Sid Jones - VP, IR Tom Gallagher - CEO Paul Donahue - President Carol Yancey - EVP and CFO.

Matthew Fassler - Goldman Sachs Scot Ciccarelli - RBC Capital Markets Mark Becks - JPMorgan Brian Sponheimer - Gabelli Seth Basham - Wedbush Securities Robert Higginbotham - SunTrust Bret Jordan - BB&T Greg Melich - Evercore ISI.

Good morning. My name is [indiscernible]. I'll be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company's Fourth 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 call over to Sid Jones, Vice President and Investor Relations. Please go ahead, sir..

Good morning, and thank you for joining us today for the Genuine Parts' fourth quarter and full year 2014 conference call to discuss our earnings results and outlook for the 2015. 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 also 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, the President of Genuine Parts Company 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 completed our individual comments, we will look forward to addressing any specific questions that you may have. Earlier this morning we released our fourth quarter and year end results and hopefully you've all had an opportunity to review them.

But for those who may not have seen the numbers as yet, a quick recap shows that sales for the quarter were $3.822 billion, which was up 9%, net income was $165.6 million, which was up 10% and earnings per share were $1.07 this year versus $0.97 last year, which was also up 10%.

So we feel that our team came through the final quarter of the year in good shape. For the year sales were $15.342 billion which was up 9%. Net income was $711 million up 4% on a reported basis and up 9% on a comparative basis.

You'll recall that in 2013 we had one time purchase accounting gains that were related to the GPC Asia-Pacific acquisition and that had a onetime favorable impact on the 2013 results. Earnings per share for the year were $4.61 and EPS was up 5% on a reported basis and 10% on a comparative basis.

Sales net income and earnings per share, each reached record levels in 2014 which we're certainly pleased to report and we're also pleased that the sales in EPS results both came in a bit above our full year guidance that was provided back in October with all four of our business segments contributing nicely.

Turning to the individual segments, I will cover the non automotive operations first followed by Paul who will then review the automotive performance. Starting off with industrial, the motion industries team came through the year in good shape.

Sales for the year were just under $4.8 billion and this was up 8% and we were pleased with the cadence of the year with sales being up 4% in the first quarter, 7% in the second and then 10% in each of the final two quarters of the year, and these solid results were underpinned by broad based positive contributions across the major product categories as well as the major customer segments.

On the product side we ended the year with 11 of our top 13 categories showing growth and encouragingly all 13 were up in the final quarter. Among our top 12 customer segments 11 posted positive results for the year and all 12 were positive over the final three months, again encouraging trends.

Among the strongest growing segments for the year in no particular order were automotive, coal aggregate and cements, iron and steel, lumber and wood products.

This a diversified cross section of the North American manufacturing base and we feel that these solid results are reflective of the improved conditions that we currently see in the overall economy, which is encouraging as we head into the new year.

Before ending our comments on industrial, we do want to mention that we completed the acquisition of Miller Bearing as of February 1st of this year. Miller is a highly regarded regional industrial distribution company headquartered in Orlando, Florida. They operate 17 branches and have annual revenues of approximately $40 million.

This will be a great addition to our Industrial group and we’re pleased to have the Miller organization now a part of Motion Industries. Turning to the Electrical segment EIS was up 23% in the fourth quarter and they were up 30% for the year. So it was a strong performance from this team in 2014.

While certainly pleased with the overall results, we do want to point out that acquisitions were the major contributor to the sizable sales increases. In fact the EIS underlying business was only up 1% for the full year.

However we were encouraged to see the underlying business up 4% in the final quarter which was the strongest performance of the year and hopefully a sign that demand is starting to pick up a bit in this segment.

As we enter 2015, EIS will continue to see sluggish demand among our telecommunications customer base at least for the first half of the year and the deflation in copper pricing will also present a headwind, but the EIS team has a number of strong revenue initiatives underway and we expect a solid performance from this team in 2015, especially over the second half of the year.

And finally office products. Total revenues came in at $1.8 billion and this was up 10%. As with our Industrial segment office product sales get stronger as the year progressed. After being flat in the first quarter they were up 4% in the second quarter, 15% in the third quarter and 22% in the fourth quarter.

This progression clearly shows the positive impact of our enhanced relationship with a significant customer that kicked-in in the second half of the year, as well the nice contributions from the Impact Products acquisition that was completed mid-year.

But beyond this we’re also pleased to see single digit growth from our independent office products reseller channel for the entire year and this segment actually firmed up as the year progressed and we were also pleased to have ended the year with solid growth in all four of the major product categories.

So the results from the Office Products group were broad based from both a customer and product perspective which is encouraging and this team goes into 2015 with a bit of momentum, which is good to see. So that’s a quick overview of the non-automotive businesses and as this point I’ll ask Paul to bring you up-to-date on the Automotive segment.

Paul?.

Yes, thank you Tom. Good morning everyone. And let me add my welcome to our fourth quarter conference call. I’m pleased to join here today and to have an opportunity to provide you an update on the fourth quarter performance of our Automotive business.

We’re pleased to report to our global Automotive business grew top line revenues by 4% in the fourth quarter. This 4% number consists of 6.5% core Automotive growth which includes slight benefit from acquisition offset by 2.5% of currency adjustment. The currency adjustment was a bigger headwind than we had anticipated for the quarter.

