrency facility happening this early, would it be appropriate to say that you're more than pleased with how Exego had gone this far?

Yes, we're more than pleased with how it's gone thus far, but just because we did this facility at -- we had a facility of $350 million, facility expiring in December. We went ahead and got this out of the way and we can -- it's a 5-year facility. So we can do it at this quarter, we can do it in 5 quarters, at whatever period. We just took -- put that in there to be in a position to do whatever we needed to do. Brian Sponheimer - Gabelli & Company, Inc.: Okay. And just along those lines with the idea that Exego may not happen for a while, given where the stock is, given where the cash balance is and given some decent visibility on some improvement that you expect for Auto on a seasonal basis next year, why wouldn't you become more aggressive on a -- to repurchase shares at this time?

There's no reason. And you may see that.

Your next question comes from the line of Dave Gober with Morgan Stanley.

This is Shaun Kolnick on for Dave. Are you seeing anything different in the competitive environment when it comes to auto parts from 3Q, maybe to 2Q?

I don't think we could say that we've seen it in that short a period. What we're experiencing right now is what we go through periodically, and that is when business slows up somewhat, the competitive environment increases somewhat. So it's a fairly normal pattern that we experience at times like these, and this particular pattern is very consistent with what we've seen in past times.

Just one more on the AP to inventory side. You had a pretty nice quarter, up about 400 basis points. Do you have any idea of how much further progress you might be able to make there?

We can continue to make progress. It's a difficult thing to tell you how much progress we can make. We're going to continue work with our vendors in negotiating terms, prices and everything. That's just an ongoing priority for us. Really don't have a number that I can give you that we're going we try for or try to reach, but you'll see continued improvement there, I think.

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

Just wanted to jump back to Industrial. As you talk to your customers, and I know you guys have staff [ph] in the top 10 industries and what they're in [ph] the quarter, what are they looking at in terms of their pace of business over the next 3 to 6 months? Is it accelerating, decelerating or are they just uncertain?

I think uncertainty would be more the answer and it's more because of the external uncertainty. So there are people out there that are sitting, waiting to make some capital expenditure decisions dependent upon how things develop over the next quarter or so. So right now, it's a little hard to answer that specifically, Keith, but that's what we're hearing from customer set.

Is that due to Europe, or things more domestic?

I think it's a combination of both, honestly. Obviously, the domestic thing is more immediate, with the election and then the fiscal cliff that may loom out there, but then there's also a number of these companies that are dependent upon some demand in Europe that are bit uncertain as to what's going to happen there. But that plays out more over a medium to longer term, we think.

Your next question comes from the line of Efraim Levy with S&P Capital IQ. Efraim Levy - S&P Equity Research: In the release you mentioned gains in certain industries, which ones were the gainers and what were the drivers of those gains?

I'm sorry, can you repeat that? You broke up on us. Efraim Levy - S&P Equity Research: Sure. You mentioned that there were -- in the press release, that there were certain gains in certain industries you gained market share. Which ones were the ones where you gained market share, and what were the drivers of those gains?

Well, I would say that if we look across the 4 businesses, we've performed, at a minimum in line with the performance of the overall industries and perhaps we gained a little bit in each of the industries. And if you look at Automotive as a for instance, I think that if we look at the publicly traded companies in the aggregate, the performance of each of the companies would suggest that we might be gaining, as a group, a bit at the expense of the non-publicly traded companies as a general statement. Then in terms of the other businesses, we just have to look at our performance directly with our publicly traded competitors and see how they stack up. But I think overall, our teams are doing a pretty good job of holding their own at a minimum and maybe improving their position in a few cases. Efraim Levy - S&P Equity Research: You'd say it's largely execution driven, nothing…

That's right.

Your next question comes from the line of Brent Rakers with Wunderlich Securities.

This is Anjali Voria in for Brent Rakers. I know you talked a little bit about the Office op margin lift that you saw in the quarter. Could you talk a little bit further, maybe give a little bit more clarity on that side of the equation, especially when you're seeing growth from independents flowing? I'm trying to assess where that list is coming from. And then also, as a follow-up, do you think you'll see that typical lift in Q4 on both the Office and Motion side, please?

I don't think you're going to see a continued lift in the margins at the Office Parts side. Where that's coming from is not in the gross margin side of things, it's coming in the expense reduction and infrastructure costs adjustments that they're making there. They've been in a depressed sales environment for some time, and the management team there is doing a good job of taking their cost out and they're going to continue to focus on taking further cost out until they see revenue recovery. But I don't -- you're not going to continue to see movement up in it, but I think it -- we would be pleased, really if the Office Products side would just continue to hold their margin. They were 7.6% for the 9 months, and we would expect them to maintain that for the full year. In the Industrial side, we were up 20 basis points for the 9 months, and there's no reason to think that they can't maintain that for the full year, but that's going to be dependent upon what kind of revenue growth they get, and I'm sure that they'll do a good job leveraging their expenses off of that revenue growth.

Your final question is a follow-up question from the line of Greg Melich with ISI.

On these sales again, in Auto, I just want to make sure that the up low to mid-single digits, that compares to the 1% same-store sales in the quarter or to the overall sales?

Greg, we're going to have to dance around that question. We -- what we'll have to do is research that and get you an answer, if you don't mind, Sid or I will work back with you on that one.

And then, I guess, another one, sort of a straightforward about the quarter is, how much did FX hurt and how much did Quaker City help?

Well, we haven't given those out specifically, but if we net the impact of Quaker City against the 1 less day and the negative in FX, net-net, it had a 1% positive for us in the quarter.

And there are no further questions at this time. I will now turn it back over to the presenters for any closing remarks.

Dawn, thank you. We appreciate each of you joining us on the call today, and we appreciate your continued interest in and support of Genuine Parts Company. We look forward with talking with you in future, if not before then certainly, when we report our fourth quarter and year-end results in February. Thanks for joining us.

This concludes today's third quarter 2012 Genuine Parts Earnings conference call. You may now disconnect.