Genuine Parts Company (GPC) Q1 2013 Earnings Report, Transcript and Summary

Good morning. My name is Brooke, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference will be recorded. Thank you. I will now turn the conference over to Sid Jones, Vice President, Investor Relations. Mr. Jones, you may begin your conference.

Thank you. Good morning, and thank you for joining us today for the Genuine Parts first quarter conference call to discuss our earnings results and outlook for 2013. 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 begin this morning with comments from Tom Gallagher, our Chairman and CEO. Tom?

Thank you, Sid, 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. Now earlier this morning, we released our first quarter 2013 results. And hopefully, you've had an opportunity to review them. For those who may not have seen the numbers as yet, a quick recap shows that sales for the quarter of $3,199,000,000, which was up 0.6%. Net income was $144.4 million, which was down 1%, and earnings per share were $0.93 this year, which is even with the $0.93 reported for the first quarter last year. As we covered in our year-end conference call, we felt that the first quarter of this year would be our most challenging, largely due to the fact that Q1 of 2012 was our strongest of the year, when sales were up 7% and earnings per share were up 16%, and then partly due to the slowing revenue trend that we saw develop over the second half of last year. Additionally, we have 1 less sales day in Q1 of this year, which equates to about 1.6% of revenue growth. And it's interesting to look at our average daily sales performance over the quarter. We got off to a decent start, with January and February average daily sales being up mid single digit, but then the March average daily sales was relatively flat, consistent with the moderation in overall retail sales, and we ended the quarter with an average daily sales increase of just over 2%. And looking at the sales results by segment, our strongest performance came from Automotive at plus 3.4%. And Paul will cover this in more detail in a moment. Industrial, Electrical and Office Products each had modest sales decreases in the quarter, with Industrial ending the quarter down 2%, Office Products down 1% and Electrical down 5%. And we'll make a few comments about the non-Automotive businesses, starting with Industrial. The first quarter of 2012 was Motion Industries' strongest quarter of the year by far, when they were up 12%, so they were going up against a challenging comparison. However, the 2% decrease in the quarter this year continues a deceleration in our Industrial growth rates that we saw develop over the second half of last year. Among our top 10 customer segments, 6 had increases in the quarter, with automotive, pulp and paper and lumber and wood products showing the strongest results. But then, 4 of our top 10 customer segments were down in the quarter, with equipment and machinery showing the biggest decline, followed by coal, aggregate and cement. Among our top 10 product categories, 4 are showing year-to-date increases, 1 is even and 5 are running behind through the first quarter. So from both a customer and a product standpoint, we're seeing some inconsistency and choppiness in our results, somewhat indicative of the uncertainty and cautiousness that we see among a number of our customers. With that said, however, we remain encouraged by the current levels of both industrial production and capacity utilization indices. Despite the modest drop in March, these have remained relatively constant over the past several months, and they have proven to be a fairly reliable 6 to 9 month leading demand indicator for us. And our expectation is for a gradual improvement in demand for our Industrial business over the remainder of the year. Moving on to EIS, our Electrical/Electronic company, they had a challenging quarter with sales down 5%. The electronic side of the business actually had a very good first quarter, with sales up low double digits. Unfortunately, this is the smallest segment of EIS' business, and their solid results were pulled down by a mid single-digit decrease in electrical and a double-digit decrease in the wire and cable segment. The biggest factor in the electrical segment was a drop-off in demand in the alternative energy sector. And the biggest factor contributing to the wire and cable decrease was a slowdown in the defense contractor business, which we attribute to the near-term impact of sequestration. However, we do see some early signs of improvement in this side of the business. And this, combined with our internal growth initiatives, still give us an expectation of positive growth for the full year from the Electrical/Electronic segment. And finally, a few comments about Office Products. After the 3% sales increase in the fourth quarter of 2012, we were a bit encouraged. And we saw low single-digit average daily sales increases in January and February. However, we experienced a drop-off in March, and we ended the quarter down 1%. Our independent resellers business was down modestly, and our Mega or national account business was flat. From a product perspective, technology and core office supplies had small decreases in the quarter. Furniture was flat, and cleaning and breakroom grew nicely. So from an overall perspective, the office products industry remains quite challenging, and we don't anticipate any material change in the near term. However, at this point, we continue to expect that our Office Products team will deliver a modest sales increase for the full year. So that's a brief overview of our Industrial, Electrical and Office Products businesses. And at this point, I will ask Paul to give you an update on the Automotive operations. Paul?

