Sidney Jones - VP, IR Paul Donahue - President & CEO Carol Yancey - EVP & CFO.

Jerry Sullivan - JPMorgan Securities Greg Melich - Evercore ISI Matthew Fassler - Goldman Sachs Christopher Bottiglieri - Wolfe Research Elizabeth Suzuki - Bank of America Seth Basham - Wedbush Securities Bret Jordan - Jefferies Brian Sponheimer - Gabelli.

Good day and welcome to the Genuine Parts Company First Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

[Operator Instructions] At this time, I would like to turn the conference over to Sid Jones, Vice President, Investor Relations. Please go ahead..

Good morning and thank you for joining us today for the Genuine Parts Company first quarter 2017 conference call to discuss our earnings results and current 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'll begin this morning with comments from our President and CEO, Paul Donahue.

Paul?.

Thank you, Sid, and welcome to our 2017 first quarter conference call. We appreciate you taking the time to be with us this morning. Earlier today we released our first quarter 2017 results. I will make a few remarks on our overall performance, and then cover the highlights by business.

Carol Yancey, our Executive Vice President and Chief Financial Officer, will provide an update on our financial results and our current outlook for 2017. After that, we'll open the call to your questions. So to recap our first quarter performance, total sales were up 5% to $3.91 billion.

Net income was up 1% to $158.9 million and earnings per share increased 3% to $1.08 compared to $1.05 in the first quarter last year. These results represent the total sales and earnings across our global Automotive, Industrial, Office and Electrical operations, which we will discuss in more detail throughout this call.

We entered 2017 a stronger, more diversified global distributor, and to that point, our diversification continues to provide complementary benefits as we are not only able to share and implement best practices on the operating side and leverage our infrastructure, but our diversity allows us to better insulate across the board -- across a broad platform.

This supports our ability to drive sustained growth and generate strong cash flow even when faced with challenges in certain businesses. A recent example is the solid progress we have made the last few quarters in our industrial distribution business and in our international auto business.

This quarter, we drove strong sales growth in these operations while working to overcome the headwinds at our U.S. auto business.

As part of our comprehensive strategy, we remain committed to four key growth initiatives including the execution of fundamental initiatives to drive greater share of wallet with our existing customer base; an aggressive and disciplined acquisition strategy focused on both the geographical as well as product line expansion; the building out of our digital capabilities across all four of our businesses; and lastly, the further expansion of our U.S.

and international store footprint. Our progress in these areas drove sales increases across all four of our business segments, and our 5% total sales growth was the strongest quarterly sales increase since the fourth quarter in 2014.

And while we made progress, we are even more encouraged by the prospects for further improvement in our sales performance for the balance of the year, both organically and with ongoing complementary acquisitions.

With that said, thus far in 2017, we have acquired businesses with approximately $140 million in annual revenues that will contribute to our results to the balance of this year. We'll share more on this initiative as we cover each of our segments.

So let's begin with our automotive operations which were 51% of our total revenues in the first quarter of 2017. For the quarter, our global automotive sales were up 3.4% from last year and improved from the 2.4% increase in the fourth quarter of 2016.

Comparable sales on a global business were up approximately 1.5% or 1% with our international businesses delivering 4% comparable sales growth. Total sales for our U.S. operations which continue to represent over 70% of our total automotive revenues, were up 1% in the first quarter including a 1% decrease in comparable sales.

Both the commercial and retail platforms were down slightly, reflecting the headwinds of another mild winter season and overall challenging sales environment that persisted through the first three months of the year. On the commercial side of the U.S.

business, sales to our NAPA AutoCare Centers were up 2%, driven by the growth in new members, while sales to major accounts and fleet customers remained under pressure. Sales were most challenged in the heating and cooling and under car categories which correlate to the warmer-than-average winter weather across much of the country during the quarter.

This was especially true in January and February with the exception of pockets of more normal winter temperatures in the northern Rockies and Northwest. These regions outperformed the balance of the country. We remain energized by the many opportunities we have to strengthen our retail business.

These include leveraging the long-term growth potential for our NAPA Rewards Program, now at 4 million members and growing; continuing the roll out of our retail impact initiative which includes installing all-new interior layouts and in-store graphics; extended store hours; and increased training for our store associates.

