Sid Jones - Vice President, Investor Relations Tom Gallagher - Chairman and Chief Executive Officer Paul Donahue - President Carol Yancey - Executive Vice President and Chief Financial Officer.

Chandni Luthra - Goldman Sachs Christopher Horvers - JPMorgan Brian Sponheimer - Gabelli & Company Bret Jordan - BB&T Capital Markets Seth Basham – Wedbush Michael Montani - ISI Group Liang Feng - Morningstar.

Good morning. My name is Holly and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

(Operator Instructions) I would now like to turn today’s conference over to Sid Jones, Vice President of Investor Relations. Please go ahead, sir..

Good morning, and thank you for joining us today for the Genuine Parts second quarter 2014 conference call to discuss our earnings results and outlook for the full year. Before we begin this morning, please be advised that this call may involve forward-looking statements regarding the company and its businesses.

The company’s actual results could differ materially from any forward-looking statements due to several important factors described in the company’s latest SEC filings. The company assumes no obligation to update any forward-looking statements made during this call. We will begin this morning with comments from Tom Gallagher, our Chairman and CEO.

Tom?.

Thank you, Sid. And I would like to add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. Paul Donahue, our President along with Carol Yancey, our Executive Vice President and Chief Financial Officer and I will each handle a portion of today’s call.

And once we have concluded our individual remarks, we will look forward to addressing any specific questions that you may have.

Earlier this morning, we released our second quarter 2014 results and hopefully you have had an opportunity to review them, but for those who may not have seen the numbers as yet, a quick recap shows sales for the quarter were $3.908 billion, which was up 6% over the prior year.

Net income was $197.7 million, which was down 9% on a reported basis, but up 9% on a comparative basis, which I will comment on in a moment. Earnings per share were $1.28 this year compared to $1.39 last year and this represents an EPS decrease of 8% on a reported basis, but up 9% on a comparative basis.

As a reminder, last year’s net income and earnings per share numbers were favorably impacted by the one-time positive adjustments that are attributable to the purchase accounting treatments on our Australian acquisition that was completed in the second quarter of 2013.

Carol will cover this in more detail during her comments, but in looking at the results from pure operating standpoint, with sales up 6% and both net income and earnings per share up 9% on a comparative basis, we feel that the GPC team operated pretty well in the quarter.

Looking at the sales results by segment, our automotive operations were up 5% in the quarter.

Considering the fact that currency exchange had a negative impact of almost 2%, which indicates an underlying growth rate of 7%, we feel that this is reflective of the good sales job being done by the automotive team and Paul will cover more of the automotive details and highlights during his comments.

Our industrial operations also had a solid quarter, posting a 7% increase. Acquisitions contributed a little over 3% to the increase, while currency exchange had a negative impact of just under 1%.

Netting all of this out means that our underlying industrial business was up a bit over 4% in the quarter, which is right where we expected them to be and it continues a trend of gradual revenue improvement for our industrial operations over the past few quarters.

In looking at our sales results by customer category, 9 of our top 10 customer segments were positive in the quarter and 7 of the 10 had increases of 5% or more, which we feel shows good balance in the results and is a bit encouraging.

Automotive, iron and steel, coal aggregate and cement, lumber and wood products were among our top performing sectors perhaps indicative of a gradually improving overall economy. And at this point, we are cautiously optimistic about the outlook for our industrial business over the second half of the year.

Our electrical segment had another strong quarter, with sales up 32%. Acquisitions completed over the past six months basically accounted for all of this increase and we are pleased with the contributions and progress being made in both the wire and cable and fabrication sides of the business.

We continue to struggle in the electrical/electronic side of the business however. Sales into the original equipment manufacturing side of the electrical business have not recovered yet as they have for the industrial segment.

And sales for the electronics side of the business are being impacted by non-recurring sales to electronic contract manufacturers in 2013. Fortunately, our EIS team feels good about our continued progress in the second half for the wire and cable and fabrication businesses.

And based upon what they currently see they are anticipating a modest recovery for the electrical, electronic business in the months ahead. Turning to the office products segment, we are pleased to report a 4% increase.

This is their best quarter in sometime and while the GCN acquisition that was completed earlier in the year accounted for about one half of the increase, we were encouraged by the fact that both the independent reseller segment and the mega channel each had positive growth in the quarter.

While the mega results have been positive in five of the past six quarters, this is the first time that the independent channel has shown positive growth over that same timeframe. And we are hopeful that this is a turning point for this important segment of our office products business.

On the product side we had increases in the quarter in the cleaning and break room furniture and core office supplies categories and a modest decrease in the technology category.

And we are a bit encouraged by the fact that all four categories had second quarter results that were stronger when compared to the first quarter results, so a bit of sequential improvement which hopefully we can sustain in the quarters ahead.

Before closing on office products, we do want to mention that we completed the acquisition of Impact Products on July 1. Impact is a distributor of safety and facility services products and they will add approximately $85 million in revenue on an annual basis. Additionally, the Impact acquisition complements the GCN acquisition mentioned earlier.