Our team was able to overcome this challenge with stronger than expected core growth. When reviewing our quarterly performance, we continue to be encouraged by the solid results our teams are generating across our entire automotive business. During the fourth quarter we saw our U.S.

team posted 7% sales increase, while our International businesses including Canada, Mexico, Australia and New Zealand grew mid-single digits. In the U.S. all regions of the country are positively contributing to our sales growth. The Atlantic, Western and Midwestern divisions led the way for our Company in the fourth quarter.

Now let’s turn to our same store sales numbers. Our U.S. company owned store group grew comp same store sales in the fourth quarter by 7%. This 7% is on top of the 7% increase we generated in the fourth quarter of 2013, which gives us a two year stack of plus 14%.

This solid performance continues the strong same-store sales run dating back to the fourth quarter of 2013. Our quarterly breakdown for 2014 is as follows. In the first quarter we generated an 8% same store sales increase and in Q2 we posted a 7% increase and in Q3 we’re plus 6%. Rolled up that gives the U.S.

automotive businesses a full year same-store sales number of plus 7%. We are proud of our team for generating these solid results but we are also well aware we have a steep hill decline in 2015 to continue to build on these comps.

Our 7% sales increase in Q4 was driven by a combination of strong sales on both our commercial wholesale side of the business and by our retail business. Let’s start with our retail results.

As mentioned in previous calls we have put renewed focus on this segment of our business and we are pleased to report these initiatives are beginning pay dividend. Our team did an outstanding job in the quarter, driving an 11% increase in our overall retail business.

As generally is the case, there was no one single initiative that drove this double digit increase, but rather a combination of things that our team has been working on for the past 12 months that really began to take hold in the quarter.

Retail basic such as extended store hours, proper staffing, dedicated retail associates and increased training all played a part. In addition we have fined tuned our radio and our print advertising.

We focused our team on [indiscernible] compliance and we are driven to increase both the size of our average ticket and the number of tickets falling through our stores. In Q4 we saw a significant increase in our average retail ticket and an increase in the number of retail tickets.

We are by no means satisfied with where we are today and we have a great deal of work left to do. However it is a testament to our team's hard work that we are moving the needle on this important initiative. So now let's turn to our commercial wholesale business or our Do It For Me segment. This segment turned in a 6% increase in the fourth quarter.

Recapping our year's performance, our commercial business was at or exceeded 6% growth in each quarter of 2014. Highlights for the quarter included solid performances by our two major wholesale initiatives NAPA AutoCare and major accounts.

Starting with our major account business this strategic segment delivered its sixth consecutive quarter of double digit growth, a terrific accomplishment by our entire major account team, and our NAPA AutoCare centers now totaling over 15,500 nationwide posted a high single digit to sales increase in the quarter.

This performance insured another year of low double digit increase for our AutoCare business. We'd also like to report on our fleet business. This important segment continued a solid year-over-year performance by posting a 5% increase in the quarter and we wrapped up 2014 at plus 6%.

We can also report good trends in our average wholesale ticket value which add positive growth in the month and in the quarter with little or no inflationary support. We also saw a year-over-year growth in the average number of tickets flowing through our stores. Now a quick review of the product categories driving our growth.

In the fourth quarter, we experienced double digit growth in our Bright business, our tool and equipment business and our NAPA Import Parts business, a great job by our sales teams in all three of these important categories. As we look ahead to 2015 and beyond, we continue to be encouraged by the fundamentals in the Automotive aftermarket.

The average age of the fleet remains in excess of 11 years, the size of the fleet continues to grow, and not surprisingly the all-important miles driven metric recorded its largest growth in the past five years. After relatively flat to even negative numbers in recent years, miles driven was up 1.4% through 11 months.

We saw a jump in miles driven as the price of the gasoline dropped in late Q3 and Q4. Miles driven was up 2.3% in September, 2.6% in October and 1.1% in November. This growth is a direct result of the lowest fuel prices we've seen in six years.

That said, we are beginning to see fuel prices bench back up in early February, however the national average is still significantly below last year's fuel prices. So in summary we are pleased with our fourth quarter results as well as our full year performance.

Our teams in the U.S, Canada, Mexico and Australasia continue to post solid growth, and as good as we feel about 2014 and our industry in general, we are facing our share of headwinds as we move into 2015. Foreign currency has a significant headwind for non-U.S automotive businesses which we'll continue to monitor.

In addition we will face challenging 2014 comps in every quarter of 2015. That said, we are confident in our strategy, the key initiatives we've laid out and the management team we have in place to make it happen.

And in closing, we want to thank our management teams, both in North America as well as our team on the ground in Australasia for another fine year for the GPC automotive business.

So that completes our overall view of the GPC automotive business and at this time I'll hand the call over to Carol to get us started with a review of our financial results.

Carol?.

Thank you Paul. We'll begin with a review of our fourth quarter and full year income statements and our segment information and then we'll review a few key balance sheet and other financial items. Tom will come back at the end of my remarks and then we'll open the call up to your questions.

Our total revenues were $3.8 billion for the fourth quarter, an increase of 9% from last year. This consists of underlying sales growth of 8% and a 3% contribution from acquisitions. These items were offset by a currency headwind of approximately 2%.

