Genuine Parts Gets Thumbs-Up for Solid Third Quarter

Stock and market analysts BB&T Capital Markets has given Genuine Parts Company (GPC) a positive review following solid third-quarter results, and says that the automotive business appears to be “fixed.”

GPC reported a third-quarter 2010 operating EPS of $0.83, ahead of BB&T’s $0.77 estimate and consensus of $0.76. The upside in the quarter came from better-than-expected sales, with big outperformance at Motion Industries (MI) and EIS. Total revenue exceeded its estimate by $75M. (All figures in U.S. dollars.)

Total revenue increased 13.2% in Q3 (ahead of the 10.3% estimate), with growth modestly accelerating from Q2 levels. The big segment winners were industrial and electrical, posting 29% (23% organic) and 31% year-over-year growth, respectively. Granted, MI had easy comparisons, said the analysts, but it appears that trends have exceeded even management’s expectations from a recovery standpoint. With MI typically performing better later in the cycle yet still posting solid trends to date, perhaps even with more difficult year-over-year comparisons starting in Q4, outperformance in the industrial segment is achievable.

BB&T said that after an apparent loss of market share and an aggressive plan to fix the business, it thinks the NAPA segment is now back on track. The company has reported two sequential quarters of +7% growth, and guidance for Q4 is 6%-8% revenue growth. The commercial business was up 9% in the quarter and retail increased 5%, consistent with Q2 results. BB&T said it was encouraged by the solid performances of both NAPA Auto Care and Major Accounts, both growing at a double-digit pace. In addition, the company’s fleet business (20%-25% of auto mix) was up by mid-single digits following +4% in Q2, a flat first quarter, and double-digit declines through all of 2009. With truck tonnage statistics over the past few quarters showing improvement, management anticipates recovery continuing.

Overall, guidance and estimates were moving higher. Management revised its guidance for Q4 revenue to +9%-+11% with total 2010 revenue growth in the 10%-11% range, above prior 2010 guidance for 7%-9% growth. For 2010 EPS, new guidance is $2.90-$2.95, up from the prior range of $2.70-$2.80.

BB&T is raising its full-year estimate to $2.92 (from $2.80), with $0.06 stemming from the beat in Q3; it is also increasing its FY’11 EPS estimate to $3.26 (from $3.05) and initiating a 2012 estimate of $3.62.

“We actually think that GPC may be worth a look for investors that are willing to wait for the cycle to turn, although we maintain our Hold (2) rating for now until we get a bit more visibility into 2011,” said the firm.