And it enables S. P. Richards to further diversify its product offering as well as its customer base which is an important part of our long-term strategy for the office products segment. And we are pleased to have the Impact Products team now part of the GPC family. So that will conclude our comments on the non-automotive businesses.

And I will ask Paul to cover the automotive segment.

Paul?.

Thank you, Tom. Good morning everyone and welcome to our conference call. I am pleased to join you today and have an opportunity to provide you an update on the second quarter performance of our automotive business.

Just as a reminder, we mentioned in last quarter’s conference call that on April 1, we annualized our acquisition of GPC Asia-Pacific and you will see that reflected in our Q2 numbers and on a go forward basis. As Tom mentioned in his opening remarks our automotive business grew top line revenues by 5% in the second quarter.

To further explain our growth, our core automotive business grew 7% with a 2% offset due to currency exchange. I would like to take this opportunity to walk you through our automotive numbers and provide you an overview of our second quarter performance.

As we look back on this past quarter’s results you will see – you will note our numbers are fairly consistent with both our fourth quarter of 2013 and the first quarter of 2014. Our teams continue to execute well in the field and coupled with solid industry fundamentals enabled us to report another good quarter with underlying growth at plus 7%.

When evaluating our quarterly performance, we are encouraged to see that all regions of the U.S. are positively contributing to our sales growth. As has been the case the past couple of quarters, our divisions stretching from the Plains across the Great Lakes to the Northeast continue to lead the way for the company.

In the second quarter we also saw strong sales growth in both the Southern and Mid-Atlantic regions of the country. An update on the automotive aftermarket wouldn’t be complete without a weather update.

So after one of the coldest winters in a number of years, patches of extreme weather conditions continue to impact our business along with our good customers. The dry conditions in out West continue to plague the state of California as over one-third of the state is officially in a drought.

This has a direct impact on the dairy and agricultural businesses and ultimately our customer base. On the opposite extreme the month of June was the wettest on record in the past 25 years. But despite these headwinds along with the shift in the Easter holiday, our team persevered and produced solid sales results across the U.S. Now turning to our U.S.

company-owned store group, comparable same store sales growth in the second quarter came in at plus 7%. This 7% increase is on top of 5% same store sales growth in the second quarter of 2013 giving us a to two year stack of 12%.

In addition, it continues a solid pattern of organic growth dating back to the fourth quarter of ‘13 when we generated a 7% same-store sales increase in the first quarter of ‘14 when we grew same-store sales 8%. Our sales growth in Q2 was driven by healthy 7% increase in our commercial and wholesale business.

Diving deeper into our commercial results, our two big wholesale initiatives Major Accounts and NAPA AutoCare, once again delivered double-digit increases in the quarter. This marks four consecutive quarters of double-digit growth in the Major Account business.

And turning to our 15,000 plus NAPA AutoCare centers, this group posted double-digit growth for the third straight quarter. Overall, we are pleased with the progress our team continues to make in both of these segments of our business. It’s also worth noting we posted strong results in our fleet business generating 6% growth in the second quarter.

We are encouraged by these results as our team has now generated solid fleet numbers in back-to-back quarters. We can also report improving trends in our average wholesale ticket value with little or no inflation support and our average number of tickets increased in the quarter as well.

Turning now to our retail business, this segment of our business grew 7% in the second quarter. We continue to be encouraged with our growth in our retail business. And if you recall, we increased this segment 9% in the first quarter.

As we saw with our wholesale business both our average ticket value and our average number of tickets increased in the quarter. Our team has been working hard to drive our retail business and it’s great to see the improved results these past few quarters. Let’s take a look at the product categories driving our growth.

Our heavy duty business continues to post strong results as this group generated double-digit growth in the quarter. We also saw high single-digit growth from core product category like brakes, chassis and our filter business. We would also mention that we continue to see good momentum in our electrical business driven by strong battery sales.

I’d like to give a special plug to our electrical team as once again we are promoting in the month of July our battery starter and alternator products, with a portion of the proceeds being contributed to the Intrepid Fallen Hero Fund.

Supporting our returning military veterans is something our NAPA team believes in very strongly and we are proud to announce that once again this year we will raise in excess of $1 million for this very worthy cause. So, in summary, we remain encouraged as our automotive operations report another quarter of strong results.

We remain positive about the core fundamentals of the automotive aftermarket and the growth opportunities available to us in both the retail and commercial sectors. The industry fundamentals have not really changed quarter-over-quarter.

The average age of vehicles on the road remains in excess of 11 years and deferred maintenance remains at historically high numbers. A couple of key metrics we continue to monitor closely are the price of gasoline and miles driven.

While earlier in the quarter, we saw a spike in fuel prices, we have now leveled off and are essentially flat year-over-year. And in the all-important miles driven category, after posting negative numbers earlier in the year, we saw positive growth in both March and April.

So, in closing, we are pleased with our second quarter results as well as the first half of 2014. We are proud of our management team and know they remain committed to driving profitable growth throughout 2014.