Thank you, Tom. I'd like to add my welcome to each of you this morning. I'm pleased to join Carol and Tom and have the opportunity to provide an update on the first quarter performance of our North American Automotive business. Automotive continues to be the company's largest business segment, and we ended the first quarter with a 3% increase with 1 less day in the month. On a per day basis, it puts us up approximately 5%. Given that the first quarter of 2012 was our strongest sales quarter of the year, then you add in the fact that the Easter holiday fell in the month of March this year, we were not surprised by our results. The 3% revenue growth in the first quarter includes flat comp store sales and continued positive sales contribution from our acquisition of Quaker City Motor Parts. Sales to our commercial accounts, the dominant segment of our business, continued to outpace our retail sales. Once again, in the first quarter, our results varied by region of the country, with the traditional cold-weather regions lagging the other regions in the U.S. These cold-weather regions did narrow the gap in the first quarter, and they continue to gain positive momentum as we move through the second quarter. We are approaching our 1-year anniversary of the acquisition of Quaker City Motor Parts. Their first quarter sales contributions were in line with our expectations. And we continue to be excited with the growth opportunities the Quaker City team will provide to us in the future. As we mentioned earlier, our commercial business continued to outperform our retail business in the first quarter. Within our company-owned store group, the commercial side of our business ended the quarter up 1%, consistent with our growth in this segment in the previous 3 quarters. Non-fleet-related business performed reasonably well, generating a 3% increase. It was led by solid growth from our 14,000-plus NAPA AutoCare centers and our major account business. The fleet business was off slightly, continuing a trend we have seen in recent quarters. Both our average ticket value and our average number of tickets were relatively flat in this segment of our business for the quarter. Turning to our retail business. The sales environment continues to be challenging. We were down mid single digit in the quarter, which was comparable to our fourth quarter numbers. Our average retail dollar invoice was up slightly for the quarter, while our average number of invoices was down, which again is consistent with prior quarters. And while we're certainly not pleased with these results, we believe they are consistent with retail sales trends, both in the aftermarket and retail in general. Our team has a number of initiatives in the works to address our retail sales and reverse the downward trend we've seen in recent quarters. So as we look ahead to the balance of 2013, we expect to see increased demand in the aftermarket. We are pleased to note that the consistent -- that consistent with the positive momentum in the northern half of the U.S., we are also seeing a pickup in sales with some of our winter-related product categories, such as batteries, rotating electrical and our wiper business. And while our brake business continues to be under pressure, we are encouraged with the improved trends we are seeing -- we're beginning to see in this product category as well. We have said throughout this recent trend of sluggish sales, which dates back to the second quarter of last year, that the lack of winter weather in 2012 would remain a headwind throughout the first quarter. This proved to be the case. We also said that we continue to believe the fundamentals of the aftermarket to be positive, and this has not changed. But first, let's take a look at fuel prices, a key driver for our business. While prices reached a record, record average highs in February, prices came down considerably in the month of March. In the quarter, the average price for a gallon of gasoline came in slightly below first quarter of 2012. Next, the aging vehicle population, now reported to be 11.1 years old, continued growth in the number of older vehicles. And the outlook for miles driven, which saw a 0.5% increase in January after a very challenging December, bodes well for all of us in the aftermarket. And we continue to feel that NAPA is very well positioned to capture its share of this increase in demand generated by these positive trends. So in summary, we believe the North American automotive aftermarket provides us ample growth opportunities for 2013. We remain positive about the core fundamentals of our industry, and our NAPA team remains focused on driving positive growth in the final 3 quarters of the year. So that completes our overview of the Automotive business in the first quarter. And at this time, I'll hand it over to Carol to get us started with our review of the financial results. Carol?

