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GENUINE PARTS CO 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

GENUINE PARTS CO

Filing date:

02/21/2025

TLDR:

Genuine Parts Co. experienced modest revenue growth but a significant decline in net income due to restructuring costs and inflationary pressures. The company is undertaking a global restructuring plan to improve profitability.

ELI5:

Imagine a store that sells car and industrial parts. They sold a bit more stuff this year, but they made less money because things cost more and they had to reorganize the company.

Accession #:

0000040987-25-000026

Published on

Analyst Summary

  • Net sales increased by 1.7% to $23.5 billion.
  • Net income decreased by 31.3% to $904 million.
  • Gross Profit Margin: 36.3% (2024) vs. 35.9% (2023)
  • SG&A as % of Sales: 28.3% (2024) vs. 26.7% (2023)
  • Net Income Margin: 3.8% (2024) vs. 5.7% (2023)
  • Cash Flow from Operations: $1.25 billion (2024) vs. $1.44 billion (2023)
  • Basic EPS Calculation: $904,076 / 139,208 = $6.49
  • Diluted EPS Calculation: $904,076 / 139,670 = $6.47
  • Current Ratio: Total Current Assets / Total Current Liabilities = $9,852,584 / $8,525,380 = 1.16
  • Quick Ratio (Acid-Test Ratio): (Total Current Assets – Merchandise Inventories) / Total Current Liabilities = ($9,852,584 – $5,514,427) / $8,525,380 = 0.51
  • Cash Ratio: (Cash and Cash Equivalents) / Total Current Liabilities = $479,991 / $8,525,380 = 0.06
  • Debt-to-Equity Ratio: Total Debt / Total Equity = $4,314,480 / $4,351,851 = 0.99
  • Debt-to-Assets Ratio: Total Debt / Total Assets = $4,314,480 / $19,282,705 = 0.22
  • Interest Coverage Ratio (Times Interest Earned): Earnings Before Interest and Taxes (EBIT) / Interest Expense = (Net Income + Income Taxes + Interest Expense) / Interest Expense = ($904,076 + $271,892 + $96,827) / $96,827 = 13.14
  • Inventory Turnover: Cost of Goods Sold / Average Inventory = $14,962,954 / (($5,514,427 + $4,676,686) / 2) = 2.93
  • Days Sales Outstanding (DSO): (Accounts Receivable / Net Sales) * 365 = ($2,182,856 / $23,486,569) * 365 = 33.9 days
  • Days Payable Outstanding (DPO): (Accounts Payable / Cost of Goods Sold) * 365 = ($5,923,684 / $14,962,954) * 365 = 144.6 days
  • Asset Turnover: Net Sales / Total Assets = $23,486,569 / $19,282,705 = 1.22
  • Price-to-Earnings Ratio (P/E): Stock Price / EPS = $121.63 / $6.47 = 18.80
  • Price-to-Book Ratio (P/B): Market Cap / Book Value of Equity = (Shares Outstanding * Stock Price) / Total Equity = (138,779,664 * $121.63) / $4,351,851,000 = 3.87
  • Price-to-Sales Ratio (P/S): Market Cap / Net Sales = (138,779,664 * $121.63) / $23,486,569,000 = 0.72
  • Enterprise Value to EBITDA (EV/EBITDA): EV = Market Cap + Total Debt – Cash and Cash Equivalents = (138,779,664 * $121.63) + $4,314,480,000 – $479,991,000 = $20,718,888,000
  • Revenue Growth: (Current Revenue – Previous Revenue) / Previous Revenue = ($23,486,569 – $23,090,610) / $23,090,610 = 1.7%
  • Net Income Growth: (Current Net Income – Previous Net Income) / Previous Net Income = ($904,076 – $1,316,524) / $1,316,524 = -31.3%
  • EPS Growth: (Current EPS – Previous EPS) / Previous EPS = ($6.47 – $9.33) / $9.33 = -30.7%
  • Adjusted EBITDA for 2024 is $1,996,502 (in thousands).
  • During 2024, the company repurchased 319,659 shares at an average price of $122.29.
  • The company has accrued $256 million for asbestos-related product liabilities as of December 31, 2024.

Genuine Parts Co. (GPC) 2024 10-K Report Analysis

Executive Summary

This report analyzes Genuine Parts Co.’s (GPC) 2024 10-K filing. GPC experienced modest revenue growth, driven by acquisitions, but a significant decline in net income due to restructuring costs and inflationary pressures. While the Automotive segment showed resilience, the Industrial segment faced headwinds. The company is undertaking a global restructuring plan to improve profitability. Overall, a cautious outlook is warranted, with a focus on monitoring the success of the restructuring and the impact of macroeconomic factors. A “Hold” rating is suggested, pending further evidence of successful execution of strategic initiatives.