And while we have much work ahead of us, including tougher comps in the second half of the year, we remain optimistic that the initiatives our team is focused on will continue to drive strong results.

We would like to personally thank all of our associates both at NAPA North America and at GPC Asia-Pacific and Australia and New Zealand for their efforts in the second quarter. So that completes our overview of the automotive business. And at this time I will hand the call over to Carol to get us started with a review of our financial results.

Carol?.

Thank you, Paul. We will begin with the review of our second quarter and six month income statements and the segment information and we will also review a few key balance sheet and other financial items. Tom will come back to wrap it up and then we will open the call up to your questions.

Our total revenues were record $3.9 billion for the second quarter an increase of 6% from last year, including the 5% underlying sales growth and a 2.5% contribution from acquisitions, and this was offset by the current headwind of slightly more than 1%.

If we turn to our gross profit and SG&A, we want to remind everyone as the prior year one-time items that are impacting our comparisons. In the second quarter 2013, we reported a favorable purchase accounting adjustment associated with the April 1, 2013 acquisition of the remaining 70% interest in GPC Asia-Pacific.

To that end, we are required to revalue the company’s initial 30% investment and this re-measurement met a certain one-time purchase accounting cost amounted to a free tax income adjustment of approximately $36 million. And when combined with a lower tax rate, this favorably impacted our earnings per share by $0.22 in the second quarter of 2013.

In accounting for the pre-tax adjustment, approximately $18 million was recorded in cost of goods sold and a $54 million gain net of expenses was recorded to selling, administrative and other expenses on our income statement.

Additionally, the $36 million net adjustment is included in the other net line in the segment information provided in today’s press release. Any references we may make through our comparable results are intended to exclude the prior year impact of these one-time items.

With all that said, our gross profit for the second quarter was 30.2% compared to 30.1% last year. For the six months, our gross margin of 30.1% compares to 29.5% reported last year. On a comparative basis, our second quarter gross margin is down 40 basis points from an adjusted 30.6 basis points in 2013.

This is due mainly to customer and product mix shift across our businesses, but primarily in the automotive and office segments.

We thought it would be good to add as well that the gross margin differential at GPC Asia-Pacific is no longer relevant in our quarterly comparisons as we have anniversaried that acquisition on April 1 as Paul mentioned earlier.

Turning to the periods ahead, we certainly see room for improvement and we remain focused on seeking those opportunities to expand our margins over the longer term. For the balance of 2014, however, we continue to expect our margins to be in the 30% range.

As an additional point of interest, we are seeing some slight inflation in our non-automotive businesses to-date, but we continue to see very little inflation in the automotive sector. And we don’t expect this to change much over the balance of the year.

Our 2014 year-to-date pricing is 0.1% for automotive, 1.0% for industrial, 1.1% for office products and 0.4% for electrical. Turning to our SG&A, our total expenses were $869 million in the second quarter, which is 22.2% of sales compared to 21.5% reported last year.

For the six months, our total SG&A expenses were $1.7 billion, which is 22.7% of sales compared to 21.7% for the same period in 2013. On a comparative basis, our second quarter SG&A expenses have improved as a percentage of sales decreasing 80 basis points to 22.2% of sales from the 23.0% in the second quarter last year.

This improvement primarily reflects the expense leverage gained on our sales volume for the quarter as well as cost savings associated with the freeze of our pension plan that was effective January 1.

We expect the pension freeze to continue to favorably impact the overall retirement related cost in the periods ahead and we continue to remain focused on effectively managing the cost in every area of our business. Through these initiatives, we expect to show continued progress on our SG&A line in the periods ahead.

And now, let’s discuss the results by segment. Our automotive revenue for the second quarter was $2.1 billion and represents 54% of total sales and is up 5%. Our operating profit of $207 million is up 11%. So, their margin improved nicely up 50 basis points to 9.8% from 9.3% last year.

For the six months, our automotive sales of $4 billion, also represent 53% of our total sales and is up 13%. Our operating profit of $357 million is up 16% and our margin is up 30 basis points to 8.9%. Our industrial sales were $1.2 billion in the second quarter, which is 31% of our revenues and up 7%.

Operating profit of $94 million is up 7% and our operating margin of 7.9% is unchanged from the prior year. Our year-to-date industrial sales of $2.35 billion represent 31% of our revenues and are up 5%. Our operating profit of $178.5 million is up 6% and our margin of 7.6% is up 10 basis points from last year.

Our office products revenues of $419 million in the quarter or 10% of our total revenues are up 4%. Our operating profit of $31 million is up 5%, so their margin was unchanged at 7.4%. For the six months, our office revenues are $837 million, representing 11% of the total and is up by 2%.

Our operating profit of $65 million is up 3% and our margin is up 10 basis points from last year to 7.8%. The electrical/electronic group had sales in the quarter of $188 million, which is 5% of our revenue and up 31.5%. Our operating profit of $16.5 million is up 35% and their margin is 8.8%, which is up 30 basis points from the 8.5% last year.

