Genuine Parts Company announced today 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 Chief Executive Officer of Genuine Parts Company. “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.”

Mr. 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⁽¹⁾.

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⁽¹⁾_.

The Company estimates that COVID-19 was an approximate 3.0% headwind to sales and had a 0.7% impact on total segment operating margin, or $0.21 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.

Paul 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.”

Balance Sheet Cash Flow and Capital Allocation

The Company generated cash flow from operations of $74 million in the quarter, an increase of 20% compared to the prior year, driven primarily by the effective management of our working capital. Capital expenditures during the quarter were $45 million, relatively flat to a year ago as the Company’s efforts to reduce non-essential capital expenditures as a result of COVID-19 have yet to take hold.

The Company returned $207 million to shareholders during the quarter, including $111 million in the form of quarterly dividends and $96 million in share repurchases. As previously announced on April 6, 2020, the Company has decided to pause its share repurchase program and curtail acquisition activities until there is greater visibility into the macro environment. Given the current economic conditions, and out of an abundance of caution, the Company remains focused on maintaining liquidity and maximizing cash flow.

Net debt at the end of the quarter was approximately $3.3 billion and the Company has available liquidity of over $1.1 billion, inclusive of $354 million in cash on hand. Additionally, the Company is in compliance with all its debt covenants as of the quarter-end.

(1) Adjusted net income, adjusted diluted net income per common share and sales excluding divestitures are non-GAAP financial measures. Please refer to the supplemental information presented below for reconciliations of the non-GAAP financial measures used in this release to the most comparable GAAP financial measure and related disclosures.

COVID-19 Response and Business Update

The Company 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 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 of our 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 our operations are gradually returning to work. We also continue to closely manage our supply chain and have been in daily communication with our suppliers and customers to preserve business continuity. Our supply chain has been in good standing and supportive of strong service levels to our customers.

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 our communities

Mr. 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.”

2020 Outlook

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.

Conference Call

Genuine Parts Company will hold a conference call today at 11:00 a.m. Eastern time to discuss the results of the quarter and provide a COVID-19 business update. A supplemental earnings deck will also be available for reference. Interested parties may listen to the call on the Company’s website, www.genpt.com, by clicking “Investors,” or by dialing 877-407-0789, conference ID 13701533. A replay will also be available on the Company’s website or at 844-512-2921, conference ID 13701533, two hours after the completion of the call until 12:00 a.m. Eastern time on May 20, 2020.

About Genuine Parts Company

Genuine Parts Company is a distributor of automotive replacement parts in the U.S., Canada, Mexico, Australasia, France, the U.K., Germany, Poland, the Netherlands and Belgium. The Company also distributes industrial replacement parts in the U.S., Canada, Mexico and Australasia through its Industrial Parts Group. S.P. Richards Company, the Business Products Group, distributes a variety of business products in the U.S. Further information is available at www.genpt.com.