Thank you, Paul. We'll start this morning with a review of the first quarter income statement and the segment information, and then we'll review some balance sheet items and other financial items. Tom will come back up to wrap it up, and then we'll open the call up to your questions. As we review the income statement, as Tom mentioned, total sales were $3.2 billion for the first quarter, an increase of 0.6% from last year. The sales environment remained challenging for us throughout the quarter. And that said, we remain confident in our growth initiatives and expect to see improving market conditions as the year progresses, which will support stronger sales for us over the balance of the year. Gross profit for the first quarter was 28.8% of sales, down slightly from the first quarter last year, and primarily attributable to the competitive sales environment across all of our businesses. In addition, we're not seeing much of an impact from inflation. Cumulative pricing for the first quarter of 2013 was down 0.4% for Automotive, up 0.5% for Industrial, up 0.4% for Office Products and up 1.2% for Electrical. We recognize the need to improve our gross margins over the balance of the year, and we're committed to this effort. Our ongoing initiatives to effectively manage supply chain costs, increase distribution efficiencies and maximize our pricing potential offer us opportunities to make the progress that we need to see here. This is a high priority for our management team across all of our businesses. Turning to SG&A. Total expenses were $700 million in the first quarter, up 1% from 2002 (sic) [2012], and 21.9% of sales. Our operating expenses as a percentage of sales are up about 15 basis points from the first quarter last year, as we lost some leverage on our expenses for the quarter. However, we continue to control our costs through several measures, including ongoing investments in technology, which has positively impacted the operating efficiencies in our distribution centers and stores, as well as supply chain initiative in areas such as freight and logistics. Overall, our businesses are managing their expenses very well, and we're in a position to show improvement in this area over the balance of the year. Now we will review the results by segment. Automotive revenue was $1.54 billion and represents 48% of sales. It's up 3.4%, as Paul mentioned. Operating profit of $121 million is up 5.7%. So their margin grew 10 basis points to 7.7% from 7.6%. We feel good about this increase on a 3% sales growth. The Industrial Group had revenue of $1.1 billion, and this is 35% of our total sales and a decrease of 1.7%. Operating profit of $78.9 million is down 6.4%. So we saw this group's margin decrease to 7.2% from 7.5% for the quarter. This is primarily related to the decrease in sales. Office Products had revenues of $420.1 million, which is 13% of our total sales and down 1.4%. Operating profit of $33.2 million is down 11.5%, and their margin deteriorated to 7.9% from 8.8%. The Electrical Group had revenue of $139.2 million, and that's 4% of our total sales and down 5.4%. Operating profit of $10.5 million is down 12.7%, so some margin degradation to 7.5% from 8.1% for the Electrical Group, primarily due to the sales decrease. So our total operating profit was down 2% in the first quarter, and our operating profit margin declined by 20 basis points to 7.6%. This follows solid margin improvement in each of the last 3 years. And again, the decrease in the quarter directly correlates to the slower rate of sales growth. The stronger sales that we expect to see over the balance of the year will support the expansion of our operating margins. We had net interest expense of $3.4 million in the first quarter, which is down from 2002 (sic) [2012], due mainly to the interest income earned on the increase in cash for the period. Much of this cash was used for the Exego acquisition that we completed earlier this month. And after combining our debt with Exego, we expect net interest expense of approximately $30 million for 2013. Total amortization expense was approximately $3.8 million for the first quarter, which is consistent with the fourth quarter of 2012, but up from last year due to the Quaker City acquisition. Likewise, our amortization costs will also increase beginning in the second quarter due to the Exego acquisition. The other line, which represents corporate expense, was $14.3 million expense for the quarter, and that's up from the $13.4 million in the first quarter of last year. We currently project our corporate expense to remain relatively in line with 2012 over the balance of 2013. For the quarter, our tax rate was approximately 35%, which has improved from the 35.9% last year. We expect our full year tax rate for 2013 to remain at approximately 35% due to the favorable impact of the lower Australian tax rate. Net income for the quarter was $144.4 million, down 1%. And EPS of $0.93 was flat with the first quarter of 2012. Now I'll discuss a few key balance sheet items. Our cash at March 31 was strong at $842 million, which is up significantly from last year. About half of our March 31 cash balance relates to the incremental borrowings necessary to cover the April 1 acquisition of Exego. Without these funds, our cash on hand was relatively consistent with both March and December of last year, and we would expect to return to these more normal levels of cash in the quarters ahead. Accounts receivable of $1.6 billion at March 31 increased 1% from the same period in 2012 on a 0.6% sales increase for the quarter. Our goal is to grow receivables at a rate less than the revenue growth, so we're relatively pleased with this level of receivables. We will remain focused on this area throughout the year, and we're very satisfied with the quality of our receivables at this time. Our inventory at March 31 was $2.6 billion. That's down approximately $42 million or 2% from 12/31, and it's up approximately 5% compared to March 31. The increase from last March relates to the impact of our acquisitions in 2012, and our inventory was basically flat when you break that out. Our team is doing a very good job of managing our inventory levels, and we remained focused on maintaining this key investment at the appropriate levels as we moved into 2013. Our accounts payable balance at March 31 was $1.8 billion. That's up 15% from March 31 of last year. The significant increase in trade payables again this year reflects the ongoing and positive impact of our extended payment terms and other payable initiatives negotiated with our vendors. We're very encouraged with the improvement in this area and its positive impact on our working capital and days payable. Working capital of $2.3 billion at March 31 is down approximately 12% from March 2012 as reported, and is down 3% on a comparative basis after adding back the current debt. Effectively managing accounts receivable, inventory and accounts payable is a very high priority for our company. And our ongoing efforts with these key accounts have resulted in tremendous improvement in our working capital position and cash flow. Our balance sheet remains in excellent condition at March 31. Our debt at March 31, 2013, includes the $500 million in term debt which we've carried for some time now, as well as another $415 million in borrowings under our new multicurrency syndicated credit facility. As stated earlier, the new borrowings relate to the cash transfer this month for the closing of Exego, and that brings our total debt to approximately $915 million at the end of the quarter. This translates in total debt to total capitalization of 23% at the end of the quarter, which is up from 15% at March 31 last year. Looking ahead, we expect our debt to increase by approximately $200 million in the second quarter upon the consolidation with Exego. This will bring our total debt to approximately $1.1 billion and our total debt to capitalization to around 25%. We would add that although we're comfortable with this level of debt in the near term, we will likely use our strong cash flows to reduce our incremental borrowings over time, although we have no exact timetable to do this. In the first quarter of 2013, our cash from operations reached over $116 million. And for the full year, we currently project cash from operations to reach approximately $800 million to $850 million. We expect free cash flow, which deducts capital expenditures and dividends, to be in the $400 million to the $425 million range. The continued strength of our cash flows is encouraging, and we remain committed to several ongoing priorities for the use of our cash, which we believe serve to maximize shareholder value. Our first priority is the dividend, which we have paid every year since going public in 1948 and we've now raised for 57 consecutive years, a record that continues to distinguish Genuine Parts from other companies. Our annual dividend of $2.15 per share for 2013 represents a 9% increase from the $1.98 per share paid in 2012. And it's approximately 52% of our 2002 -- 2012 earnings per share, which is well within our goal of a 50% to 55% payout ratio. Our goal would be to maintain this level of payout ratio going forward. Our other priorities for cash include the ongoing reinvestment in each of our 4 businesses, strategic acquisitions where appropriate and share repurchases. Our investment in CapEx was $13 million for the first quarter, down from $17 million in 2012. For the full year, we expect our CapEx to be in the range of $140 million to $160 million, which is an increase from the prior year amount of $102 million. Much of this increase relates to the planned expenditures for Exego over the balance of the year, although we did have an increase in our ongoing operations as well. We would add that the vast majority of our investments will continue to be weighted towards productivity-enhancing projects, primarily in technology. Depreciation and amortization was $26 million for the quarter, which is consistent with the fourth quarter but up from the first quarter last year, primarily due to the amortization cost. We anticipate depreciation and amortization to be approximately $145 million to $155 million for the full year, which also includes the addition of Exego. Strategic acquisitions continue to be an ongoing and important use of our cash and are integral to the growth plans for the company. We're excited about the growth opportunities we see at Exego, and we will remain active in seeking new acquisitions for our businesses over the remainder of 2013. Generally, we would expect to target those bolt-on types of strategic acquisitions with annual revenues in the $25 million to $125 million range. Finally, we have been active in the company's share repurchase program since 1994. And although we bought minimal shares in the first quarter, we did purchase 1.4 million shares in 2012, and we have another 12 million shares authorized and available for repurchase today. We have no set pattern for these repurchases, but would expect to be active in the program over the balance of 2013. 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 thank all of our GPC associates for their hard work and dedication to their jobs and the success of Genuine Parts Company. The first quarter presented its challenges, but the GPC team worked harder than ever. We're confident the hard work will pay off. The company is well positioned to generate stronger sales and earnings growth over the balance of the year. And as always, we will support our growth with strong cash flow and a healthy balance sheet, further maximizing our return to shareholders. That concludes our financial review today, and I'll now turn it over to Tom.