For the year our sales increase of 9% was 5% of core growth with another 5% from acquisitions offset by a 1% currency headwind. Our gross profit for the fourth quarter was 30% of sales and this compares to the 31% gross margin last year.

For the 12 months, our gross margin of 29.9% compares to 30% reported last year or 30.1% excluding the onetime purchase accounting adjustment in 2013 that was previously disclosed and also referenced in today's press release. We're pleased that our fourth quarter gross margin was in line with our expectations.

We also recognize the need for further progress on this line and as we've stated before, this area has our full attention. As we move forward in 2015, we will rely on well executed margin initiatives across all of our businesses to offset the ongoing customer and product mix shifts that are pressuring our gross margins today.

Additionally, our initiatives are important in addressing the generally low inflationary environment, especially in the Automotive segment. Our supplier price increases for 2014 were flat for Automotive, up 1.5% for Industrial, up 1.4% for Office Products and up three tenths of 1% for Electrical.

And currently we are planning for about the same pricing environment again in 2015. Turning to our SG&A, our total expenses of $881 million in the fourth quarter were up 2.9% from 2013 and at 23.1% of sales. This is 130 basis points improvement from the 24.3% reported last year.

For the full year our total SG&A expenses are $3.5 billion, which is 22.7% of sales compared to the 22.6% in the prior year or 22.9% before the purchase accounting adjustment mentioned earlier. So this is a 20 basis point improvement on a comparative basis for the full year.

The improvement in our fourth quarter and full year SG&A expenses reflect the benefit of effective cost management in every area of our business, as well as greater expense coverage especially across our non-automotive businesses in 2014.

Our teams remain focused on effectively managing our cost and we expect to show continued progress on our SG&A line in the periods ahead. Now let's discuss the results by segment. So Automotive revenue for the fourth quarter was $1.99 billion and that represents 52% of our sales and is up 3.7%. Operating profit of $150.3 million is down 2.3%.

So their margin declined by 40 basis points to 7.6% from the 8.0% last year. For the year automotive sales of $8.1 billion, which is also 53% of our total revenues was up 8.1%. Our operating profit of $700.4 million is up 9.2% and our margin is up 10 basis points to 8.7%.

So despite the pressure on our margin in the fourth quarter, we're very pleased to report a slight increase in our operating margin for the full year. Our Industrial sales of $1.2 billion in the fourth quarter, which is 31% of our revenues is up 10.4% from the prior year.

Our operating profit of $96.3 million is up 31% and our operating margin showed strong expansion this quarter of 120 basis points to 8.0% from the 6.8% last year. For the year our Industrial sales of $4.77 billion represents 31% of our total revenues and is up 7.7%.

Our operating profit of $370 million is up 15% and our margin is 7.8%, which is up 60 basis points from last year. This is a solid margin improvement for industrial and we're especially pleased to see the expansion come from both core gross margin improvement as well as SG&A leverage.

In addition we had the benefit of stronger supplier incentives in 2014. So this was a very good year for Industrial. Our Office Products revenues were $469 million in the quarter or 12% of our revenues and up a very strong 21.7%. Our operating profit of $35.3 million is up 12%, so their operating margin was down 50 basis points to 7.5%.

For the year office revenues of $1.8 billion or 11% of sales are up 10%. Our operating profit of $134 million is up 9% and our margin is down 10 basis points from last year to the 7.4%. Again, our customer mix shift is imposing our net margin for this business but we're pleased with our overall top line growth.

The Electrical group had sales in the quarter of $177.4 million, up 5% of revenue and up 23%. Operating profit of $15 million is up 23%. So their margin is basically unchanged at 8.5%. For the year sales for this group are $739 million or 5% of our revenues and up 30%. Our operating profit of $65 million is up 36%.

So our margin is up nicely to 8.8% from the prior 8.4%, a solid 40 basis points improvement. So in total, our operating profit was up approximately 10% on a 9% sales increase in the fourth quarter and our operating profit margin improved 10 basis points to 7.8.

Operating margin expanded in all four quarters for 2014 and the full year is up 30 basis points to 8.3%. We are very encouraged by this progress and we remain focused on continued margin expansion in the periods ahead.

We had net interest expense of $5.5 million in the fourth quarter and this is down from $6.1 million last year, and for the 12 months interest expense is $24 million, which is consistent with the prior year. Looking ahead for 2015, we currently expect net interest expense to be approximately $22 million to $24 million for the full year.

Our total amortization expense was $10.5 million for the fourth quarter and $37 million for the full year. Our amortization for both the quarter and the year is up in 2014 due to the acquisition activity across all four of our segments. For 2015, we expect amortization expense to be in the $40 million to $42 million range.

The other line which reflects our corporate expense was $15.7 million expense for the fourth quarter, which is down from the $20.7 million in the prior year.

For the full year, our corporate expense is $90 million, which is up from $35 million from the prior year or up $67 million before the one-time purchase accounting adjustment that we previously discussed.

The favorable fourth quarter comparison primarily reflects certain yearend adjustments from the prior year which slightly increase our expenses in the fourth quarter of 2013.

For the year the increase from 2013 reflects a variety of items including higher overall expenses in areas such as legal and professional, insurance and incentive based compensation. In addition, an unfavorable $7 million swing for 2014 associated with our retirement plan valuation adjustment also impacted this line item.

