Earnings Analysis: Genuine Parts Co.(NYSE:GPC)

Earnings Analysis: Genuine Parts Co.(NYSE:GPC)Genuine Parts Company (NYSE:GPC) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Genuine Parts Co.’s analysis versus peers uses the following peer-set: Toyota Tsusho (South Seas) Limited (TYO:8015), LKQ Corporation (NASDAQ:LKQ), China Zhengtong Auto Services Hldg Ltd (HKG:1728), Dorman Products Inc. (NASDAQ:DORM), Standard Motor Products, Inc. (NYSE:SMP) and SPK CORPORATION (TYO:7466). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2012-09-30 2012-06-30 2012-03-31 2011-12-31 2011-09-30
Revenues 3,375.8 3,337.8 3,181.3 3,014.1 3,285.6
Revenue Growth % 1.1 4.9 5.5 (8.3) 3.2
Net Income 172.9 168.6 146.3 135.0 151.8
Net Income Growth % 2.6 15.3 8.4 (11.1) 0.0
Net Margin % 5.1 5.1 4.6 4.5 4.6
ROE % (Annualized) 23.1 23.2 20.6 19.1 20.9
ROA % (Annualized) 11.0 11.0 9.5 9.0 10.6

Valuation Drivers

Genuine Parts Co. currently trades at a higher Price/Book ratio (3.1) than its peer median (1.9). GPC-US’s operating performance is higher than the median of its chosen peers (ROE of 21.0% compared to the peer median ROE of 14.9%) but the market does not seem to expect higher growth relative to peers (PE of 15.4 compared to peer median of 14.3) but simply to maintain its relatively high rates of return.

The company’s median net profit margins of 4.8% and relative asset efficiency (asset turns of 2.1x compared to peer median of 1.7x) give it some operating leverage. GPC-US’s net margin is its highest relative to the last five years and compares to a low of 4.0% in 2009.

Economic Moat

Changes in the company’s annual top line and earnings (11.2% and 18.8% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

GPC-US’s current return on assets is around peer median (10.2% vs. peer median 8.6%). This contrasts with its higher than peer median return on assets over the past five years (9.2% vs. peer median 4.6%), suggesting that the company’s relative operating performance has declined.

The company’s gross margin of 29.1% is around peer median suggesting that GPC-US’s operations do not benefit from any differentiating pricing advantage. In addition, GPC-US’s pre-tax margin of 7.6% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

GPC-US’s revenues have grown at about the same rate as its peers (4.2% vs. 4.2% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 15.4. The historical performance and long-term growth expectations for the company are largely in sync.

GPC-US’s annualized rate of change in capital of 5.0% over the past three years is less than its peer median of 7.4%. This investment has generated a better than peer median return on capital of 15.1% averaged over the same three years. This combination of a relatively low investment with good returns suggests that the company is likely milking its business.

Earnings Quality

GPC-US’s net income margin for the last twelve months is around the peer median (4.8% vs. peer median of 4.8%). This average margin and relatively conservative accrual policy (2.1% vs. peer median of -1.0%) suggests possible understatement of its reported net income.

GPC-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also greater than the peer median which suggests some amount of building of reserves.

Trend Charts

Graph of Revenues Trend for Genuine Parts Co. (NYSE:GPC)
Graph of Revenues Trend for Genuine Parts Co. (NYSE:GPC)
Graph of Net Margin Trend for Genuine Parts Co. (NYSE:GPC)
Graph of Net Margin Trend for Genuine Parts Co. (NYSE:GPC)
Graph of Accruals Trend (% revenues, Quarterly) for Genuine Parts Co. (NYSE:GPC)
Graph of Accruals Trend (% revenues, Annual or TTM) for Genuine Parts Co. (NYSE:GPC)

Company Profile

Genuine Parts Co. distributes automotive and industrial replacement parts. The company operates its business through the following segments: Automotive, Industrial, Office Products, and Electrical/Electronic Materials. The Automotive segment distributes replacement parts for substantially all makes and models of automobiles, trucks, and other vehicles. The Industrial segment distributes a wide variety of industrial bearings, mechanical and fluid power transmission equipment, including hydraulic and pneumatic products, material handling components, and related parts and supplies. The Office Products segment distributes a wide variety of office products, computer supplies, office furniture, and business electronics. The Electrical/Electronic Materials segment distributes a wide variety of electrical/electronic materials, including insulating and conductive materials for use in electronic and electrical apparatus. Genuine Parts was founded on May 7, 1928 and is headquartered in Atlanta, GA.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

This article was originally written by abha.dawesar, and posted on CapitalCube.

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