Thank you, Carol and Paul, for your updates. So that's a recap of our first quarter performance. As mentioned earlier, going back to the beginning of the year, we felt that the first quarter was going to be a challenge for us, and that certainly proved to be the case. However, with that said, we continue to feel good about our prospects over the remainder of the year. And in fact, would like to reaffirm the guidance that was provided in our March 11 call. And our expectation for the full year is revenue increase in the 10% to 12% range and earnings per share to be in the $4.45 to $4.60 range. As a reminder, these figures include the recent completion of our Exego acquisition. And achieving these results would be a solid performance from the GPC team, in our opinion, and we look forward to updating these figures as the year progresses. At this point, I would like to address your questions and will turn the call back over to Brooke.

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

I was just curious, can we look at the CapEx for the first quarter? It was relatively low versus the run rate you were looking at for the full -- your full year. And $140 million to $160 million might be a little bit higher than we were modeling. And I'm just curious, is that a step up that could step down in the coming years? I'm just trying to understand where that might be in out years.

Well, we do. With our business, we do look at stepping that number down if we need to. And we were going to have an increase even without Exego this year because we do have several technology projects that are helping our distribution centers and our stores be more productive. So originally, we had stepped that number up from about $100 million to $115 million to $130 million. And then with Exego, we stepped it up just a little bit more. So that's probably a pretty good run rate. But again, we can adjust that number as need be. But we will continue to reinvest in our businesses with technologies.

Okay. And then a second question. I mean, it looks like auto is doing -- is performing pretty well. But if we look at the other 3 segments -- I know we're looking at some tough comps. But as we progress through the year, you clearly have some sort of comfort and confidence that things are going to improve. I'm just curious if there's anything you're seeing in the market right now or what you saw in January and February that made March an aberration, makes you comfortable sticking with your current guidance of some small improvement through the course of the year?

John, we do in fact see some improvement. It's early in April yet, but the mid-month figures are more in line on a per day basis with what we saw in January and February. And as I said, it is early, but we're hoping that what we saw in March truly was an aberration. And with that said, also, each of our management teams has got some very specific and focused initiatives to try to continue to drive revenue improvements.