With these and other factors in mind we expect corporate expense line to be in the $85 million to $95 million range again in 2015. Our tax rate was approximately 37.6% for the fourth quarter, up from 36.2% in 2013 as the mix of income by country and relative foreign income tax rate primarily drove the overall higher tax rate.

For the year, our 36.4% tax rate is up from the 34.4% in the prior year due to several factors, including the favorable rate on the one-time purchase accounting gain in 2013. In addition our lower retirement plan valuation adjustment and our foreign income and rate mix also contribute to increase in our rate in 2014.

Looking ahead, we would expect our tax rate for 2015 to be in the 37% range. Net income for the quarter was $166 million compared, to the $150 million in the fourth quarter or up 10%. Our EPS of $1.07 compared to the $0.97 reported last year also up 10%. Now let’s discuss a few key balance sheet items.

Our cash at December 31st was $138 million, which is down from the $197 million in the prior year. We continue to use our cash to support the growth initiatives in all of our businesses and we remain comfortable with our cash position.

Our accounts receivable of $1.9 billion at December 31st increased 12% from 2013 on a 9% sales increase for the fourth quarter. We remain focused on our goal of growing receivables at a rate less than revenue growth and we’ll be working hard to achieve this objective in the periods ahead.

We continue to be satisfied with the quality of our receivables at this time. Our inventory at the end of the year was $3 billion which was up 3% from the prior year or up just 1% excluding the impact of acquisitions.

Our team continues to do a very good job of managing our inventory levels and we’ll remain focused on maintaining this key investment at the appropriate levels as we move forward in 2015.

Accounts payable balance at year end was $2.6 billion or up 13% from the prior year, due to the positive impact of our improved payment terms and other payables initiatives established with our vendors. We remain encouraged by the continued improvement in this area and its positive impact on our working capital in our days and payables.

Our working capital of $2 billion at December 31st is down slightly from the prior year. Effectively managing our working capital and in particular our accounts receivable inventory and accounts payable is a very high priority for our company.

Our ongoing efforts with these key accounts have resulted in solid improvement in our working capital position and cash flow for the last several years and our balance sheet remains in excellent condition.\ Our total debt of $755 million at December 31st is down approximately $70 million from the nine months ended in September and is basically unchanged from the prior year.

This represents approximately 19% of total capitalization, which is also consistent with the prior year. Our debt includes two $250 million term notes as well as another $265 million in borrowings under our multi-currency credit facility, and we're comfortable with our capital structure at this time.

We continue to generate solid cash flows and in 2014 our cash from operations was approximately $800 million and our free cash flow, which deducts capital expenditures and dividends was $335 million. While not at the level of the historical record achieved in 2013, we’re very pleased with the continued strength of our cash flows.

For 2015 we currently expect cash from operations to be in the $800 million to $850 million and the free cash flow to be approximately $350 million. 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’ve paid every year since going public in 1948, and have now raised for 59 consecutive years, effective with yesterday’s Board approval of $2.46 per share annual dividend for 2015.

This represents a 7% increase from the $2.30 per share paid in 2014 and it’s approximately 53% of our 2014 earnings per share, which is within our goal of a 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 businesses, strategic acquisitions where appropriate, and share repurchases.

Our capital expenditures were $34 million in the fourth quarter, down from $40 million in the prior year and for the year our capital spending totaled $108 million, which is a slight decrease from the prior year. The decrease in expenditures for the fourth quarter and the year primarily reflects the timing associated with certain projects.

With this in mind, we currently expect our capital expenditure to pick up again in 2015 and we look for our CapEx spending to be in the range of $125 million to $145 million for the full year. As usual, the vast majority of our investments will continue to be weighted towards productivity enhancing projects primarily in technology.

Depreciation and amortization was $40 million in the fourth quarter, up from $36 million in the fourth quarter of the prior year and its $148 million for the full year which is up from $134 million in the prior year.

The fourth quarter and full year increases reflect the impact of our capital expenditures, as well as acquisitions and we currently depreciation and amortization to be approximately $155 million to $165 million for the full year in 2015.

Strategic acquisitions continue to be an important use of our cash and they're integral to the growth plans for the Company. In 2014 we made seven acquisitions including at least one in each of our four business segments and we expect this new business to contribute annual revenues of approximately $390 million.

We also have remained active in 2015, acquiring JAL associates for the office segment in January and Miller Bearings for the Industrial segment on February 1st that Tom discussed. Combined, we expect these two acquisitions to generate approximately $50 million in annual revenues and to be accretive to our earnings in 2015.

We will continue to seek new acquisitions across all of our businesses to further enhance our prospects for future growth, generally targeting new [ph] bolt-on acquisition with annual revenues in the $25 million to $125 million range.

Finally in 2014 we used our cash to repurchase approximately 1.1 million shares of our common stock under the Company's share repurchase program. Additionally we have purchased another 500,000 shares thus far in 2015 and currently we have 9.1 million shares authorized and available for repurchase.

While we have no set pattern for these repurchases, we expect to remain active in the program in the periods ahead as we continue to believe that our stock as an attractive investment and combined with the dividend provides the best return to our shareholders. So that concludes our financial update.

It was a solid fourth quarter and a record year but as always there is opportunity for improvement in the periods ahead. We look forward to updating you on our future progress when we report again in April and in closing I would also like to thank all of our GPC associates for all their hard work and dedication. I'll now turn it back over to Tom.