Year-to-date, our sales for this group were $368 million, which is 5% of our revenues and up 31%. Our operating profit of $32 million is up 41%. So, our margin is up significantly to $8.7 million from the $8.0 million, which is an increase of 70 basis points.

So, our total operating profit was up 10% in the second quarter and our operating profit margin increased 30 basis points to $8.9 billion. This follows a 20 basis point margin improvement in the first quarter. And for the six months, our total operating margin is 8.4%, which is up 20 basis points from 2013.

Especially encouraging is our overall growth is supported by year-to-date margin expansion in each of our four businesses. So, we are very pleased to report this level of progress and we remain focused on continued margin expansion in the periods ahead.

We had net interest expense of $6.2 million in the second quarter, which is down from the $7.9 million last year. For the six months, interest expense is $12.4 million and we expect this cost to remain relatively steady over the balance of 2014. We currently estimate $24 million in net interest expense for the full year.

Our total amortization expense of $8.5 million for the second quarter and it’s $17.4 million for the six months. Our year-to-date amortization is up from last year due to the acquisition activity across our four segments. We expect amortization expense to be in the $35 million to $37 million range for the year.

The other line, which reflects corporate expense, was a $25 million expense for the second quarter. This is an increase from last year, but relatively consistent with the first quarter of 2014 corporate expense.

In the second quarter last year, this line was a $14 million income item, which reflects the $36 million positive purchase accounting adjustment that we covered earlier. For the six months, this line shows an expense of $48 million, which is up from $36 million last year, excluding the accounting adjustment.

This increase reflects higher expenses for a variety of items, including legal and professional, insurance and incentive-related costs. Currently, we expect this line to be in the $80 million to $90 million range for 2014. For the quarter, our tax rate was approximately 36.25% compared to 31.3% last year.

For the six months, our 35.9% rate compares to 32.8% for the same period last year. The increase in our tax rates for both the second quarter and the six months relates primarily to last year’s favorable tax rate on the gain that was generated by the re-measurement of our Asia-Pac investment.

Looking ahead, we expect our full year tax rate to be in the 36.0% to 36.3% range for 2014. As Tom mentioned, net income for the quarter was $198 million and EPS was $1.28 and on a comparative basis, both our net income and EPS increased by 9% from the second quarter in 2013.

For the six months, our net income of $355 million is up 9% on a comparative basis and our EPS of $2.30 is up 10% on a comparative basis. So now, we will discuss a few key balance sheet items. Our cash at June 30 was $153 million, which is down from $197 million in June 2013 and also at December 31.

We continue to use our cash to support the growth initiatives in each of our businesses and we remain comfortable with our cash position at June 30. Our accounts receivable of $1.9 billion at June 30 increased 8.5% from the same period in 2013, which is slightly higher than our 6% sales increase for the quarter.

We remained focused on our goal of growing receivables at a rate less than the revenue growth. And we see room for improvement in this area in the periods ahead. We are also very satisfied with the quality of our receivables at this time.

Inventory at quarter end was $3.0 billion, which is up approximately 1% from December 31 and up 7% from June 30 of last year. Before the impact of acquisitions, our inventory is basically unchanged from December 31 and up only 4% from last June. So our team continues to do a very good job of managing our inventory levels.

We will remain focused on maintaining this key investment at the appropriate levels as we move forward through the year. Our accounts payable balance at June 30 was $2.5 billion, up 21% from June 2013 due to the positive impact of extended payment terms and other payables initiatives established with our vendors as well as the impact of acquisitions.

Our continued improvement in this area and its positive impact on our working capital and days in payables is encouraging and we expect this favorable trend to continue in the periods ahead. Our working capital of $2.0 billion at June 30 compares to $1.8 billion at June 30, 2013.

Effectively managing accounts receivable, inventory and accounts payable is a very high priority for our company. And our ongoing efforts with these key accounts have resulted in solid improvement in our working capital position and our cash flow. Our balance sheet remains in excellent condition at June 30, 2014.

Our total debt of $806 million at June 30 is down from the $900 million at June 30 last year and represents approximately 19% of total capitalization. Our June 30 debt includes two $250 million term notes as well as another $306 million in borrowings under our multi-currency syndicated credit facility.

We are comfortable with our capital structure at this time although we may choose to pay down some of our debt outstanding under the credit facility during the year depending on the investment opportunities that could arise.

Thus far in 2014, our cash from operations is approximately $367 million and for the full year we currently expect cash from operations to be approximately $950 million. We expect free cash flow which deducts capital expenditures and dividends to be in the $450 million range.

We are pleased with the continued strength of our cash flow and we remain committed to several ongoing priorities for the use of our cash, which we believe serve to maximize shareholder value.

Our first priority for cash is the dividend, which we have paid every year since going public in 1948 and have now raised for 58 consecutive years, a record continues to distinguish Genuine Parts from other companies.

Our annual dividend of $2.30 per share for 2014 represents a 7% increase from the $2.15 per share paid in 2013 and it’s approximately 52% of our 2013 earnings per share, which is well within our goal of 50% to 55% payout ratio. Our goal would be to maintain this level of payout ratio going forward.