Okay. And then lastly, as we look at pricing and your ability to pass through price increases and pricing sort of in the end market. I'm just wondering if you could comment on that in the first quarter, and what you're expecting through the remainder of the year?

We saw, as Carol mentioned, we saw some deflation in the Automotive side of the business in the first quarter. We saw a very modest inflation in both Office Products and in Industrial. And we saw just over 1% in the Electrical side. As far as our ability to pass them on, you may recall that in Automotive, when we get a price increase, we implement a price increase. In the case of Industrial, we do have some contractual arrangements, so where we have a pricing window is where we can implement those price increases. But I think, as a general statement, it would be fair to say that we're comfortable with the fact that we can pass any price increase along as long as we adhere to those pricing windows that are contractually negotiated. As far as the remainder of the year, our outlook right now would be for very modest price increases over the remainder of the year. We don't see any indication at this point that there's going to be a significant push for price increases from our vendor community across each of the businesses. And certainly, we're not going to take one if we don't feel we can maintain our competitive positioning in the marketplace.

Okay. And then truly, just the last question. Carol, I mean, as we look at the balance sheet, I mean, 25% debt to cap, as you indicated you'd be once Exego is fully closed and consolidated, really does not appear that aggressive at all and still fairly conservative. But it sounds like you still kind of want to step back on that debt to cap number over time. I mean, is your philosophy going to be, as the CFO, and Tom, obviously, as the CEO, you're weighing in on this too, is of course -- but that you could potentially run with a little bit more debt than you have historically? Or do you want to get back to sort of that mid-teens debt to cap number? Is that sort of your target? I'm just trying to understand sort of your thought process on the debt that you're taking on here.

Well, John, I'll take the first stab at that, and then Carol can help me out. And I would say that -- keep in mind that at one point, we were in the low-to-mid 30s with debt to total cap. And while we are not uncomfortable at that level, we found that it made more sense for us to pay that down and to use the cash to remove that debt. As we go forward, we'll pay the debt down unless we find a higher and better use of the money for shareholder value creation. So we're not adverse to carrying more debt than we have the last few years. But at the same time, we think it has to make good long-term sense for the shareholders of Genuine Parts Company.

And I guess we're going to continue -- as we continue to support our priorities for cash, as we talked about, our cash flows have been just really strong lately, and we still see some improvement there. So if we can continue to support our dividends, share repurchases, strategic bolt-on acquisitions and our CapEx and then still be able to work on paying down that debt, then that's what we plan to do.

Your next question comes from Chris Horvers with JPMorgan. Christopher Horvers - JP Morgan Chase & Co, Research Division: Focus on the auto side of the house. Can you just clarify how you think about, x the day shift, what the trend looked in January, February and March? You mentioned that April is better. Do you think, with the northern regions and some of the cold-weather categories, I mean, do think that could simply be an anniversary of easier compares? Or do you think that some of the fundamentals are improving as well?

Chris, I'll take a shot at it. This is Paul. The -- and I'll start with your last question first. When you talk about the -- our northern divisions, which for us is comprised pretty much of the Eastern, the Central and the Midwestern, we have seen improvement in the first quarter of about 300 basis points from where they were tracking in Q3 and Q4. So we are pleased to see some progress with those groups. And we're seeing it even hold as we go into April, as well. So we're feeling better about that group. And then you asked, Chris, about the average daily sales, or 1 less day. Certainly, that had an impact in the first quarter, as did how the Easter holiday fell coming into March this year versus April of a year ago. And as we look forward, Chris, we -- certainly, it's early yet in April, but we are seeing a bit of a lift. We're hoping for a bit of normalization of weather at some point, which we all talk a good bit about. But certainly, hoping for a bit of normalization on the weather side. And the comps do get easier, no doubt. But there's an awful lot of -- still an awful lot of deferred maintenance that's sitting out there that at some point has to come into the market. Christopher Horvers - JP Morgan Chase & Co, Research Division: And so when you say it's better in April, that's average daily sales, right? Because you would have had an Easter shift being, I guess, a positive in April?

That's correct. Christopher Horvers - JP Morgan Chase & Co, Research Division: Okay. And so if the northern areas or the cold-weather regions improve 300 basis points sequentially in the quarter, given that the comps stayed flat, does that suggest that the other areas of the country actually slowed down?

No.

No.

It doesn't. I think what Paul is talking about is the delta between the northern operations and the rest of the operations. So the northern operations are still trailing the performance of the remaining operations. But the degree of change has narrowed in the first quarter. if that helps explain that. Christopher Horvers - JP Morgan Chase & Co, Research Division: I think it did. I guess if -- sort if the north improves sequentially on a relative basis, but the comp -- but if the comps remain flat, doesn't -- I guess, doesn't that mean that the -- the total remained flat, doesn't it mean that the other areas had to actually slow down?