Tom?.

Thank you, Paul and Carol for your updates and thanks to both of you and your respective teams for the fine job being done and also for the important role that each of your plays in the overall success of Genuine Parts Company. So that concludes our prepared remarks on 2014, and in closing I would say that we're pleased with our overall results.

As we look back there were a number of notable achievements. Sales and earnings rose to record levels in all four of our business segments and this enabled GPC to report a record year with sales going over the $15 billion mark for the first time. The 9% sales increase follows an 8% improvement in 2013, indicating a good two year progression.

Operating profit improved by 30 basis points with three to four business units contributing nicely. We kept the balance sheet strong and flexible with debt to total capitalization being 18.8%.

Cash generation, although down from last year's historic levels were still strong with cash from operations coming in at $790 million and free cash at $335 million. And working capital efficiency improved nicely again in 2014.

We returned over $440 million to our shareholders through a combination of share repurchase and dividends and with the 7% dividend increase approved by our Board of Directors yesterday, we've now increase the dividend for the 59th consecutive year.

So in summary we're proud of the achievements in 2014 and we're appreciative of the fine job that was done by the GPC associates throughout our organization. Now in looking ahead we remain confident in the underlying fundamentals for each of our business and all of the GPC businesses have well thought out growth strategies for 2015.

We're a bit less certain however of the overall impact of the strength of the U.S dollar as well as the impact of the global economic and geo-political issues. But to the best of our ability we have tried to take all of these factors into consideration as we set our expectations for the year ahead.

With that said, our initial revenue guidance for total GPC is to be up 3% to 4% for the year, but we want to quickly point out that this includes a 2.5% to 3% negative impact from currency over the course of the year. So you can see that currency will be a significant factor for us in 2015.

Adjusting for this translates to a 6% to 7% comparable revenue increase, and this basically reflects core growth. So our underlying growth expectations remain in line with the core revenue growth that we experienced in 2014.

And looking at by segment, for Automotive business which is the segment that will be most impacted by currency, our expectation is to be up 2% to 3% for the full year, which includes a 4% negative impact from currency. Adjusting for this currency impact, it represents 6% to 7% increase in the underlying revenues for automotive.

In Industrial, we anticipate a 5% to 6% increase and this accounts for 1% negative currency exchange. So before the impact of currency our Industrial sales should also increase 6% to 7%.

Office Products should be up 6% to 7% with no material currency impact and we anticipate the Electrical segment to be up 5% to 6%, also with no material currency impact.

On the earnings side, our initial guidance would be for EPS to come in between $4.70 to $4.80 and included in this is approximately $0.15 per share that's due to unfavorable exchange rates and the related increase and the tax rate which Carol referenced in her remarks.

Stated another way, before the impact of currency and the tax differences, we're guiding to a range of $4.85 to $4.95, which will be up 5% to 7% on a comparative basis. So that will conclude our prepared comments and at this point we'd like to turn the call back to Nicole to take your questions.

Nicole?.

[Operator Instructions] Your first question comes from the line of Matthew Fassler from Goldman Sachs. Your line is open..

Just start by asking you briefly about Automotive margins. You alluded to the fact that they declined. I don't think you gave a lot of color as to why they were down as sharply as they were with very strong revenue growth. So any color you could give there would be terrific..

Yes, Matt, I'll speak to the fourth quarter margins and then kind of talk about it on a full year basis. So our gross margin was down a bit in the fourth quarter within Automotive and we talked about customer and product mix and we offset [ph] some of the foreign currency pressures and some of that flows through to the gross margins as well.

And in addition our SG&A wasn't as favorable in the Automotive segment in the quarter. So what I'd point to is -- what we are really pleased to show is that for the full year our Automotive margins were up 10 basis points and I would tell you that, that primarily came from SG&A leverage..

I think all my follow-ups are probably going to relate to this question. First of all, if you think about FX and you think about translational impact versus transactional impact, it seems like you had some transactional friction in there.

And if you could just tell us how big -- whether I'm right and how big a hit that was to you? In other words paying in dollars and selling in foreign currency?.

Yes, we're not going to quantify what the transactional impact is, but just to say that it was somewhat of a headwind in our margins in Automotive in the fourth quarter. The currency was a little worse than what was anticipated and you certainly sell that on the top line. You sell that a bit and then margins as well..

This is Tom. I might also add -- perhaps this might be helpful to you and others on the call and that is that our core NAPA business, the operating margins were strong and improved more than our overall automotive margins.

The biggest contributor in the quarter, and frankly even on a year-to-date was the currency exchange and if you recall back to my guidance comments a few moments earlier, we said that automotive was going to be impacted by our estimate, 4 points on the revenue side in 2015. So what's happening outside of U.S.

with the strength of the dollar is causing us to see the impact in a pretty heavy way..

Totally understood. Just two more very quick ones that follow from that initial response. As we think about -- was incentive compensation part of the equation? You clearly had a very good year in Automotive from a revenue perspective.

Was there any catch-up for bonuses in fourth quarter?.

Absolutely. I'd point out again while we're pleased to see the great results in Automotive, the extent that we had on the top line, that flowed through on the incentives. So we had less of a favorable year if you will in the fourth quarter as it related to that incentive compensation. You're exactly right..