We are planning for more than 450 of these stores by the end of 2017 and although small in the overall scheme of total sales, the stores updated for this initiative continue to produce low double-digit retail sales growth. Moving on to the trends we are seeing across the U.S.

Automotive aftermarket; the fundamental drivers for our business remain sound. The size of the vehicle fleet continues to grow, the average age of the fleet remains in excess of 11.6 years. Lower fuel prices remain favorable for the consumer and miles driven continue to post substantial gains.

Miles driven increased 1.9% in February, marking 36 consecutive months of increases in miles driven and is up 2% year-to-date with lower fuel prices continuing to drive this key metric. The national average price of gasoline was $2.48 in March, and although up from last year remains relatively low compared to gas prices in 2010 through 2014.

As a result, we expect to see further increases in miles driven and, ultimately, additional parts purchases in 2017. The first quarter was our most difficult compare of the year in the U.S. and we expect to see improving sales trends as we move through the quarters ahead and, in particular, the second half of the year.

This was generally our thinking going into 2017, and to this point, we see this playing out accordingly. We remain focused on expanding our business with our key commercial programs, NAPA AutoCare and major accounts, executing on our retail strategy and driving footprint expansion via new store openings and strategic acquisitions.

We continue to pursue accretive additions to our business, and to that end, we announced earlier this morning the acquisition of Merle's Automotive, a 15-location Automotive Group based in Tucson, Arizona with approximately annual revenues of $45 million.

Merle's is a dominant player in this market and enhances our store footprint and competitiveness in the Arizona marketplace. We are excited to welcome the Merle's team in NAPA and look forward to their positive contributions to our overall growth. Now let's turn to our International Automotive businesses in Australasia, Canada and Mexico.

These operations account for nearly 30% of our global Automotive revenues and delivered combined total sales that were up 8% including a 4% comparable sales increase in local currency, consistent with the fourth quarter of 2016.

In Australia and New Zealand, first quarter sales grew by high-single digits, driven by solid comparable sales growth and the ongoing benefit of our 2016 acquisitions in this region.

The Asia Pac business operated with 56 additional stores in the first quarter of '17 relative to the same period last year and we see opportunities for further expansion in the future.

In addition, the underlying fundamentals for the aftermarket remains solid including a growing car part driven by record car sales, relatively low gas prices and upward trends in miles driven. At NAPA Canada, total and comparable sales increased in the mid-single digits range which was slightly stronger than in the fourth quarter of 2016.

We believe this reflects a positive impact of a more favorable overall sales environment across Canada relative to 2016 due at least in part to the improving energy sector in Western Canada. In addition, positive industry fundamentals such as a growing vehicle fleet and historically low gas prices bode well for the future of the Canadian aftermarket.

All in, our growth prospects at NAPA Canada remain positive over the balance of 2017. And finally, in Mexico, our sales grew by low double digits for the second consecutive quarter. We continue to expand our NAPA Mexico footprint and today have 33 total stores with plans to add additional stores in the quarters ahead.

So looking back on the quarter, we are pleased with our International Automotive sales performance and expect continued strong results from these operations over the balance of the year. Now let's turn to our industrial business. Motion Industries represented 31% of our first quarter total revenues and was up 6.9% in the quarter.

This has improved from the 4% increase in the fourth quarter of 2016 and is also our strongest quarterly performance since the fourth quarter of 2014. Comparable sales were also much improved, up 3% from last year and also up from the slight increase reported in the fourth quarter.

Our strength in industrial sales appear to reflect the positive impact of more favorable market conditions. Broad-based industrial indicators such as the industrial production numbers as well as the purchasing managers index continued to improve during the quarter, and the energy sector made further progress in its recovery.

Rig counts are now up nearly two times the count in March of last year which is a real positive for our customers depending on the oil and gas sector. Likewise, the level of exported goods continues to improve, a positive sign for equipment and machinery customers in the OE sector.

A review of our Motion business by industry sector, product category and top customers further supports our first quarter growth. We saw an increase in the number of sectors generating positive sales gains with food products, aggregate and cement, iron and steel, and oil and gas, among others, all outperforming.