Well, they haven't. But what's happened is, if we go back to the third and fourth quarters of last year, the relative difference between the northern operations and the southern operations and the remaining operations, the difference in performance would have been 500 to 600 basis points. In the first quarter, the difference in performance was closer to 300 basis points. I guess the point we're trying to make is that we see the northern operations narrowing the gap with the remaining operations. And if that continues, we would think that, that will continue to enhance the overall performance of the Automotive operations. Christopher Horvers - JP Morgan Chase & Co, Research Division: Okay. And so is there any way to think about how much maybe the spring pull forward? I mean, I would assume on the DIY side of the business that the pull forward last year because of the weather, how much that impacted comps maybe to the positive in 1Q last year and to the detriment in the second quarter?

No, that's a hard number to get to, and we wouldn't hazard a guess on that. We do know it was a positive influence in the first quarter results last year. And we saw evidence of that as we get into the second quarter. And perhaps that's a possible contributor to the fact that we're seeing the comps improve in April back to more what they were in January and February. Christopher Horvers - JP Morgan Chase & Co, Research Division: Okay. And then last one, just on that sort of sequential improvement. Is that on the DIY side of the business as well?

Improving, but the DIY is still the weakest part of our business.

Your next question comes from Matthew Fassler with Goldman Sachs.

First question, and I just want to understand, I guess, the sales growth in Automotive slowed, for my belief, 4.9% to 3.4%. That's in the context of a same-store sales growth that were at the same level, and presumably the acquisition contribution from Q4 to Q1 was pretty consistent. Is that 1.4 percentage point slowdown related to the calendar? Or are there any other moving pieces to understand?

Matt, I'd think it would be more related to the fact that we were short the day in the...

So the 1 day loss?

Yes.

Understood. And then I do want to address the question that Chris asked again because I'm having a hard time understanding it. Presumably, if the gap between 2 segments of your business starts to narrow and the aggregate trend is unchanged, then presumably one got better and the other softened up a bit. So is there another way to get to that outcome?

Well, I'll tell you, rather than get hung up on it here, we could -- I'm going to have Sid do some work on it. And he can follow up directly with you or you can follow up -- and anybody on the call can follow up with Sid, and we'll try to give you a clearer understanding of it.

Understood. And then one other question, please. So you indicated that -- it sounds like there was this soft patch in March. And I think you were talking about the Industrial business, in particular, but perhaps you saw it elsewhere as well. And I'm wondering, if you think about -- and you gave us great segment information for the quarter overall. What are the parts of the economy or the kinds of customers that you saw participate in that slowdown towards the end of the quarter and to the extent that April looks a lot more like January and February. Is it those same segments that recovered? Just interested in some of the moving pieces that are driving that movement.

Matt, I can't parse it in such a way that I can tell you specifically which customer segments in the month of March. I can tell you for the quarter that we saw comparative weakness in what we call equipment and machinery, which is a big category for us. And they would be largely OEM-type manufacturers. And then we continued to see some softness in the mining and aggregate and coal segments. And that was offset some by strength in automotive, and we were encouraged by the fact that lumber and wood products continued to show some improving trends, I guess following what we're all reading about the housing sector. And then pulp and paper held up well for us in the quarter. So -- but I can't address March specifically.

Your next question comes from Keith Hughes with SunTrust.

My question is on Automotive in the commercial space. Your more retail-focused competitors continue to talk about moving in that space, now we've seen this for some time. Can you give us kind of a strategic landscape where you think you are right now in terms of share versus the others and what it's going to look like several years from now?

I'll take the first stab at that, Keith, and maybe Paul can help out. I would suggest that based upon the results we've seen with our 2 primary commercial initiatives, which would be NAPA AutoCare and major account, and the fact that we continue to grow those businesses and those businesses experienced, I think, pretty good growth for us in the quarter. And I think based upon what we can gather anecdotally, our growth in the commercial side of the business might have exceeded the growth of the overall commercial market through the quarter. I think it would suggest to us that, at a minimum, we've held our own share and perhaps we even gained some. And that's a continuation of a trend that we've seen for several years now. Sometimes, we get asked who's the share gainer, who's the share donor? And we can't answer that categorically. We can only base our comment on what we see that's publicly disclosed. And I think it would suggest that the publicly-traded companies, perhaps, are gaining share. And maybe it's coming from some non-publicly-traded companies. As far as what happens going forward, it's going to continue to be a very, very competitive marketplace. So there's no doubt in our minds about that, and it's going to be a matter of who executes most consistently and most crisply going forward. And I think trends in the industry would favor some of the larger players just because of the demands that are out there in terms of the overall investments in inventory, the service levels, the training you give people, the technology, all of the things that are important to a commercial account. So I think they play to the favor of those who have the balance sheet and the logistical capabilities to meet those demands.

