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On Jun 19, we downgraded Genuine Parts Company (GPC - Analyst Report) to Neutral from Outperform based on first quarter performance where earnings remained flat year on year and revenues missed our estimates. However, we still believe that the company will benefit from the various initiatives undertaken to boost performance, such as product line expansion, penetration into new markets and acquisitions.

Why the Downgrade?

On Apr 19, Genuine Parts posted earnings per share of 93 cents for the first quarter of 2013, which were flat compared with the year-ago level. Earnings also missed the Zacks Consensus Estimate by 6 cents per share.

Quarterly sales grew marginally by 0.6% to $3.2 billion, missing the Zacks Consensus Estimate of $3.3 billion. The marginal rise was mainly attributable to poor sales in the company’s Industrial, Electrical, and Office Products segments, which were offset by improvement in the Automotive segment.

Following the release of the first quarter results, the Zacks Consensus Estimate for 2013 decreased 0.7% to $4.51 per share. The Zacks Consensus Estimate for 2014 dropped 0.6% to $4.90 per share. Currently, Genuine Parts retains a Zacks Rank #3 (Hold).

Genuine Parts will benefit from various initiatives undertaken by it for boosting performance. The company has focused on product line expansion, penetration into new markets and cost-saving activities. In addition, the company will benefit from diverse product portfolio and rising demand in Automotive Parts segment.

The acquisition of Quaker City Motor Parts will help Genuine Parts to improve in future. The company expects that the acquisition will deliver a fabulous opportunity in the mid-Atlantic region with 270 NAPA parts stores.

However, Genuine Parts faced a challenging situation due to the slow start in 2013. In addition, margins are under pressure as Genuine Parts has been unable to implement meaningful price hikes in its automotive business owing to pressure from retailers. Margin expansions in Industrial Parts and Electrical/Electronic Material segments are also limited as it sells lower-margin products.

Other Stocks to Consider

Some other stocks that are performing well in the industry where Genuine Parts operates include Standard Motor Product Inc. (SMP - Analyst Report), Motorcar Parts of America Inc. (MPAA - Snapshot Report) and LKQ Corp. (LKQ - Snapshot Report). Standard Motor is a Zacks Rank #1 (Strong Buy) stock, while Motorcar Parts and LKQ both carry a Zacks Rank #2 (Buy).
 

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