In addition, each of our primary product categories generated positive sales growth in the first quarter and our Top 20 customers improved their collective sales from mid-single-digit growth in the fourth quarter of 2016 to high single-digit growth this quarter.

So on a product, customer and market basis, the industrial business had a solid first quarter and we look to build on this sales performance as we move forward in the year. I'd like to take this opportunity to update all of you on a recent investment in the Inenco Group which we announced back on March 30.

Inenco, a Sydney, Australia-based industrial distributor was founded in 1954 and today is one of Australasia's leading industrial distributors of bearings, power transmission, fasteners and seals. Inenco currently has 161 locations across Australia and New Zealand, as well as an emerging presence in Asia, specifically Indonesia and in Singapore.

For perspective, Inenco is currently generating annual revenues of more than AUD400 million. Effective April 3, we purchased 35% of this company much like we did in 2012 with our original investment in Exego, the automotive business we now refer to as GPC Asia Pacific.

And in the same vein as our Asia Pac acquisition, we expect to eventually acquire the remaining stake in Inenco. The Inenco investment was attractive to us on many levels.

It offers us significant growth opportunities at our core industrial segment, as well as the potential for significant synergies with our existing industrial business in North America and our Australasian automotive operations.

It offers us the opportunity to build on our presence in Australasia while also serving as an entry point to Southeast Asia which has been of interest to us for some time. It allows us to expand outside of North America, enjoying with the leading industrial distributor in the large very fragmented and growing Australasian marketplace.

And finally, it allows us to align with an experienced and talented management team led by Kevin Clark and Roger Jowett in a business with a long and successful history, world-class supplier partners and extensive and diverse customer base.

But we're excited for the future of the industrial business in Australasia and are confident this investment will serve to benefit our shareholders over the long-term.

Now moving on to EIS, our electrical distribution segment; sales for this group were up 5% in the first quarter and much improved from the flat sales results in the fourth quarter of 2016. Additionally, comparable sales at EIS grew 2.5%, our first quarter with positive comparable sales since the fourth quarter of 2014.

We are encouraged that the positive momentum in the industrial business is beginning to carry over to the core of electrical business at EIS, which should positively impact sales in the periods ahead. In addition, last October's CPS acquisition continues to perform well and bolstered sales in the wire and cable segment in EIS.

Effective April 1, we announced the acquisition of Empire Wire and Supply, which will also complement EIS' wiring cable business. Empire is a provider of custom cable assemblies and a distributor of network, electrical, automation and safety products with three locations in the U.S. and one location in Canada.

This business which should add $65 million in annual revenues to our operations further strengthens our overall capabilities to serve the industrial robotic and automation markets. We look forward to growing this business further as part of the EIS team.

And finally, a few comments on the Office Products business which is 13% of the company's first quarter revenues. The Office Products Group reported a 9% increase in sales, driven by an 11% sales contribution from acquisitions in the facilities, breakroom and safety supplies category.

Excluding acquisitions, comparable sales were down 2% in the first quarter as the continued decline in demand for traditional office supplies continues to pressure sales through our independent retailer customer base.

Sales to our national accounts, e-tailers and FBS distribution customers were up in the quarter, and all-in, the 2% comparable sales decrease is improved from the declines we experienced throughout 2016.

In particular, we would point to our new FBS business with one of the national accounts as driving the majority of this improvement, and we look for further growth in this channel in the quarters ahead.

On the product side, sales in the traditional office supplies, furniture and technology product categories each posted sales decreases while the FBS category posted solid sales growth.

The ongoing expansion of our SBS products and services offering is a key element of our growth strategy at SPR, and for the first quarter, FBS sales were 32% of total sales for this segment which is up from 25% from a year ago. We have plans for the continued expansion of our FBS business including strategic acquisitions as we move ahead.

Likewise, we also have key initiatives to grow our overall share of wallet and market share across our product categories and sales channels. So that recaps our consolidated and business segments sales results and the initiatives underway to generate sustainable sales growth in both the near and long term.