Company Overview

Genuine Parts Company (GPC) is a global distributor of automotive and industrial replacement parts, operating primarily in North America, Europe, and Australasia. The company operates through two segments: Automotive Parts Group and Industrial Parts Group. Recent developments include strategic acquisitions in the U.S. Automotive market and a global restructuring plan.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights revenue growth driven by acquisitions but acknowledges the impact of weak market conditions on comparable sales. The tone is cautiously optimistic, emphasizing strategic initiatives to improve operating margins and drive long-term growth. The MD&A discusses a global restructuring program and its expected cost savings. A red flag is the significant increase in SG&A expenses, attributed to inflationary pressures and technology investments, which offset gross margin improvements.

Financial Statement Analysis

Income Statement

  • Net sales increased by 1.7% to $23.5 billion.
  • Cost of goods sold increased by 1.1%, but gross margin improved to 36.3% from 35.9%.
  • Selling, administrative, and other expenses (SG&A) increased significantly by 7.7%.
  • Net income decreased by 31.3% to $904 million.

Key Ratios:

  • Gross Profit Margin: 36.3% (2024) vs. 35.9% (2023)
  • SG&A as % of Sales: 28.3% (2024) vs. 26.7% (2023)
  • Net Income Margin: 3.8% (2024) vs. 5.7% (2023)

Balance Sheet

  • Cash and cash equivalents decreased significantly.
  • Merchandise inventories increased substantially, likely due to acquisitions.
  • Total debt increased, reflecting financing activities.

Key Observations:

  • The increase in inventory should be monitored to ensure efficient inventory management.
  • Increased debt levels warrant attention to leverage ratios and debt service coverage.

Cash Flow Statement

  • Cash flow from operations decreased due to lower net income and changes in working capital.
  • Significant cash was used for investing activities, primarily acquisitions and capital expenditures.
  • Financing activities included debt proceeds, dividend payments, and share repurchases.

Key Metrics:

  • Cash Flow from Operations: $1.25 billion (2024) vs. $1.44 billion (2023)

Uncommon Metrics & Footnotes

  • Inventory Rebranding Strategic Initiative: A $62 million charge to write down inventory related to a rebranding effort suggests a significant shift in product strategy.
  • Restructuring Costs: The global restructuring plan is expected to generate significant cost savings but also involves substantial upfront costs.
  • Asbestos Liability: The company continues to face asbestos-related claims, requiring ongoing assessment and accrual of liabilities.
  • Supply Chain Finance Programs: GPC uses supply chain finance programs, with significant obligations outstanding.

Comparative & Trend Analysis

  • Historical Comparison: While revenue increased slightly, profitability declined significantly compared to the previous year.
  • Segment Performance: The Automotive segment showed revenue growth, while the Industrial segment experienced a decline.
  • Risk Factors: The 10-K highlights risks related to demand fluctuations, supply chain disruptions, competition, geopolitical conflicts, cybersecurity, and regulatory changes.

Conclusion & Actionable Insights

GPC’s 2024 results reflect a mixed performance, with revenue growth offset by increased expenses and restructuring costs. The company’s strategic initiatives, particularly the global restructuring plan, are crucial for improving profitability. Investors should monitor the following:

  • Progress in achieving cost savings from the restructuring plan.
  • The impact of macroeconomic factors on demand in both the Automotive and Industrial segments.
  • Inventory management and debt levels.
  • The resolution of asbestos-related claims.

Overall Assessment: Hold

Recommendations:

  • Closely monitor the company’s progress in executing its strategic initiatives.
  • Assess the impact of macroeconomic factors on GPC’s future performance.
  • Evaluate the company’s ability to manage its debt and inventory levels effectively.

Genuine Parts Company (GPC) Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Calculation: Gross Profit / Net Sales = $8,523,615 / $23,486,569 = 36.3%
    • Trend: Previous year Gross Profit Margin was 35.9%. Percentage change: ((36.3 – 35.9) / 35.9) * 100 = 1.11%
    • Industry: The auto parts industry typically sees gross margins between 30% and 40%. GPC’s margin is within this range.
  • Operating Profit Margin:

    • Calculation: (Net Sales – Cost of Goods Sold – Total Operating Expenses) / Net Sales = ($23,486,569 – $14,962,954 – $7,294,399) / $23,486,569 = 5.0%
    • Trend: Previous year Operating Profit Margin was 7.5%. Percentage change: ((5.0 – 7.5) / 7.5) * 100 = -33.33%
    • Industry: Operating margins for auto parts distributors are typically in the 5% to 10% range. GPC’s margin is at the lower end.
  • Net Profit Margin:

    • Calculation: Net Income / Net Sales = $904,076 / $23,486,569 = 3.8%
    • Trend: Previous year Net Profit Margin was 5.7%. Percentage change: ((3.8 – 5.7) / 5.7) * 100 = -33.33%
    • Industry: Net profit margins for the industry are generally between 3% and 7%. GPC’s margin is at the lower end.
  • Return on Assets (ROA):

    • Calculation: Net Income / Total Assets = $904,076 / $19,282,705 = 4.7%
    • Trend: To determine the trend, we would need the ROA from the previous comparable period, which is not provided in the filing.
    • Industry: Average ROA for the industry is around 5-10%. GPC’s ROA is below average.
  • Return on Equity (ROE):

    • Calculation: Net Income / Total Equity = $904,076 / $4,351,851 = 20.8%
    • Trend: To determine the trend, we would need the ROE from the previous comparable period, which is not provided in the filing.
    • Industry: Average ROE for the industry is around 10-15%. GPC’s ROE is above average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Basic EPS Calculation: $904,076 / 139,208 = $6.49
    • Diluted EPS Calculation: $904,076 / 139,670 = $6.47
    • Trend: Previous year Diluted EPS was $9.33. Percentage change: (($6.47 – $9.33) / $9.33) * 100 = -30.65%
    • Industry: EPS varies widely.

Liquidity

  • Current Ratio:

    • Calculation: Total Current Assets / Total Current Liabilities = $9,852,584 / $8,525,380 = 1.16
    • Trend: Previous year Current Ratio was $9,605,852 / $7,827,109 = 1.23. Percentage change: ((1.16 – 1.23) / 1.23) * 100 = -5.69%
    • Industry: A current ratio of 1.0 to 2.0 is generally considered healthy. GPC is within this range.
  • Quick Ratio (Acid-Test Ratio):

    • Calculation: (Total Current Assets – Merchandise Inventories) / Total Current Liabilities = ($9,852,584 – $5,514,427) / $8,525,380 = 0.51
    • Trend: Previous year Quick Ratio was ($9,605,852 – $4,676,686) / $7,827,109 = 0.63. Percentage change: ((0.51 – 0.63) / 0.63) * 100 = -19.05%
    • Industry: A quick ratio of 1.0 or greater is preferred, but acceptable values vary by industry. GPC’s ratio is below 1.0.
  • Cash Ratio:

    • Calculation: (Cash and Cash Equivalents) / Total Current Liabilities = $479,991 / $8,525,380 = 0.06
    • Trend: Previous year Cash Ratio was $1,102,007 / $7,827,109 = 0.14. Percentage change: ((0.06 – 0.14) / 0.14) * 100 = -57.14%
    • Industry: A cash ratio of 0.5 or higher is generally considered good, but this varies. GPC’s ratio is low.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Calculation: Total Debt / Total Equity = $4,314,480 / $4,351,851 = 0.99
    • Trend: Previous year Debt-to-Equity Ratio was $3,934,374 / $4,416,985 = 0.89. Percentage change: ((0.99 – 0.89) / 0.89) * 100 = 11.24%
    • Industry: A debt-to-equity ratio of 1 to 1.5 is considered normal. GPC is slightly below this range.
  • Debt-to-Assets Ratio:

    • Calculation: Total Debt / Total Assets = $4,314,480 / $19,282,705 = 0.22
    • Trend: Previous year Debt-to-Assets Ratio was $3,934,374 / $17,968,454 = 0.22. Percentage change: ((0.22 – 0.22) / 0.22) * 100 = 0%
    • Industry: A debt-to-assets ratio below 0.5 is generally considered good. GPC is well below this level.
  • Interest Coverage Ratio (Times Interest Earned):

    • Calculation: Earnings Before Interest and Taxes (EBIT) / Interest Expense = (Net Income + Income Taxes + Interest Expense) / Interest Expense = ($904,076 + $271,892 + $96,827) / $96,827 = 13.14
    • Trend: Previous year Interest Coverage Ratio was ($1,316,524 + $425,824 + $64,469) / $64,469 = 28.02. Percentage change: ((13.14 – 28.02) / 28.02) * 100 = -53.11%
    • Industry: A ratio above 1.5 is generally considered safe. GPC’s ratio is very strong.

