Genuine Parts Co. (GPC) announced today its results for the first quarter ended March 31, 2020 and provided a business update on how it is navigating through the COVID-19 pandemic.
“Our hearts go out to the millions affected by the ongoing COVID-19 pandemic, and we thank those healthcare providers, first responders and other workers on the front lines of our fight against this outbreak. Their commitment to the care and protection of our citizens and communities is admirable and greatly appreciated,” said Paul Donahue, chairman and CEO of Genuine Parts Co. “We also owe a debt of gratitude to our associates across the GPC family. Our team members have stepped up with a powerful display of commitment to GPC and our mission. Working together, we have rallied through the crisis with preparedness plans to help our employees stay healthy and well, and our operations remain safe, open and positioned to service our customers’ critical needs during these unprecedented times.”
Donahue added, “Our top priority remains the health and safety of our employees, customers and communities, and the enhanced protocols at each of our facilities and offices have required us to change the way we are conducting business. As our automotive, industrial and business products operations are each classified ‘essential’ businesses to the communities in which we serve, our ability to adapt to the changing circumstances as dictated by COVID-19 has allowed us to continue operations and serve our valued customers.”
First Quarter 2020 Results
Sales for the first quarter ended March 31, 2020 were $4.6 billion, a 3.7% decrease compared to $4.7 billion for the same period in 2019. Total sales for the first quarter included the contribution of 5.3% from prior year acquisitions, offset by a 3.5% comparable sales decrease, a 0.9% negative impact from foreign currency translation and a 4.8% impact due to the divestiture of certain businesses. Excluding divestitures, net sales were up 1.1% in the first quarter.
Net income for the first quarter was $136.5 million and diluted earnings per share were $0.94. Excluding the impact of certain transaction, restructuring and other costs and income, adjusted net income was $133.4 million, or $0.92 per diluted share compared to $1.28 per diluted share last year.
The company said it estimates that COVID-19 was an approximate 3.0% headwind to sales and had a 0.7% impact on total segment operating margin, or 21 cents per diluted share in the first quarter. In addition, a non-cash mark-to-market expense related to a retirement plan valuation adjustment, incurred due to the extraordinary decline in the financial markets during the quarter, was an additional $0.10 headwind to earnings per share.
First quarter sales for the Automotive Group were down 1.6%, or down 1.0% excluding divestitures. This includes a 5.7% contribution from acquisitions and other adjustments, less a 5.0% comparable sales decrease and an unfavorable foreign currency translation of 1.7%. Sales for the Industrial Parts Group were down 7.7%, or up 4.7% excluding the EIS divestiture. The increase in sales reflects a 7.8% benefit from acquisitions, offset by a 3.1% comparable sales decrease. Sales for the Business Products Group were down 2.3%, including a 3.8% decrease related to the sale of SPR Canada and other divestitures. Excluding these divestitures, sales for Business Products were up 1.5% for the quarter.
Donahue commented, “Our first quarter results were driven by total sales growth of 1.1% excluding the impact of divestitures, as the sales and operating environment were severely impacted by the COVID-19 pandemic as the quarter progressed. Despite the challenges of these unprecedented business conditions, our North American industrial operations as well as both our automotive and industrial businesses in Australasia operated well and reported improved profit margins. In addition, we improved our total gross margin rate in the quarter and implemented accelerated costs savings initiatives to more effectively leverage our cost structure as we move forward. We also took steps to modify our capital allocation priorities, review our debt structure and more effectively manage our working capital to preserve cash and ensure ample liquidity through the crisis.”
COVID-19 Response and Business Update
GPC entered 2020 focused to execute its strategic growth initiatives, improve its operating performance and productivity, maintain a strong balance sheet, deliver meaningful cash flows and effectively allocate capital. Prior to the occurrence of the COVID-19 pandemic, 2020 was poised to be an exciting year, with $100 million in cost savings initiatives well underway and plans in place for both top and bottom-line growth.
As steps to prevent the spread of COVID-19 by government and health officials began to significantly affect routine consumer behavior, the company said it experienced a sharp decline in demand beginning in mid-March, and this trend continued for the balance of the quarter and throughout April. For perspective, after a strong start to March, with daily sales excluding divestitures trending at greater than 4% growth through the first half of the month, daily sales were down approximately 16% over the last two weeks of the quarter. In April, total daily sales excluding divestitures were down an estimated 25%, with the Automotive Group down approximately 30%, Industrial down 10% and Business Products down 20%.
As of May 6, 2020, most GPC facilities are operational, except for France which remains in temporary lockdown due to preemptive government mandates. In New Zealand, which was also in full lockdown throughout most of March and April, the government has initiated the process of easing its restrictions and GPC operations are gradually returning to work. The company said it also continues to closely manage its supply chain and has been in daily communication with suppliers and customers to preserve business continuity.
In consideration of the severe impact of COVID-19 and continued uncertainty in the coming months, the company has been focused on the controlled execution of its preparedness plans, including:
• Enhanced safety protocols for employees and facilities
• Diligent and more frequent communications with employees, suppliers and customers
• Innovation in customer service capabilities to drive sales, including on-line, curbside pick-up, ship to home and touchless delivery offerings
• Realignment of capital allocation priorities to effectively preserve cash
• More favorable debt covenants, effective May 1, 2020
• Evaluating alternative forms of liquidity – including utilization of asset-based lending
• Implementation of accelerated and substantial cost savings initiatives
• Generous giving in support of healthcare providers and first responders in its communities
Donahue concluded, “These are unusual and difficult times, but we are very proud of how our team has responded and confident that we will pull through this crisis and emerge well-positioned for the future. This is a testament to the strong GPC culture and deeply embedded values throughout the organization, gained from our 93-year history.”
On April 6, 2020, the company withdrew its full-year 2020 guidance. “Due to the economic uncertainty as a result of the rapidly evolving COVID-19 pandemic and the limited visibility on the impacts to our businesses, we cannot reasonably estimate the Company’s full year financial and operating results at this time. Therefore, we will not be providing annual guidance updates until macro-economic conditions improve,” GPC stated in a press release.