We were pleased to produce a 5% sales increase in the first quarter of 2017 and build on the 3% sales increase for the fourth quarter of 2016. It is also encouraging that our overall growth was driven by sales increases across our four businesses with positive comparable sales across all but one segment.

So with that, I'll hand it over to Carol who will provide a financial update and our updated outlook for the year.

Carol?.

Thank you, Paul, and we'll begin with a review of our key financial information and then we'll provide our updated outlook for 2017. As Paul mentioned, total sales in the first quarter of $3.9 billion, up 5% included a 1% increase in comparable revenues.

Our gross margin for the quarter was 29.6% compared to 29.7% in the first quarter last year with the slight decrease primarily related to lower supplier incentives. We expect these incentives to improve over the balance of the year, and combined with our ongoing initiatives to enhance gross margins, we expect better compares in the quarters ahead.

The pricing environment across our businesses remains relatively unchanged from the prior quarter with slight deflation in Automotive segment which is offset by a slight inflation in Industrial, Office and Electrical businesses.

Our supplier price changes in the first quarter of 2017 were down 0.2% in Automotive, up 0.3% in Industrial and up 0.4% in Office as well as Electrical. Turning to our SG&A; our total expenses for the first quarter were $912 million, up 6% from last year and 23.3% of sales.

While we're not pleased with the 28 basis points increase year-over-year, this has improved from the fourth quarter of 2016 as a percent of sales and we're working hard to drive further cost savings. Primarily, our increase in SG&A relates to the deleveraging of expenses in our U.S.

Automotive and Office businesses, as well as rising labor and delivery costs and ongoing spending for planned IT and digital investments. As expected, our costs related to our recent acquisitions were also up year-over-year but we're gradually eliminating these as we integrate these new businesses.

Among our cost saving initiatives, we're also monitoring our costs and reducing any unnecessary expenses as we further rationalize our facilities to streamline our cost structure as appropriate.

This process serves to reduce the overall distribution cost across all our businesses, and combined with our ongoing investments in technology, we would expect to make further progress towards lower cost and yet increase efficiency in our highly effective distribution infrastructure in the quarters and years ahead.

Now moving to our results by segment; our Automotive revenue for the first quarter of $2 billion was up 3% from the prior year. Our operating profit of $152 million is down 1% with the operating margin of 7.6% compared to 8.0% in the first quarter last year, which is primarily due to the deleveraged expenses in our U.S. operations.

Our Industrial sales were $1.2 billion in the quarter, a 7% increase from the prior year. Operating profit of $90 million is up a solid 10% and our operating margin improved to 7.3% compared to 7.1% last year. This segment benefited from stronger overall sales growth, favorable product mix shifts and a positive impact of their cost savings.

Office Products revenues were $519 million, up 9% from last year. Their operating profit of $31 million was down 9% and operating margin is 6.0%.

While this has improved from the fourth quarter, the margin for Office remains under pressure due to the decrease in organic sales as well as increased costs associated with growing -- with serving a growing number of sales channels including the e-tailers.

To address these concerns, we've implemented several cost initiatives to drive significant savings in this business in the quarters ahead. The Electrical/Electronic Group sales were $184 million in the quarter, up 5% from 2016. Operating profit of $14 million is down 8%, so the margin for this group is 7.4% compared to 8.4% last year.

So we're encouraged by the sales growth in the quarter but we were pressured by customer and product mix shifts which offset the positive impact of the cost-saving initiatives in this business. So our total operating profit in the first quarter increased by 1% and our operating profit margin was 7.3% compared to 7.7% last year.

As we mentioned in our last call, we had anticipated a challenging first quarter from a margin perspective and we're very focused on driving cost savings to improve our margins across our businesses over the balance of the year.

We had net interest expense of $6.2 million in the quarter, up $1.4 million from last year due to the increase in debt levels and certain variable interest rates. With these factors in mind, we're updating our net interest expense to be in the range of $23 million to $24 million for the full year.

Our total amortization expense was $10.8 million for the first quarter, up from $8.8 million last year. And as a result of our recent acquisitions, we're updating our estimate for full year amortization to approximately $45 million. Depreciation expense was $27 million for the quarter, up slightly from last year.