And looking out in the future, is consolidation, in your opinion, going to play a big role here, given that we probably have too many retail auto parts stores in the United States right now?

Well, I think the industry overall will probably experience some consolidation. And I think the market dynamics and circumstances will force some of that over time. It's not a new phenomenon. We've seen quite a bit of that going on over the past several years. So our sense is that, that will continue.

Our next question comes from Bret Jordan with BB&T Capital Markets. Bret David Jordan - BB&T Capital Markets, Research Division: Yes, a quick question, I guess sort of following-up on the last question. And you commented that non-fleet commercial was up, while fleet commercial was down somewhat. Is there anything going on in the competitive landscape on fleet commercial?

No, I don't think there's anything necessarily competitive. I think it more directly ties to what we see happening with freight movement. If you look at the TSI, the Transportation Services Index, it actually was down. I think it was down 1.2% or 1.8% in Q4. We don't have Q1 numbers as yet, but my guess is it was probably somewhere in that range. So I think there's just been some modest slowdown in the amount of freight that's being moved. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. And then a follow-up question on DIY. You commented it's being the weakest category. Are you seeing any correlation to improving weather to improving DIY? Does that seem to be a catalyst, or is DIY just generally soft across the board?

Well, we are seeing some evidence of it in those parts of the country where we are having more normal weather. If you go up into the Midwest, we've got the issue with flooding that's going on there. We just had another snowstorm that moved through there. So that's an impediment to the DIY business there. But if we come into the warmer climate states, we do see DIY business a little bit better than what it has been. But I would also say that we think the DIY business, overall, is probably off a bit from where we'd all like to see it, just general economic circumstances.

Our next question comes from Dave Gober with Morgan Stanley.

This is Shaun Kolnick on for Dave. Sorry to stick to the Automotive side again, but some of your peers have called out the impact of the delay in tax refunds and the increase in payroll taxes on the DIY business. Are you seeing those factors impacting the business in Q1? And if so, has that started normalizing in April so far?

I don't think we can pinpoint it that precisely. But logic would suggest that the delay in payroll tax refunds could have an impact. And certainly, the higher payroll tax could have an impact. If you think of a household that has a $75,000 household income, let's say, and they have to get by on $1,500 less in take-home pay, they're going to have to adjust disposable income and spending patterns. And I think, yes, that would be a contributor for sure. The payroll tax refunds will normalize here. But the impact of the increased payroll tax is something we're going to have to work our way through over an extended period.

And just one follow-up on a kind of bigger picture view on the auto business. The store base has been fluctuating over the last few years, but 2012 did see a pickup there. Can we expect store growth over the next couple of years to continue? And what markets do you really see the most opportunity?

Well, we would suggest that you will see store growth, at least from the NAPA side of the business. And we've got some specific plans. I don't think we'd want to necessarily disclose where we think the best opportunities are, but I think you can look for us going forward to expand our store footprint something between 1% and 2% per year.

Our next question comes from Greg Melich with ISI.

I had 2 questions. First, I just want to make sure on the guidance that I got it right. You said that it's unchanged and that -- I thought I heard you say that the sales was unchanged as well as part of that. So could you just update us to whether those ranges by category that you gave earlier in the year, I think it was 5% to 7% in auto and one of the biggest...

Yes, what we had when we gave segment guidance, I think what we said, Greg, was Automotive 5% to 7%, Industrial and the Electrical 4% to 6% and Office Products 1% to 3%. And then, when we came out on March 11, we included contribution that we anticipated from Exego. And that's when we raised it to the 10% to 12% overall. I would say that the guidance we gave by segment, the Industrial and the Electrical, we would have a bias toward the low end of the ranges that we gave only because of what we saw through the first quarter. We still think that Office Products can get into their range. And again, a bias toward the low end of it. And I think we're comfortable with our Automotive guidance that we gave. Does that answer your question?

That does. That's perfect. And then a second on the inflation/deflation front. I guess it ties into gross margin a bit. Auto deflation, if I remember, last year was down a little bit, maybe 0.3%, something like that.

That's correct.

What's driving the continued deflation in auto either by category? And then does that mean that in your gross margin, which actually looked decent in the quarter, all things considered, is it fair to say that auto gross margins would have been up and the others may have been down some, or how should we think about that?

We don't breakout gross margin by segment. The -- what's driving deflation right now, I think, in Automotive are competitive circumstances. And I think manufacturers are having to meet the competitive situations, and it's resulting in deflation, modest deflation but deflation all the same, in our Automotive business.

So that could influence your top line negatively, but does it -- is it fair to say that, that means you can get continued sourcing cost savings to help gross margin in the auto business? I guess that's what I'm trying to figure out. Not give us the numbers, but just directionally speaking.