Our other priorities for cash include the ongoing reinvestment in each of our core businesses, strategic acquisitions where appropriate and share repurchases. Our investment and capital expenditures was $21.5 million for the second quarter, and is $39.9 million for the six months.

Although these expenditures are down from the second quarter and the six months in 2013, we currently expect our capital expenditures to pick up over the balance of the year. We currently look for CapEx spending to be in the range of $130 million to $140 million which compares to the $124 million last year.

As usual, the vast majority of our investments will be weighted towards productivity enhancing projects primarily in technology. Our depreciation and amortization was $37 million in the second quarter, which is consistent with the prior year and at $74 million for the six months which is up from the $63 million in the prior year.

This six month increase on this line reflects the impact of GPC Asia-Pacific as well as our more recent acquisitions and we currently expect depreciation and amortization to be approximately $145 million to $155 million for the full year.

Strategic acquisitions continue to be an ongoing and important use of cash for us and they are integral to the growth plans for the company. For the second quarter, we have added four acquisitions, including one in each of our four business segments and with estimated annual revenues totaling approximately $255 million.

And as Tom mentioned earlier, we added our fifth acquisition for the year on July 1 with the addition of Impact Products to the office products group.

We are encouraged by the growth opportunities we see for each of these acquisitions and will continue to seek new acquisitions across our businesses to further enhance our prospects for future growth and generally targeting those bolt-on types of acquisitions with annual revenues in the $25 million to $125 million range.

Finally, thus far in 2014, we have used our cash to purchase approximately 635,000 shares of our common stock under the company’s share repurchase program. Today, we have another 10 million shares authorized and available for repurchase.

And while we have no set pattern for these repurchases, we expect to remain active in the program over the balance of the year. We continue to believe that our stock is an attractive investment and combined with the dividend provides the best return to our shareholders. So, that’s our financial update.

And in closing, we want to thank all of our GPC associates for all that they do. It’s a team effort here and everyone’s hard work is truly appreciated. The company is well-positioned for continued growth over the balance of the year and beyond and we look forward to updating you on our future progress when we report again.

I will now turn it back over to Tom..

Thank you, Paul and Carol. So, that’s a recap of our second quarter and first half results. And as we look back over the past two quarters, we feel that our folks have made good progress in a number of key areas.

Our sales and earnings on a comparative basis at the mid-year point are at record levels and all four of our business segments are showing year-to-date operating margin improvements. On the balance sheet side, accounts receivable and inventory have been managed well and accounts payable continues to trend in the right direction.

Cash from operations is solid and working capital efficiency has shown nice improvement.

From an individual business perspective as we look back over the first six months of the year, we are encouraged by the steady and consistent performance in our automotive business on a comparative basis and we are encouraged as well by the sequential improvements in our non-automotive businesses.

At the same time, we are a bit unclear as to where we are in the economic cycle.

While most of the external indicators and indices are generally favorable for all of our businesses, we still hear and sense a degree of uncertainty and caution among many of our customer base and the strength of the economic recovery is a bit weaker than many had predicted.

Additionally, we still have the variability of currency exchange which as we said earlier impacted us by over 1% both on the revenue and earnings side in the quarter and first half of the year.

With all of that said, however, based upon our performance year-to-date and the solid initiatives that are underway across each of our businesses, we feel that a few modest upward adjustments in our revenue guidance are appropriate. At this point, we would leave industrial and electrical the same.

Our prior guidance was plus 5 to plus 7 for industrial, which we would leave the same. Electrical was 25 to 30 and we’ll leave that the same. But in the automotive segment, we think we need to increase the prior guidance of plus 6 to plus 7 to current guidance of plus 7 to plus 8. In office products, our prior guidance was plus 3 to plus 4.

And at this point, we would raise it to plus 6 to plus 7. And this increase for office products includes the contribution from the Impact Products acquisition in the second half of the year as well as the increased business that we will be getting from the new Office Depot agreement.

The net result of all of this is that we would increase our overall GPC guidance from a prior 6% to 8% increase to a current 7% to 8% increase. And on the earning side, we feel that an upward adjustment is also appropriate.

Our prior guidance called for earnings per share of being in the $4.49 to $4.59 range and at this point we would raise that to $4.54 to $4.60, which would give us an EPS increase of 3% to 5% on a reported basis and 8% to 10% on a comparative basis. So that will conclude our prepared comments.

And at this point, we will turn the call back to Holly to take your questions.

Holly?.

Thank you. (Operator Instructions) And your first question will come from the line of Matthew Fassler with Goldman Sachs..

Hi, good morning. This is Chandni Luthra on behalf of Matt Fassler.

How are you?.

We are fine. We hope you are..

Good morning..

Hi, thank you. We just had a quick couple of questions.

We wanted to check if there is any impact for you winning the consolidated Office Depot of snacks business now that particularly as the business shifts to you as the acquisition seasons?.

Well, what we have said in our prior call was that on an annualized basis this will yield about $100 million in annual revenue. The revenue is starting to shift currently. We have said prior that it would start to kick in on July 1 and it is in fact starting to flow through currently.