For the full year, we continue to expect total depreciation to be in the range of $115 million to $125 million. On a combined basis, we continue to expect depreciation and amortization of approximately $160 million to $170 million.

The other line, which primarily reflects our corporate expense, was $26 million for the quarter, up from $24 million last year due mainly to higher costs for personnel and IT security. For 2017, we continue to expect corporate expense to be in the range of $100 million to $110 million which is in line with our previous guidance.

Our tax rate for the first quarter was 34.3% compared to 35.9% last year. The reduction in the rate is due to a higher mix of foreign earnings which are taxed at lower rates.

The recently adopted change in accounting for stock-based compensation which positively impacted the first quarter rate as well a more favorable nontaxable retirement plan valuation adjustment. For the full year, we're updating our expected income tax rate to a range of 35.5% to 36%.

Our net income for the quarter of $160.2 million was up 1% from last year and our EPS of $1.08 was up 3%. So now we'll discuss our balance sheet which remains strong and in excellent condition.

Our cash of $178 million at March 31 is down from $27 million from last year but our cash position continues to support our growth initiatives across each of our distribution businesses. Accounts receivable of $2.1 billion is up 5% from the prior year which is in line with our first quarter sales growth of 5%.

Our inventory at quarter-end was $3.3 billion, up 7% from March of last year. Before acquisitions, our inventory is up 3% and we'll continue to maintain this key investment at the appropriate levels as we move forward.

Accounts payable at $3.2 billion at March 31 is up 9% from the prior year due to the increased level of purchases, the ongoing benefit of improved payment terms as well as acquisitions. At March 31, 2017, our AP inventory ratio was 98% which is up two points from 96% at March 31 a year ago, as well as December 31, 2016.

Our working capital of $1.6 billion at March 31 is up slightly from last year. We continue to effectively manage our working capital which is a top priority for the company. Our total debt of $1 billion at March 31 compares to $700 million in debt March of last year, and our total debt to capitalization is approximately 24%.

We're comfortable with our capital structure at this time and we continue to believe that our current structure provides the company with the flexibility and financial capacity necessary to take advantage of any growth opportunities that we may choose to pursue. So in summary, our balance sheet remains a key strength of the company.

In the first quarter, we generated cash from operations of $102 million and we continue to expect strong cash flows for the full year. For our initial guidance, we are still forecasting cash from operations of approximately $950 million and free cash flow which excludes capital expenditures and the dividend to be approximately $400 million.

We remain committed to several ongoing priorities for the use of our cash which we believe serves to maximize shareholder value. These include strategic acquisitions, which Paul covered earlier, share repurchases, the reinvestment in our businesses and the dividend.

We purchased 1 million shares of stock in the first quarter, and today, we have 3.2 million shares authorized and available for repurchase.

We have no set pattern for these repurchases but we expect to remain active in the program and the period ahead as we continue to believe that our stock is an attractive investment and, combined with the dividend, provides the best returns to our shareholders.

Our investment in capital expenditures was $25 million in the first quarter, an increase from the $12 million last year. For the year, we are now planning for capital expenditures in the range of $145 million to $160 million. Turning to our dividends; 2017 marks our 61st consecutive year of increased dividends paid to our shareholders.

Our annual dividend of $2.70 represents a 3% increase from 2016 and is approximately 57% of our 2016 earnings. So that concludes our financial update for the first quarter of 2017.

And in summary, while our top line growth is encouraging, there are still many opportunities to both enhance our gross margins and to better manage the expenses in our businesses.

These areas have our full attention and we're very focused on driving improved gross margins, greater efficiencies and cost savings as we move through the year, and we look forward to reporting to you on that progress.

Now turning to our guidance for 2017; based on our current performance, our growth plans and the market conditions that we see for the foreseeable future, we're updating our full year 2017 guidance as follows; we continue to expect total sales to be in the up 3% to up 4% range which is unchanged from our initial guidance.

This outlook includes the benefit of our year-to-date acquisitions including the Merle's acquisitions that is effective May 1 but no other future acquisitions. We also expect a slight headwind from currency translation for the full year. Our comparable sales growth is still projected to be in the range of up 2% to up 3%.