Activity/Efficiency

  • Inventory Turnover:

    • Calculation: Cost of Goods Sold / Average Inventory = $14,962,954 / (($5,514,427 + $4,676,686) / 2) = 2.93
    • Trend: Previous year Inventory Turnover was $14,799,938 / (($4,676,686 + $4,046,867) / 2) = 3.39. Percentage change: ((2.93 – 3.39) / 3.39) * 100 = -13.57%
    • Industry: Inventory turnover varies widely.
  • Days Sales Outstanding (DSO):

    • Calculation: (Accounts Receivable / Net Sales) * 365 = ($2,182,856 / $23,486,569) * 365 = 33.9 days
    • Trend: Previous year DSO was ($2,223,431 / $23,090,610) * 365 = 35.1 days. Percentage change: ((33.9 – 35.1) / 35.1) * 100 = -3.42%
    • Industry: DSO varies widely.
  • Days Payable Outstanding (DPO):

    • Calculation: (Accounts Payable / Cost of Goods Sold) * 365 = ($5,923,684 / $14,962,954) * 365 = 144.6 days
    • Trend: Previous year DPO was ($5,499,536 / $14,799,938) * 365 = 135.7 days. Percentage change: ((144.6 – 135.7) / 135.7) * 100 = 6.56%
    • Industry: DPO varies widely.
  • Asset Turnover:

    • Calculation: Net Sales / Total Assets = $23,486,569 / $19,282,705 = 1.22
    • Trend: Previous year Asset Turnover was $23,090,610 / $17,968,454 = 1.28. Percentage change: ((1.22 – 1.28) / 1.28) * 100 = -4.69%
    • Industry: Asset turnover varies widely.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Calculation: Stock Price / EPS = $121.63 / $6.47 = 18.80
    • Trend: To determine the trend, we would need the P/E from the previous comparable period, which is not provided in the filing.
    • Industry: The average P/E ratio for the S&P 500 is around 20-25. GPC’s P/E ratio is slightly below this range.
  • Price-to-Book Ratio (P/B):

    • Calculation: Market Cap / Book Value of Equity = (Shares Outstanding * Stock Price) / Total Equity = (138,779,664 * $121.63) / $4,351,851,000 = 3.87
    • Trend: To determine the trend, we would need the P/B from the previous comparable period, which is not provided in the filing.
    • Industry: A P/B ratio between 1 and 3 is considered a good value. GPC’s P/B ratio is slightly above this range.
  • Price-to-Sales Ratio (P/S):

    • Calculation: Market Cap / Net Sales = (138,779,664 * $121.63) / $23,486,569,000 = 0.72
    • Trend: To determine the trend, we would need the P/S from the previous comparable period, which is not provided in the filing.
    • Industry: A P/S ratio below 1 is generally considered good. GPC’s P/S ratio is below 1.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Calculation: EV = Market Cap + Total Debt – Cash and Cash Equivalents = (138,779,664 * $121.63) + $4,314,480,000 – $479,991,000 = $20,718,888,000
    • EBITDA = $1,680,773,000
    • EV/EBITDA = $20,718,888,000 / $1,680,773,000 = 12.33
    • Trend: To determine the trend, we would need the EV/EBITDA from the previous comparable period, which is not provided in the filing.
    • Industry: An EV/EBITDA between 10 and 15 is considered normal. GPC’s EV/EBITDA is within this range.

Growth Rates

  • Revenue Growth:

    • Calculation: (Current Revenue – Previous Revenue) / Previous Revenue = ($23,486,569 – $23,090,610) / $23,090,610 = 1.7%
  • Net Income Growth:

    • Calculation: (Current Net Income – Previous Net Income) / Previous Net Income = ($904,076 – $1,316,524) / $1,316,524 = -31.3%
  • EPS Growth:

    • Calculation: (Current EPS – Previous EPS) / Previous EPS = ($6.47 – $9.33) / $9.33 = -30.7%

Other Relevant Metrics

  • Adjusted EBITDA:

    • Calculation: Adjusted EBITDA for 2024 is $1,996,502 (in thousands).
    • Trend: Adjusted EBITDA for 2023 was $2,157,346 (in thousands). Percentage change: (($1,996,502 – $2,157,346) / $2,157,346) * 100 = -7.5%
    • Significance: Adjusted EBITDA is a non-GAAP measure that excludes certain items to provide a clearer picture of core operational performance. The adjustments include restructuring and other costs, acquisition and integration-related costs, and inventory rebranding strategic initiative.
    • Assessment: The adjustments seem reasonable as they relate to one-time events or strategic initiatives.
  • Share Repurchases:

    • During 2024, the company repurchased 319,659 shares at an average price of $122.29.
    • This indicates the company’s belief that its shares are undervalued.
  • Asbestos-Related Product Liability:

    • The company has accrued $256 million for asbestos-related product liabilities as of December 31, 2024.
    • This is a significant liability and requires complex judgments and assumptions.

2. Commentary

Genuine Parts Company’s financial performance in 2024 shows a mixed picture. While revenue experienced a slight increase, profitability metrics such as operating profit margin and net profit margin declined significantly. The company’s liquidity remains adequate, but the cash ratio has decreased substantially. GPC’s debt-to-equity ratio increased slightly, while the interest coverage ratio decreased significantly, although it remains strong. The company’s adjusted EBITDA decreased, indicating a decline in core operational performance.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️