And then there was a question in the prior call as to whether or not this would impact our gross margins and we said that it would have some impact on the gross but we will get some leverage off of the increased volume as well..

Alright. Perfect. Thank you.

And my second question relates to your industrial margins, we wanted to basically understand is there potential for stronger recovery on industrial margins, particularly now that you are starting to see some revenue growth and as this growth continues to persist into the year?.

If in fact the growth continues in the high-single digit levels, yes we would think that there might be some opportunity for margin expansion..

Alright. Thank you so much. I appreciate it..

Alright. Thank you..

And your next question will come from the line at Christopher Horvers with JPMorgan..

Thanks. Good morning..

Good morning Chris..

Good morning Chris..

A couple of questions on the updated guidance, so the increase in auto and office is that mainly and each one of those reflecting the year-to-date and then in the case of the office now you have this acquisition or are you inherently raising your outlook for the back half as well?.

Well, I think it’s a combination. The first part of your comment I think is accurate. We have seen – we will see the impact in office products of the Impact Products acquisition as well as increased Office Depot business which will have a positive impact.

In the case of automotive, we have seen some – we think pretty good performance from the automotive team. We think the external factors are generally positive and our expectation is that based upon where we ended the first half of the year that something in that 7% to 8% range is a reasonable expectation for us on the automotive side.

I would just add one other thing, Chris. We were a little bit encouraged by a couple of things in office products. It may be too early to tell if it’s a trend. But I mentioned in my comments that we did see sequential improvement in all four of the major product categories.

And then we also saw improved performance coming from our independent resellers which our team has been working on for quite some time and hopefully that’s the beginning of what maybe some sustainable positive growth coming from that important part of our business..

Okay.

So then just to clarify, it sounds like auto is sort of what we are seeing year-to-date passing out through to the revenue outlook for the year or whereas in the office there is the acquisition and some encouraging signs that’s taken your confidence up as to actual back half outlook?.

I think that’s accurate..

Okay.

I know your last year you mentioned June being a pretty wet month out there, are you normally hoping for very hot weather, so cars are breaking down or was that actually a drag to the auto performance in June?.

Yes. Chris this is Paul, certainly a bit of a drag. What we had hoped for coming off that brutal winter we had in many parts of the country was to move right into the hot summer.

And we have not seen that in most parts of the country and certainly June being as wet as it was, we did not see the kind of lift that we normally would have with some hotter temperatures across the country..

But is – I guess is your – does that suggest that or how do you think that plays out than as you look out over this summer and then to the balance of the year I mean the lag impact from the weather, is your outlook anymore positive or negative as a result of June’s outcomes?.

I don’t think our attitude is anymore negative.

If we get a hot stretch we get two weeks of unusually warm weather, yet in July or in August, we think that we will see some positive impact from that, but even absent that, I think that the performance that Paul had outlined both on the retail side and on the commercial side, Major Accounts, NAPA AutoCare, I think those results are really what give us a little more confidence in partly why we have raised our guidance..

Understood, very clear. Thanks very much..

Thank you..

Thanks, Chris..

Thank you, Chris..

And your next question will come from the line of Brian Sponheimer with Gabelli & Company..

Hi, good morning Tom. Hi Carol.

Hi, Paul, how are you?.

Good morning, Brian..

Good, Brian..

A question on just within auto, you’ve got a lot of changing dynamics regarding the competitive landscape, what are you seeing as far as maybe your ability to either gain some share this quarter or do you think that, that you are performing in line with your peers?.

Well, Brian, this is Paul. We are the first ones out. So, we will hear our peer group here in the weeks ahead, but we are pleased with our quarter. It’s consistent with our first quarter and it’s consistent with the fourth quarter of last year.

And we are very pleased with the cadence of the quarter, April was strong, May was strong, June as was referenced earlier was a bit softer, but the comps get tougher in the second half. And I think I referenced that in my comments. But we are pleased with where we find ourselves and with the initiatives that the guys are all working on it..

Any opportunities to – have you taken in any prior Carquest distributors into the NAPA family?.

We have taken some, Brian and hopefully we will take some more as time goes on..

What do you think has been the biggest differentiator for you in having those crossovers take place?.

But I think those that have made the change have benefited from the comprehensiveness of the NAPA program. And I think they have been surprised by the strength of the NAPA program. And I think they are pretty outspoken in terms of what is done for them and their business.

So, hopefully there will be a few more that will make their way to the NAPA system in the months ahead..

And the other three businesses, if I am looking at the last eight months or so you guys have obviously been very acquisitive, what does that pipeline look like now for potential deals and just do you think you have another good 12-month, 24-month runway, where you can be this acquisitive?.

Well, in the acquisition side of it, you never know what the timing is going to be. And you have always got to have a number of discussions going on at any given time.

So, I think the best way I could answer that is to say that we have multiple discussions that are occurring, but we will have to wait and see how many of them actually develop and come to fruition, but we are pleased with where we find ourselves in terms of the discussions and we are certainly proud of the team for what they have been able to get done over the past year or so..