By business, we are maintaining our initial sales outlook at up 3% to up 4% for Automotive and Industrial; and up 2% to up 3% for office. In the Electrical segment, we're raising our sales outlook to up 7% to up 8% from our initial guidance of up 1% to up 2% to account for the addition of Empire which was effective April 1, 2017.

On the earnings side, we're raising our full year outlook for earnings per share to $4.75 to $4.85, which is an increase from our initial guidance of $4.70 to $4.80 for 2017. Our updated EPS range accounts for the acquisitions we discussed today including the Inenco investment as well as our expectations for a lower tax rate.

This represents a 3.5% to 6% increase in EPS for 2016 -- from 2016 while our earnings growth progressively improved over the balance of the year. And with that, we would just close by saying thank you to all of our GPC Associates for their continued hard work and commitment to the future growth of the company, and I'll now turn it back over to Paul..

Thank you, Carol. So we are pleased to raise our 2017 earnings outlook and we move forward with the goal of building on our current sales momentum. We are focused on further strengthening the core sales across our businesses as well as maximizing the benefit of our recent acquisitions.

We are also committed to executing on our plans to enhance our gross margins and secure cost savings leading to stronger earnings growth. So in closing, I'd like to add my sincere thanks to our GPC Associates across the globe for a really solid start to 2017.

And with that, we'll turn it back to Kayla, and Carol and I will be happy to take your questions. Kayla..

[Operator Instructions] We'll go first to Chris Horvers from JP Morgan..

This is Jerry Sullivan on for Chris. Question around tax refunds. Were tax refunds a significant impact in, I guess, late January and February. And did you see, I guess, an uptick in sales in March as the refund flow started to come to consumers..

No. Jerry, so look, it may have had a small impact but it's really difficult to quantify. And if you look at our business with the majority of our business being driven by the commercial sector, I'm not sure that we would've been impacted like perhaps one of our peer groups is a bit more reliant on the DIY customers..

So I take it whether was a bigger impact in February and January and then kind of impacted March. Or how should we think about that..

No. You would be correct. January, we got off to a slow start in January, and February got a little better and March similar to February. And look, we hate to play the weather card, but the fact is weather had a significant impact.

We had a very warm January, a warm February across the country with the exception of our business out West, which was basically cold and wet, and then winter returned in March in the North East.

And for a lot of you folks who live in the Northeast, you know we had a foot of snow up there in some markets in Northeast had rolled in, and that cost us business. We had stores that were closed and we had DCs that were closed in the month of March. So look, it's a fact of life.

We all deal with it, but it absolutely had an impact on our U.S Automotive business..

Got it, thank you..

You are welcome..

We'll go next to Greg Melich with Evercore ISI..

Two questions, Paul, I guess to follow up on that one. You hate to go to weather but you were already there.

I guess given your history experience, when you do see a late winter come with that late kind of storm, understand that it can hurt sales at those actual days or weeks, are you seeing any signs that, that late part of the winter that came in has actually helped some of the spring demand.

Or are we still at that trend that we've been sort of running through the first quarter..

The trend is similar, Greg. And look, so not that we're into April. Of course, we got the Easter holiday hitting us in the middle part of the month. So it's early yet to really make a call as to what the impact was.

Look, if there's anything good, the snow and the cold that returned in March in the Northeast, it probably blew out some winter goods that we have stocked up on and had hoped to sell in both January and February. So if there was any benefit, we probably blew out some of those winter goods in late March..

And on the comps, remind us are there any -- are the selling days the same in the first quarter this year as the year ago. I know we had a leap year last year and an Easter shift. Was it a true comparison this year..

It was, yes, absolutely. The number of days in the quarter were consistent, 2016 to 2017..

Great, and then Carol, I just want to follow up on the guidance to make sure I got it right. The $0.05 change was basically driven by 2 things, the acquisitions you've done since the guidance in the early part of the year and then the lower tax rate.

Was that -- those are the two things that changed that?.

Well, yes, Greg, we considered all the factors. So the acquisitions, which would be the 35% investment in Inenco as well as Empire and Merle's. And then the lower tax rate. But we also consider, we had slight increases in our interest expense and our amortization expense as well.