And then my final question relates to mix. So I know you spoke about customer mix and product mix really across the collective enterprise. If you think about Automotive, obviously the standout number was DIY or retail.

Was that a part of the mix impact on margin? And if so, was that the innate mix -- the innate characteristic of that business, or what you had to do to capture that business?.

I guess I would say on the quarterly margins again for automotive, when we talk about the customer and product mix, the examples that they would point to our major account business and the AutoCare business as those businesses continue to have the strong growth.

And when we talk about that being in a lower margin, also Paul called out a couple of product categories, one of them being T&E, batteries, our heavy duty products, that's sort of the product and customer mix that we're talking about.

Certainly you had something that was more favorable on the retail side that those are unfavorable on the other side, on the commercial side..

Your next question comes from the line of Scot Ciccarelli from RBC Capital Markets. Your line is open..

Tom, you were able to outline the expected EPS impact for 2015 of roughly $0.15.

Do you guys have a number for the fourth quarter? Is there a reason you can’t give a little bit more detail on that?.

I don’t think we have that number here, You can follow up with Sid and he might be able to give you a little more input on that, Scott..

Okay, all right. And then I guess a little bit follow up on Matt’s question. You had retail sales outpace commercial in the quarter. I know it’s on lower base but I guess -- why do you think you saw that shift? That’s little bit more pronounced than what you guys have typically seen given your commercial focus, number one.

Number two, is that a trend that you’re expecting to continue for the next couple of quarters there?.

Scott, this is Paul. Our retail business, we did have a good fourth quarter and we had a good year. Our overall retail business was high single digit year-over-year, and that scenario that we intend to continue to focus on.

Now I do want to point out that we’re not going to forget where we came from and that’s our commercial wholesale business and that's still -- that’s our bread and butter.

But if we can pick up some share on the retail side, and as I mentioned Scott, it’s with some of the very basic blocking tackling in relation some of the things our team is doing on the store hour side, staffing side, just compliance side with our planogram.

So we’re very pleased with our retail business and honestly if we can continue to grow that mid to high single digit in ‘15, we’ll be pleased..

Got it. And how much would you attribute -- I know this always tricky to figure out. Historically we’ve seen a little bit bigger impact from changing gas prices on the retail side and the commercial side.

A, do you think that’s an accurate statement, and B, is there any way to estimate that?.

I’ll give a shot, Scott. I think -- listen, the consumer has got, I think I read recently about $70 more disposable income in their pocket.

Does that help our retail business? I think absolutely it does and how it impacts the commercial business? Well, if you look at what’s happened with Miles Driven and the spike that we saw in late Q3, early Q4 in Miles Driven which are at some of the highest levels we’ve seen in a number of years, that’s going to drive -- obviously that drives our miles driven number up and that’s going to increase our parts business overall..

And Scott, I might add just one additional comment to Paul’s and that is if we look at some of the discretionary items, I think we saw a little bit of an uptick in the flow through of those, which perhaps is attributable to more discretionary income..

And that will be mostly on the retail side where you saw that tone?.

Yes, it would be..

Your next question comes from the line of Mark Becks from JPMorgan. Your line is open..

Just a follow up on that. Was the decline in gas prices, if you look at the 7% comps in the fourth quarter, it was roughly 200 basis point improvement on the two year. Anyway to sort of get a sense of how much of that is gas versus weather versus some of the internal company initiatives that you guys have been delivering upon..

Mark, I don’t think we can get that granular. There are just so many variables, it’s really hard to try to pinpoint specifically which one is impacting it, we would just say that with the lower gas prices, it is positive and a significant positive for the automotive aftermarket in our opinion..

Okay. And then on the gross margin side, just trying to get an idea of the direction going forward in 4Q more specifically.

Just curious; why was it so severe in the fourth quarter? Was it simply a compare issue, a LIFO? Was there any one-time things in there? And how do you feel about the ability for gross margin expansion in 2015?.

If you look -- I might take a stab at it and then Carol will add more color. But if you look, first of all at Q4 last year, it was clearly the strongest gross margin quarter of the year and we were going up against a tough comparison there.

As we think about gross margin across the enterprise in ‘15 all of our businesses have gross margin improvement initiatives and our expectation is that we will show some gross profit improvement over the course of 2015. .

Yet another thing I would add, the prior year fourth quarter we had more of a one-time non-recurring adjustment that didn’t repeat in this year fourth quarter, which we knew all along because we've been staying around 30%.

And the second thing I would say is, if you think about the volume incentives and our inventory was only up 3% for the year and our team has done a very good job of keeping that inventory down, certainly a good bit than the sales increase.

So to the extent that we have volume incentives and those wouldn’t have been necessarily at the same level, that was some pressure on gross margins. And also the Office Products margins were down 10 basis points for the year and that was primarily attributed to gross margin.

So we – again we were in line with where we were for the full year at 30% and I think that’s a reasonable assumption going forward..

Tom, you alluded to some gross margin initiative.

To the extent on a call on a public forum you'd be willing to, can you share some of the specific margin improvement initiative that you guys are working on?.

Not we wouldn’t want to get into the specifics. I would just say that we’re looking at both sides of the equation and you've got buy side and sell side initiatives and we're working on both of those. .

And then one just quick follow up then lastly. On the guidance if you look at Automotive, you're expecting up 2% to 3% in the year, which is a little bit below what you delivered in fourth quarter.

