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Genuine Parts (GPC) to Post Q2 Earnings: What's in Store?

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Genuine Parts Company (GPC - Free Report) is set to report second-quarter 2018 results on Jul 19, before the opening bell.

In the last reported quarter, the company delivered a miss of 3.8%. Over the trailing four quarters, it topped estimates once while missing in the other three, with an average surprise of a negative 3.5%.

Shares of Genuine Parts have outperformed the industry it belongs to in the past three months. The stock has gained 2% against the industry’s 2.6% decline.

Genuine Parts Company Price and EPS Surprise

Let’s see, how things have shaped up for the upcoming announcement.

Factors Influencing This Quarter

Per the company’s global growth strategy, it regularly undertakes acquisitions to expand the global presence and scale. In June, Genuine Parts announced that its wholly-owned company, Alliance Automotive Group (“AAG”) has signed an agreement to acquire Hennig Fahrzeugteile Group, a Germany-based vehicle parts supplier. Earlier, in November 2017, the company acquired AAG, the second largest parts distribution platform of Europe. These business additions will aid Genuine Parts to further expand in the European markets, with a focus on light-vehicle and commercial-vehicle replacement parts. Results for the to-be-reported quarter are likely to be positively impacted by the contribution from AAG's operations.

Further, the company is divesting its non-core business, S.P. Richards Company or the Business Products segment, to streamline its operations and position itself for sustained long-term growth, and profitability. Announced in April, the spun-out business is to be combined with Essendant. This will enable the company to focus more on the development of its core global automotive and industrial businesses.

However, increasing debt, majorly due to acquisitions, is a concern for the company. In 2017, Genuine Parts’ long-term debt was recorded at $2.6 billion, marking an increase from $550 million recorded in the prior year. A high debt means a huge share of Genuine Parts’ earnings is to be given to the debt holders as an interest, thereby, lowering contributions for shareholders.

Also, rising cost of labor and delivery, as well as ongoing planned IT spending, are resulting in continuous rise of the company’s Selling, General and Administrative (SG&A) expenses that are hampering the gross margin figure.

Earnings Whispers

Our proven model does not conclusively show that Genuine Parts is likely to beat on earnings this quarter. This is because, a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Genuine Parts has an Earnings ESP of -8.19% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.43 and $1.56, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Genuine Parts currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, this, combined with its Earnings ESP, makes a surprise prediction difficult. Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few auto stocks worth considering, comprising the right combination of elements to deliver an earnings beat this time around:

LKQ Corporation (LKQ - Free Report) has an Earnings ESP of +2.43% and a Zacks Rank of 1. The company will report second-quarter 2018 financial figures on Jul 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Visteon Corporation (VC - Free Report) has an Earnings ESP of +1.88% and a Zacks Rank #2. The company’s second-quarter 2018 financial results are scheduled to be released on Jul 26.

Lear Corporation (LEA - Free Report) has an Earnings ESP of +0.25% and is a Zacks #3 Ranked player. The company’s second-quarter 2018 financial numbers are expected to be announced on Jul 26.

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