If you were to find something that would be the size of an Exego either in any of your four groups, would that side scare you at this point or would you be open to it?.

No, I don’t think we would be intimidated by the size. It really is a function of how accretive it could be to the shareholders at Genuine Parts Company. And if we can find any business that we acquire needs to be accretive to GPC. We don’t knowingly do any acquisitions that are dilutive. So, the size is not the most critical factor.

It’s what we think the performance will be post-acquisition..

Alright. And just last one from me.

Carol, I think I heard you say that you may look to pay down some debt with cash flow as the year progresses, if you are paying 3% on your debt and you get a 2.6% current return on given the dividend, why wouldn’t share repurchase, more aggressive share repurchase be the right use of capital there?.

Well, Brian, we are not committing to anything. What we are doing is trying to keep some flexibility as we look at our balance sheet and our capital structure so and keeping that flexibility be it incremental share repurchases or an acquisition opportunity. So, we are just trying to balance.

We haven’t totally committed on what we are going to do on the debt. We are just going to look to balance what our cash needs are and what makes the most sense for the shareholder..

Alright, thank you very much..

Thank you..

Thank you, Brian..

And your next question will come from the line of Bret Jordan with BB&T Capital Markets..

Good morning..

Good morning Bret..

Good morning Bret..

Couple of quick questions and in your prepared remarks you had mentioned some gross margin pressure in the automotive from customer and product mix, could you give us a little bit more color, is that just a migration to national accounts or is there anything changing on the promotional environment on the products side?.

I guess I will give a couple of comments and then Paul might comment as well. One of the things we are talking about is the product and customer mix across all of our businesses, but primarily not with automotive and office.

So as Paul mentioned the key wholesale programs that we have and talking about some of those with the double-digit growth and those would be generally at a lower gross margin and then on the product mix we called out a couple of product categories that do come in at a little bit lower gross margin.

But I would point out that we continue to have programs in gross margin, all of our businesses have key things going on, on the buy side and sales side to hopefully get those margins back up or at least flat.

But the really nice thing is we have been able to do on the SG&A side so what you are getting is we saw that volume going through is we are able to leverage more on the expenses. So the teams and primarily auto have a done a terrific job on the SG&A line for us..

And Bert to the second part of your question there hasn’t been any fundamental change in promotional activity..

Bret Jordan - BB&T Capital Markets:.

:.

Well. We don’t breakout the Australian numbers, but we can tell you that they are performing in line with our expectations and they are performing in line with our overall automotive business..

Okay. And then one last question on the accounts payable, it’s a pretty good number there. If we look at the business lines separately and clearly the auto vendors are more used to being asked for extended payables.

I guess how much room is left if your – is auto getting close to 100% APed inventory and the other – other segments need to raise theirs or is there still room to extend payables on the automotive vendor side?.

I think we still have some room we have ahead of us on the automotive. And you are right in your comment that this is much more prevalent than the automotive business than it is in the other businesses that we are in. But I think there is still some opportunity for us in the non-automotive businesses.

So I think in the quarters ahead you will continue to see some nice improvement..

And with Exego’s payables been well levered as well or is there still would there be more room within the Exego?.

Well, I think we will just leave that there is still room in the automotive side of the business and we feel good about our prospects honestly..

Okay. Thanks.

Is there a target for APed inventories you have out there sort of on a two or three year basis company side?.

We don’t have a stated target, I guess what we look at is our working capital and we have – we make sure that we have plans in place for all the categories for improvement each year, so no specific target..

Okay, great. Thank you..

Nice Brett..

Thank you..

And your next question will come from the line of Seth Basham with Wedbush..

Good morning..

Good morning Seth..

Good morning Seth..

The first question I have to you goes on some small cost items for clarification, it seems like you have bumped up the cost expectations for the other line as well as D&A, can you just give us some more color as to the drivers there?.

Well, I think as we called out on the other lines, what we are seeing is some of the legal and professional, insurance and some of our incentives related costs. So that would primarily be what’s driving that line and some of it is in the technology area, we mentioned some of our technology improvements. So that’s primarily what’s driving that line.

And then the other depreciation and amortization, was that your other one?.

Yes..

Yes, the depreciation and amortization that’s the combination of a function of the additional acquisitions and the amortization that flowed in. And then the incremental depreciation if we look what our increase in CapEx is going to be on the full year..

Got it. Okay.

Despite those bumps up, obviously you guys had great SG&A leverage you are expecting SG&A leverage going forward, was there anything different about this quarter relative to last in terms of the cost base and some of the moving pieces that drove the strong leverage?.

I would just comment as we mentioned – that both Tom and Paul mentioned as you look from Q4 to Q1 and Q2 where we saw the sequential improvement especially in the non-automotive businesses or as you look at their core business improving over the last quarter or two, Q2 being the stronger one.

What we are getting is additional leverage off the SG&A there..

Got it.

And within auto itself, did you have better SG&A leverage this quarter even with the same type of top line growth?.