If we think about automotive margin profile in 2014, assuming you guys hit your sales guidance what does that suggest for automotive margins in 2015?.

Well, I'd first respond to that by just reminding that we're looking for our core Automotive to be up 6% to 7% before the impact of exchange rates and we think that all of our businesses can and should show operating margin improvement over the course of 2015..

Your next comes from the line of John Lovallo from Bank of America Merrill Lynch. Your line is open..

Hello? Nicole, we might need to go on. We didn’t get anything come through on John Lovallo's call. We might need to go to the next caller..

Certainly. The next call is from Brian Sponheimer from Gabelli. Your line is open..

Hey it's Brian. Few things here.

One within Motion, any impact from decline in price of oil in the quarter, particularly in some of those Western Canada markets you got into?.

Yes Brian this is Tom. Certainly we're going to be impacted like anybody else that services the oil patch. I would say that for us it’s a low single digit percentage of our total volumes. So while it's significant in terms of gross dollars, it's not as big as it might be for some others..

Low single digit of motion. .

Of motion. And the other thing I would say is that importantly we are going to see a near term decline in demand coming out of those areas. But the segment is not going to go away. It's going contract but it's still going to be there.

And potentially an offset for Motion is the lower fuel prices that Paul referenced, that give the consumer a more discretionary income and as that money starts to get spent, it will flow through other segments of the economy, which could and should impact in a positive way some of the other manufacturing customers that Motion deals with.

So near term we think it will be a bit of a headwind. Medium and longer term we think it will probably balance out..

Just thinking about the fourth shut down.

Have you guys seen any impact on some of your vendors been able to get product to you?.

We look at it a couple of ways; one, with what's happening with some of our vendors; and two, what's happening on some of the direct importing that we're doing. And what we've seen is I think most people are doing a pretty good job of working through the situation. I know in our own case we've had to divert shipments to other ports.

So it has not had a significant impact on service levels but it has added to our lead times but it's something we're watching pretty carefully..

All right, and as I'm thinking about the guidance up 4%, that implies roughly speaking at the high end $15 billion revenue for 2015.

What impact do you factor acquisitions for that? Is that the $390 million you referenced before?.

No in that would be the acquisitions that were completed in 2014. But we have not factored in anything for any future acquisitions. We do have the Miller Bearing acquisition in there that we mentioned promotion $40 million on an annualized run rate. But anything that happens subsequent is not factored in there..

And what's the non-comp revenue number that you're implying with that $16 billion..

When you say non-comp?.

Acquired business that you expect to flow through, is it upwards of 250 million?.

We don’t have that here Brian. We can have Sid get back to you..

Your next question comes from the line of Seth Basham from Wedbush Securities. Your line is open..

My question is around NAPA. You mentioned that core NAPA operating margins were strong and improved overall auto margins in 4Q.

Just to clarify, the NAPA U.S margins increased year over year in the fourth quarter and how did that compare to recent quarters trends?.

The margins improved on a quarterly basis and for the full year. So the NAPA organization performed quite well for us this year again. .

Got it. So the entire drag was really driven by business outside of the U.S..

That’s right..

And then…..

And Seth, just one other thing. That was due to a currency exchange. As Paul referenced we had local currency growth and improvement in these other businesses but when we translated, we lost all of that..

Got it. Understood. Clearly you guys put up some good core numbers for NAPA U.S.

Do you have a sense of where you might be taking share from?.

Hey Seth, this is Paul.

That's always difficult to tell, especially as you look at some of the good numbers our publically traded competitors put out, but I would have to think that if we're taking a bit of share, it may be from of the smaller regional players that are out there, that perhaps are not growing quite at the level that we are and perhaps some of our publically traded competitors..

Okay.

And what about the independent side of the business in the U.S.? How did that perform, and are you acquiring more independents for that business?.

Independent, the thing we liked about the performance honestly is how balanced it was. Both our Company store group and our independent group grew at comparable levels..

And to answer the second part of that question Seth, in terms of -- continue to expand our independent business and to our convert other independent owners out there, absolutely that's core to our business and something that our team is very focused on every year..

Your next question comes from the line of Robert Higginbotham from SunTrust. Your line is open..

Question about a recent transaction in the Automotive space. Uni-Select recently sold their US Automotive business to Icahn. And so I'm wondering if you have any thoughts about what the new owner of that business might do with that asset; how you view that as either an opportunity maybe to pick up jobber stores, or a threat competitively.

And actually on that front, when you look at other wholesale, independent versus owned store business models, you guys have been a clear standout in terms of consistently executing that business, where others have struggled.

What would you point to as kind of your secret sauce to success? And what is and would be difficult for others to replicate?.

Hey Robert, this is Paul. I'll take the first part of that question and I know you're referring to Uni-Select U.S. and the acquisition by Carl Icahn. Very early on in the process and honestly we probably know about as much as you do at this point. It does not change the competitive landscape.

So Uni-Select U.S., I think I read where they were ranked as the No. 5 player in the U.S. So that doesn't really change the competitive landscape at all for us at this point.

It may open up some opportunities and I would say that in terms of other Icahn owned business, which of course is Federal-Mogul, they are a long time supplier to NAPA, they are a long time supplier to our industry and they are a good supplier. So for us at this point, until we learn a whole lot more Robert, it's essentially business as usual.

