Napa Auto Parts 2015 Annual Report Download - page 4

FINANCIAL STRENGTH
Genuine Parts Company further improved its financial strength in 2015 with
a continued emphasis on sales and earnings growth initiatives and effective
management of the balance sheet. Our focus in these key areas produced
strong cash flows, with cash from operations reaching a record $1.2
billion and, after dividends paid of $368 million and capital expenditures
of $110 million, our free cash flow was $682 million, also a record for us.
At December 31, 2015, our total cash on hand was $212 million and total
debt of $625 million was a modest 16.5% of total capitalization.
OPERATIONS
The Company’s 2015 revenues included core sales growth of
approximately 1.5% and a 1% contribution from acquisitions. These
growth components were offset by the negative impact of currency
translation of approximately 3%.
The Automotive Group, our largest segment at 52% of 2015 revenues,
reported a 1% sales decline for the year. This reflects core sales growth
of approximately 3.5% and a slight benefit from acquisitions, offset by an
approximate 5% currency impact. Each of our four geographic regions, the
United States, Canada, Mexico and Australasia, generated positive core
sales increases in their local currencies. In addition, we experienced sales
growth from both our commercial and retail customers. The fundamentals
supporting demand in the automotive aftermarket remain favorable and
combined with our internal initiatives, we are optimistic for continued
growth in 2016 and beyond.
Motion Industries, our industrial distribution business, represents 30% of
our 2015 revenues. Sales for Motion were off 3% from 2014, consisting of a
3% decrease in core sales and a 1% headwind from currency, which were
partially offset by a 1% contribution from acquisitions. The manufacturing
indices we track in this segment, which had improved in 2014, progressively
weakened throughout 2015. This correlates to lower demand among our
customer base and, in particular, those customers dependent on exports
as well as the oil and gas sector. EIS, our electrical/electronic distribution
segment, represents 5% of our 2015 revenues. As with Motion, this
business is dependent on the manufacturing segment of the economy. EIS
grew sales by approximately 1.5% for the year, driven by a 5% contribution
from acquisitions, less a 2.5% decrease in core sales and a 1% headwind
from falling copper prices. Looking ahead, we expect the tough industrial
economy to persist well into 2016. That said, we have multiple initiatives in
place at both Motion and EIS to help us overcome these challenges.
S. P. Richards, our office products distribution business, represents 13%
of our 2015 revenues and had sales growth of 7.5% for the year. This
follows a 10% sales increase in 2014, and consists of core sales growth
of 5% and a 3% contribution from acquisitions, net of a 0.5% unfavorable
currency translation. New business with a key customer, initiated in 2014,
and growth initiatives to diversify the SPR business positively impacted
our core sales. Turning to 2016, the office team will continue to focus on
its growth initiatives, including the ongoing diversification of product and
customer portfolios, market share gains and select acquisitions.
ACQUISITIONS
Acquisitions continue to be a very important component of our growth
strategy. During 2015, we expanded our automotive network with the
purchase of three automotive store groups in the U.S. and two new
businesses in Australasia. At Motion, we made four acquisitions, further
expanding our U.S. distribution footprint while also complementing our vast
product offering of industrial MRO (maintenance, repair and operations)
and supply items. Our electrical distribution business acquired a specialty
wire and cable distributor and, finally, the office segment completed
three acquisitions, further diversifying their product offering and
customer channels.
Thus far in 2016, we have made one acquisition for the U.S. automotive
business, which enhances our OE (original equipment) import parts
distribution capabilities. We are encouraged by the growth prospects for
our recent acquisitions and will continue to pursue additional strategic
acquisition targets throughout 2016.
SHARE REPURCHASES
We returned more than $660 million to our shareholders through the
combination of share repurchases and dividends in 2015. For the year,
we repurchased approximately 3.3 million shares of our Company stock
and as of December 31, 2015, we were authorized to repurchase up to an
additional 6.3 million shares. We expect to continue making opportunistic
share repurchases during 2016 as we view this as a good use of cash.
GPC DIRECTORS
In April of 2016, Mr. Jean Douville will retire from our Board of Directors and
from his role as Chairman of UAP Inc. (“NAPA Canada”). Mr. Douville has
served on our Board since 1992 and as UAP’s Chairman since 1999, and
we extend him our sincerest gratitude and appreciation for his many years of
dedicated service.
At our August 2015 Board meeting, Elizabeth W. “Betsy” Camp was elected
by the Board as a new Director of the Company. Since 2000, Ms. Camp has
served as President and Chief Executive Officer of DF Management, Inc.,
TO OUR SHAREHOLDERS
2015 turned out to be a year of mixed results for Genuine Parts Company. On the positive side, our team did a fine job of managing the assets of the
Company and in keeping our balance sheet in excellent condition. Cash from operations and free cash generation each reached record levels and our
team did a good job on the operating side of the business as well, producing record earnings per share of $4.63, despite the impact of an unfavorable
currency translation of $0.14 per share.
Conversely, our revenue production was a bit inconsistent
across our four business segments and we ended the year
with sales of $15.3 billion, which was down just slightly from
2014. The difficult macro-economic environment significantly
weakened customer demand in our industrial and electrical
distribution businesses. Likewise, the impact of currency
translation associated with our Canadian, Australasian and
Mexican operations was a headwind for both the automotive
and industrial businesses. The office products business mostly
avoided these conditions and recorded solid revenue growth
for the year.
Despite the tempered growth for 2015, when we adjust our
results for the 3% negative impact of currency translation
the Company produced an increase in both sales and net
earnings. These increases reflect the positive impact of our
sales initiatives and cost control measures and, combined with
our reduced investment in net working capital and record cash
flows, represent meaningful accomplishments. Our progress in
2015 supports our investment in growth opportunities such as
acquisitions, as well as the return of capital to shareholders via
a strong dividend and share repurchases.
L-R: Carol B. Yancey Executive Vice President and Chief Financial Officer
Thomas C. Gallagher Chairman and Chief Executive Officer
Paul D. Donahue President