Well, we did. And I mentioned that earlier, automotive, again with that strong volume that’s pushing through, we are having some nice improvement on their SG&A as well..

Got it. Okay.

And then looking at Exego, can you give us anymore color on how you think you can grow that business going forward? Have you examined the growth opportunities? Do you have any color to share?.

We have examined it. And we think there were several opportunities there. I think that expanding the store count will help us as we go forward and that can either be organic growth or perhaps acquiring some smaller independent companies and then some product line extensions we think will help them in their growth strategy going forward.

So, we are pretty optimistic about what can happen with that business..

And that’s all within existing geographies?.

Well, that would be in existing geography.

And then at the outset when we made the acquisition, we have said that our first priority would be to continue to build out and enhance market share in Australia, New Zealand and then medium term, we would be looking to use that company as a platform company to expand up into some Southeast Asian markets, which we still think could make some sense..

Got it. Thanks a lot..

Thank you..

Thank you..

And your next question will come from the line of Michael Montani, ISI Group..

Hey, guys. Thanks for taking my questions..

Hey, Mike..

Hey, Mike..

First one was for Carol, just wanted to understand how you guys are thinking about gross margins for the back half. I think from the last quarter’s call, it sounded like there was opportunity for slight upside to gross margins and now I am hearing kind of around 30.

So, is there any initiatives maybe you have on track that could kind of take those margins up all else equal or is it really going to be a function of customer mix and product mix?.

What – I think what we are saying is we are getting a little bit further down we are saying around 30%.

I mean, we certainly as I mentioned all four of our businesses have committees and a lot of initiatives going on, where they are looking at a lot of things, but I think some of the things that are headwinds to us will remain and some of that as I talked about within automotive and their key large customers, but we have got initiatives working in all our areas.

And I think I guess that will be helpful just to maintain those margins or not have the deterioration that we have had, but certainly we are combining that with our SG&A improvement and the idea would be that we maintain this 20 basis point improvement in operating margin that we have right now..

Alright, okay. Thank you.

And a follow-up for Paul if I could on the auto side, there has been so much made of kind of volatility in weather and you touched on it somewhat, but the way we have been thinking about it is maybe like a low double-digit increase in April could still be up low to mid single, can you provide any color in terms of either how you guys exited, what July looks like or really what the sequential moderation would have been there?.

So, Mike, we came out of Q1 as you know very strong and that continued right through both April and May. We saw some deceleration in June. And while it was still a good month, we were certainly up against some stronger comps.

And I would say that early in July, just a couple of weeks in, we are seeing some of those same, I don’t want to say softness, but it’s not at the run rate at April and May..

Okay, that’s helpful.

And I guess the last question I had was just on the mega versus independent splits, in the past you guys have provided some color there in terms of year-over-year growth, can you provide an update there perhaps Tom or just how should we think about the balance between those two?.

But the mega growth was mid single-digit and the independent growth was just a tick down from that. And as I said, it’s the first positive quarter that we have seen on the independent side in six quarters. So, we were pleased to see it and it’s the closest comparable performance we have seen between the two over that same time period..

Okay, great. Thanks guys. Good luck..

Thank you, Mike..

Thank you, Mike..

And we do have time for one final question. Your final question for today will come from the line of Liang Feng with Morningstar..

Good morning and thanks for taking my questions..

Good morning..

Good morning..

Could you discuss in further detail the main drivers of your Major Accounts growth and whether your go to market strategy in this segment has changed a lot to help drive this double-digit performance?.

I will take a first step at it and Paul may jump in. The way the program is structured is that we have headquarters to headquarters contact. And we talk about what our capabilities might be and what our value proposition might be to a major account.

If there is an interest on their part to expanding the relationship, some of the terms and conditions are negotiated at the headquarters level. But then the actual implementation is done at the store level, market by market. And our proposition to the major accounts hasn’t changed for a number of years.

Perhaps our consistency, dependability, our level of execution in the field may be partly what’s driving that at the rates that we are growing today..

Yes. I would just add to that that we have got great relationships with our key partners on the major accounts side. So you are talking about the likes of AAA, and Firestone, and Goodyear tire kingdom. Our competitors are chasing that business as well. We have got a very focused effort.

We have got a great team that works very hard to grow our market share inside of those major accounts. And our team has done a very good job as I think is evident in our recent numbers..

Yes.

This performance is particularly notable because several of your larger competitors have noted the desire to target major accounts more aggressively, have you noticed any changes within your competition from these larger competitors within this field?.

No, I would just say that everyday the battle, right. Whether it’s major accounts or the business on the street, but we have not seen a major change in the levels of competition with our majors..

Thank you..

You’re welcome..

Thank you..

And that will conclude today’s question-and-answer portion. I would like to turn the conference call back over to management for closing remarks..

We want to thank everybody for participating in today’s call. And we appreciate your interest in and support of Genuine Parts Company. And we look forward to reporting back out at our third quarter release. Thank you..

And once again we like to thank you for your participation on today’s conference call. You may now disconnect..