The second part of your question then, as it relates to the secret sauce, I don’t know that we have any secret sauce. We have a good strategy each year. We tend to stick to our core.

We have a very good group of independent entrepreneurial owners in the marketplace who are very good at what they do and we provide them what we think is best in class training and programs to enable them to compete everyday out there on the street. And so if there is any secret sauce, that may be the takeaway..

Okay.

And switching gears to Office Products, how should we think about the potential impact of the pending Staples/Office Depot merger? Could you help us at least maybe size what you see the opportunity -- and risk on the flip side of that of being to maybe gaining some first call volumes; and again on the flipside maybe potentially losing some first call volumes.

And then how to think about just overall margin trends, as presumably that bigger entity will push you on price..

Robert, I'll take a stab at that and I start by saying that these are both good companies and this transaction seems to make good strategic sense for each of them. As you probably know they're both fine customers to S.P. Richards who are first call with Office Depot; and we've got a significant second call position with Staples.

From the published reports, and that's all we can go on but from the published reports that we've seen, the transaction is probably going to be consummated toward the later part of the year.

So between now and then it's business as usual and we're going to continue to provide the best service that we can provide, and the best support that we can provide to both entities, and certainly post transaction will hope to be the first call -- a wholesale provider to the new entity.

As far as trying to size it, we wouldn’t want to get into that here. But we’re optimistic about what’s going to happen in the future. We think there is a lot of upside there potentially. .

Your next question comes from the line of Bret Jordan from BB&T. Your line is open..

Most have been hit, but could we talk a little bit about the Mexico initiative? I think you were ramping that up in the fall of 2014; and maybe some early signs on success there?.

Yes, absolutely, Bret, we did launch our NAPA Mexico initiative back in October. We opened our distribution center and a number of company owned stores in the marketplace. It’s very early on. We’re pleased with the progress that we’re making and it’s going to be a long initiative for us for sure.

But in the early days we’re pleased with the progress that our team is making down there..

Okay. And then one follow-up question on an earlier topic and you're picking up independent distributors and clearly there's been some transition out there on the Carquest side.

Could you give us any color? Have you added -- and the numbers that you have added to Carquest, ex-Carquest distributors?.

This is Tom, Bret. I think the way we’d like to answer that is that we’re pleased with the progress we’ve made to-date. We continue to see opportunities and we think we’ll continue to make progress but we would not want to disclose the absolute numbers..

Your last question comes from the line of Greg Melich from Evercore ISI. Your line is open..

I had one follow-up on the margin progression on the guidance, and then a little more mechanical question for Carol.

First, it sounds like although margins were down only because of FX in the fourth quarter, and so when you look at your guidance for this year, when you say that you expect the margins to be up, is that in core in Auto? Or do you think that once you bring in the FX, they could actually be down a bit at least for the first few quarters?.

I guess our gross margin guidance that we would be giving would be in total, since we don’t really get into it by segment. And I think our around 30% guidance assumes probably flattish in all of our businesses.

I think the operating margin improvement that we’ve talked about in each of our segments and we’ve talked about the 10 to 20 basis point improvement and coming off of this year and have 30 basis points, we’ve been really pleased to see that, that we’ve got certainly some headwinds going into 2015.

That's primarily going to probably more come through the SG&A line more so than the growth margin line..

And then, Carol, on working capital, given the nice improvement that you saw, if I’m not mistaken the cash from ops actually came in a little bit lower than the guidance you had earlier in the year. I think it was 900 million and ended up being about 100 million less than that.

What was driving that? Was that the receivable growth that you talked about? And could you help explain a little bit what your business has been and how that will normalize? Thanks. .

Yes. So, you’re right. We were a little bit short what we had anticipated from our cash from activities and I would tell you the two primary areas for accounts receivable that you mentioned and that's primarily in the Automotive and Office Sector and again with the stronger revenue growth in what we had, on some of that is we have additional terms.

I would tell that our day sales outstanding, we look at it over the course of the couple years. In the past four years that’s been flat. So we’ve been pleased to see that.

The second factor in working capital was accounts payable which you mentioned and it goes to a little bit earlier when I mentioned our team really did a good job in the inventory area. So we had in a couple of the segments and it was certainly Industrial and Electrical that slowed down their purchases if you will.

So you didn’t see as much on the accounts payable side. And then the other thing is on automotive, which is certainly where we see a lot of the improved terms, we have anniversaried some of those. And it was largely a timing thing that we didn’t have as much coming into the quarter. So we’re looking for improvement on those lines.

And again, it was a strong number but not quite where we thought it would be. .

Would it be fair to sum up that last year’s earlier goal, the $900 million, included a bigger working capital benefit? Instead now you’re going to see that benefit over a few years, and that’s why now we’re using $800 million to $850 million.

Is that a fair summary?.

I think that’s a fair summary, yes. And I think that and we don’t talk about it as much is our [indiscernible] to inventory was 84% this year and 77% last year. So it’s improvement each year but I think it spread out over little longer period..

I would now like to turn the call back over to management for closing remarks..

We want to thank you for your participation today and your support of Genuine Parts Company and we look forward to reporting back to you in April after our first quarter numbers. Thank you..

This concludes today’s call. You may now disconnect..