I think directionally, you could say that -- let me back up. Our expectation right now is that we will see gross margin improvement for Genuine Parts Company as we work our way through the year. And in order to get that, we're going to have to get contribution from each of our businesses. But we do, in fact, think that we will show some gross profit improvement as the year progresses. We went through -- just as a reminder, we went through a several-year period where we actually had some gross margin degradation. And we were able to offset it with some good SG&A work. Last year, we had modest gross margin improvement. And our expectation is that we will, in fact, see some gross profit improvement again in 2013.

Okay. So that auto deflation seems to -- can you confirm that's a trend now? It's been around for at least 5 quarters.

Well, it's been around for a while. I don't know how many quarters, but it's not a new phenomenon.

Our next question comes from Brian Sponheimer with Gabelli & Company. Brian Sponheimer - Gabelli & Company, Inc.: So I just want to talk about Exego for a couple of minutes here. As far as the strategy going forward, any plans to bring the NAPA brand to the region and perhaps use it as a premium branded product within the region?

Brian, I'll take the first stab at that. At this point, no, there is not a plan to do that. And the reason why is that the business operates under the name of Repco. And Repco is a name that's been around actually 2 years longer than Genuine Parts has been around, and they are the #1 brand over there. It's an iconic brand in their home markets. So our plan would be to use our sourcing leverage, combined sourcing leverage, to enable them to continue to do what they do. And they've got their own private label brand in addition to some manufacturer brands. And we're going to continue to let them operate as Repco because they are, in fact, the most highly recognized brand in that marketplace. Brian Sponheimer - Gabelli & Company, Inc.: Okay. And just a question on the states within auto. What can you tell me about maybe this quarter versus Q4 and Q3 from a product mix standpoint? I think you mentioned that average ticket was still up, account was down. Are you seeing consumers go back at all -- or some of your customers go back at all to the mid-grade and potentially high-grade products?

Brian, this is Paul. We're seeing some shift, but not that significant. If you look at it by product category, I think I mentioned earlier, we're seeing strong growth out of our battery categories, strong growth out of some of our electrical products, wiper, some of the winter-type related products, which is a good thing. The brake business continues to be challenging for us, as it has been, and I think for many in the industry, but we are starting to show signs of some improvement in that product category as well. Brian Sponheimer - Gabelli & Company, Inc.: And there's still -- there is still a reticence by your customer base, though, to move up market?

I think that's a fair statement, Brian.

Your next question comes from Scott Ciccarelli with RBC Capital Markets.

This is Patrick Palfrey on for Scott. Earlier in the call, you mentioned that it's just a more competitive sales environment. And I was just wondering if you're seeing that environment more pronounced in one of your segments over the other?

I think it's probably the same across all. And look, we've been through different cycles before. And things tend to get a bit more competitive when we see end market demand slow up some. And everybody's trying to find ways to improve their relative positioning in markets like this. So I don't think it's any more pronounced than what we've seen in other cycles, but it hasn't diminished at all, either.

Our final question comes from Efraim Levy with S&P Capital. Efraim Levy - S&P Equity Research: Last quarter, you said you thought that Q1 would be down, and it was. And then there was some thoughts that possibly -- and this may be specifically to EIS or, I'm not sure, it could be broader than that, that it would be weak. So firstly, has your Q2 view changed?

Well, no. We knew that -- actually, what I think we said was that we thought the first half of the year would be more challenging than the back half of the year, with the first quarter being the most challenging. As we look toward the remainder of the year, I think that if we look at the Industrial-related businesses, their recovery will be a little slower than what we would expect in our Automotive business. And frankly, our Automotive business, I think, held up pretty well under the circumstances and considering the fact that we had all of the variables at play there. So I think Automotive should fare well going forward. I think the others will all improve their position as the year progresses. But I think it will take -- it will be one extra quarter for Industrial and Electrical to probably get back to where they think they'll be. Efraim Levy - S&P Equity Research: Okay. And you have your guidance for CapEx. But I wasn't clear exactly what the reason was why it was down so sharply as a percentage in the first quarter versus last year?

It's a timing difference.

It's a timing thing of projects. So usually in the beginning of the year and dependent on weather and things like that, you may have fewer building projects and things like that. So it's really just a timing thing. We're usually a little lighter in the first quarter. And then honestly, with the slowdown in business, they may have delayed starting some things to start those in Q2 or Q3. Efraim Levy - S&P Equity Research: Okay. And just one more. In the past, you've sometimes differentiated the aftermarket, auto versus tire trends. Is there anything to highlight in that segment?

No, I don't think we have any data that we could update you with

Thank you. That was our final question. I will now turn the call back to management for closing remarks.

We thank you for your time and interest and your support of Genuine Parts Company, and we look forward to talking to you in our second quarter release. And if you need anything else, please let us know. Thank you.

Thank you. That concludes today's Genuine Parts Company First Quarter 2013 Earnings Conference Call. You may now disconnect.