Why This Automotive Parts Company Is Set for Growth

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Oct 30, 2014

Genuine Parts (GPC, Financial) recently reported fantastic results for the third quarter. It posted better-than-expected results, beating analysts’ estimates on both revenue and earnings. The company is seeing solid traction for its products, which is evident from a solid improvement in sales. But the analysts think Genuine Parts has done well mainly on the back of successful acquisitions in the past. Management is further confident of a better performance in the future. With the future looking bright and the solid cash flow with impressive balance sheet, Genuine Parts is well positioned for a solid performance in the coming days.

Closer look at the results

Genuine Parts’ posted quarterly revenue of $3.99 billion which outspaced consensus estimates of $3.96 billion. While the net income of the company amounted $190.5 million on the board which is also impressive as compared to what it posted in the same quarter last year. Further on the earnings front, the company posted EPS of $1.24 per share which marginally beat consensus estimates of $1.23 per share on earnings.

Genuine Parts looks impressive now. The stock is seeing good movement on the exchange on the back of solid performance in the third quarter. The solid EPS growth and sales momentum going forward, Genuine Parts managed to attract investors to the stock. Further, the company is looking for another better quarter in future. It is focusing on its key segments which had been its growth drivers and it further looks to strengthen these segments to drive more revenue to the camp.

What will drive growth

Genuine Parts is expecting good performance from its major categories as it is seeing positive growth in them. Some of its top performers such as automotive, coal and aggregate, Iron and steel are expected to continue this momentum in future as well driving strongest sales increase in future. The company is pleased with the acquisition which it made during last one year which is helping Genuine Parts meaningfully in increasing its revenue.

The company had acquired safety equipment provider Impact Products LLC in the past which added value to its business and helped it to see good 9.7% growth in the earnings. After the acquisition the sales in the office products segment also improved by an impressive 15% including core 7% from the acquisition. Seeing this growth momentum in sales and earnings, Genuine Parts is further counting on the acquisitions for better contribution of these to its top line.

The company’s office product team looks well positioned and is in good shape. In addition, Genuine Parts is pleased with the momentum which it is seeing across some of its important segments such as Technology products, core office supplies and furniture. Moving forward, the weather conditions seem to be supporting Genuine Parts as with the milder weather conditions than normal, Genuine Parts continues to perform at higher operational levels.

The company is further thinking of a better contribution from its automotive segment. It is pleased with the solid performance of its automotive segment across the U.S., Canada, Mexico and Australia and New Zealand, and it is expecting these segments to positively contribute to Genuine Parts’ sales growth in future. Further it is seeing solid sales growth in the Southern Atlantic and mountain regions of the country. Moreover, the commercial business of Genuine Parts is also on fire with its key growth drivers namely NAPA AutoCare centers. These two wholesale initiatives continues to exceed Genuine Parts’ expectation for better financial results in the coming days.

Moreover, Genuine Parts is also seeing impressive growth in its retail business. It has seen solid improvement in the last quarter. Its dedicated workforce is laser focused on driving increased foot traffic and its average retail ticket value. These efforts are in the infancy state and the company has just started to see them produce good benefits since nine months.

Conclusion

The fundamentals remains steady and positive for Genuine Parts. With a trailing P/E of 20.91 Genuine Parts looks reasonable at these valuation levels. While the forward P/E of the company 18.70 shows good earnings growth as well. It can be clearly seen that Genuine Parts has a strong long term prospect as well with its automotive segment is getting enough traction in the market. Its strategic initiative of acquisition has always been its important growth driver and will continue to be. In addition, Genuine Parts is also impressive with its consistent cash flows and strong balance sheet. Considering all such facts and statistics Genuine Parts is a good pick now and the investors should definitely include the stock in their portfolio.