And then look, just the additional headwinds, if you will, in keeping our core sales consistent throughout the year with Automotive and Industrial, so we consider all those factors in $0.05..

Okay, and you mentioned a lower tax rate. Is that the accounting change on some of the stock comp. Is that what drove that. And is that something we should model out in perpetuity.

Is that just a this year issue?.

So that is one of the reasons for the lower tax rate. We traditionally have a lower rate in the first quarter, but there were 3 things that drove the lower rate. One was the mix of foreign earnings because they were stronger Q1 because of the stronger sales results.

Two was that the impact of the stock option change and then three was we had a favorable nontaxable retirement plan adjustment in Q1. So that was about a third, a third, a third, if you will. We have modeled our stock option change into our lower rate guidance for the rest of the year, and that faced that way.

But I can tell you, that's an extremely hard to predict number because it depends what stock options are exercised in the future depending what your market price is. So we've modeled a similar number for the rest of the year as Q1 but that's in our guidance..

Okay, that is great, thanks..

Thank you, Greg..

Next is Matt Fassler with Goldman Sachs..

Thanks a lot, good morning. I'll come back to the second question to give everyone a break from it, but I want to start off by asking a question that's relevant, primarily to the Industrial business though it can be -- should remain across the board.

So we've heard from a couple of your industrial peers about pricing actions and, in essence, the impact of increased price transparency on their pricing models and in some instances on margin. Can you talk about your pricing approach.

And are you seeing a dynamic -- a different dynamic in the market as it relates to pricing in the Industrial business, or do you feel that's more idiosyncratic to some of your peers and the world you see is as it's been..

Yes. Matt, I'll give it a shot, and Carol, you jump in here if you have a comment. But certainly, I'm assuming you're referencing a business that released yesterday, Matt. And the fact is that our business is different. And while we're watching what's going on in their world, it's really not impacting us.

And if you look at our business and our model, it's certainly more of a contractual business and the business that you're referencing is a very small portion of our overall..

And Matt, I would just add that motion, and you can see it in our operating margin, both their gross margin, their core gross profit as well as their G&A were improved in the quarter. So we're not really seeing that impact and we're not really expecting that. I mean I think for Motion, it is unique to the company that was discussed..

So back to Automotive for a moment. Obviously, the weather had an impact on the business in the quarter. If we think back to 2016 which was a sluggish year for the industry, one of the factors that was cited within that was the warm winter that we had last year.

And I know that this year was not quite as unique, but by some measure, it was rather similar. How does the winter that we've had which is essentially over -- impact your thinking on the revenue line for Automotive in the rest of 2017..

Well we're for the U.S, Matt, and I'm assuming you're referencing in the U.S, we're staying with our guidelines. We expect to see improved sales, as I mentioned in my comments. Certainly, Q1 was our toughest comps that we had that we went up against -- that we'll go up against all year.

So we're expecting many of the initiatives that we have in play to kick in. And once we get beyond some of these weather headwinds, we really expect to see improved business the balance of the year on our U.S Automotive business..

And then finally, on Automotive. Sorry, Carol, go ahead..

Matt, I just want to reiterate on our core growth for Automotive, our guidance remains at plus 3% to plus 4%. So that's offset by acquisitions and FX. But implied in there is probably plus 2% to plus 3% for U.S and slightly stronger for international..

For U.S..

Yes..

I think in the recent quarters as you've given us quarter on the components of the business, you've broken out commercial and DIY in a little more detail. I might have missed that today, but is that color that you can give us on Q1..

Well, the DIY and commercial were both down slightly in the quarter, Matt..

Got it, alright, thank you so much guys..

We'll go next to Chris Bottiglieri with Wolfe Research..

Thank you for taking my question. Quick question for you. How does the margin structure -- I know company-owned store I presume a higher margin, but how does the operating margin structure of Asia Pac compare to the U.S and I guess firstly for auto and then maybe just for Industrial..

Yes, and so our margin structure for both Australian businesses and Automotive and Industrial would be comparable. Asia Pac, when we bought them at very comparable margins, what we've seen there is really nice improvement in their top line growth. So then that kind of drives more of an upsized margin improvement but similar margins.

And then the Inenco business would be similar margin to our Motion business as well..

What excites us, Chris, on our acquisition of Inenco is the synergies that we believe we can drive both with our Motion business, our Industrial business sharing many of the same key suppliers, global suppliers and some of the best practices potentially adding additional new product lines to our Inenco business but also taking advantage of the infrastructure and footprint that we have on the ground now in Australia and New Zealand to drive improved indirect cost as well.

So look, it's early and we're still at just a 35% owner but we see a template very similar to the path we went down with the Revco business four years ago and that's certainly what we intend to replicate..

Got you. And just the indirect, I mean what are you sharing, is it a corporate office space? Is it oversight corporate? Like what are some of the indirect synergies between, I guess, Automotive Australia and Inenco..

So it can be anything from freight to ocean cargo to technology to digital. I mean there's just a vast array -- warehouse management systems. There's just a vast array of indirect programs, if you will, that we put in place immediately on all our acquisitions..

Chris, we will -- in terms of facilities, we don't intend to share facilities in Australia and New Zealand at this point, but we certainly will take advantage of our global sourcing offices that we have on the ground in China for both -- well, for all of our businesses but certainly for both of our businesses in Australia as well..

That's helpful. And then overall, your Automotive revenue is fairly strongly, a little bit weak in the U.S but margins kind of gave in a little bit. So I was just trying to figure out kind of what drove the margin weakness in Q1 in Automotive..

Yes, look, the comparable sales growth for U.S Automotive was down 1. So it's a loss of leverage on the U.S Automotive side that drove that margin. And so what we're expecting is that second half of the year is a bit better..

That makes a lot of sense. Paul, just one housekeeping. Could you just give us the compares for the U.S from last year. I think you gave us 0% in Q4 that might come to fill out '16 just to get a sense of the cadence..

Chris, I don't have that number in front of me right now. I would -- well, hold on. So as we went across 2016, our U.S comps -- the first quarter was our strongest. Our comps in the first quarter last year as I mentioned was the strongest, we're up 4%. We were then down 2-plus percent in Q2, down 2% in Q3 and basically flat in Q4..

That's helpful, thank you, thank you so much I will pass the line, thank you..

Next is Elizabeth Suzuki with Bank of America..

Good morning. Historically, what impact, if any, has declining make up pricing had on your business. And do you think there's any credence to the idea that used vehicle values declined and scrap rate may actually go up since the value proposition of fixing up a car versus replacing it becomes a little less compelling..

Well, let me take a shot at that, Elizabeth. The scrap rate has -- and certainly, the scrap rate is a key metric that we look at to measure the overall Automotive business and the health of our Automotive business, that has remained fairly consistent.

And I think I for one, and it would just be one man's opinion, but a drop in used car pricing, I just don't think it's going to have a huge impact. The size of the fleet that we're talking about here in the U.S is massive and it takes really a significant shift to really move the market, and so we don't anticipate any real shift..

Okay, that's helpful. And looking at DIY versus DIFM, what percentage of your auto business is currently DIY. And how has that trended over the last several years..

Yes, so it's remained fairly consistent, Elizabeth. It's been right around 75-25 mark, 75 being DIFM commercial and 25% being DIY. And it remains pretty consistent. We have -- as we mentioned in my prepared remarks, we have a number of initiatives in play right now to continue to drive additional retail business through our stores.

We've got 1,000 company-owned stores, 5,000 independent stores. And one of the things that we have taken from our brethren in Australia is they've got a very strong retail business. So one of the initiatives for us is we've been upgrading our stores, extending our store hours and really just improving the overall retail shop-ability of our stores.

And as mentioned, we're seeing a nice impact in those stores that we have to our new to that you look.

But to size it up, Elizabeth, the industry is growing on the DIFM side and that's where we -- that's where our heritage is, that's where we intend to stay that's where we intend -- we certainly believe the continued growth will come from us on the DIFM side..

Okay, great. And just a quick one on acquisitions. Looks like in the last -- in just the last month, you've made a couple of smaller and then one larger acquisition in the Industrial and auto and Electrical segments.

Is there any -- what are the multiples looking like for the various segments versus -- this year versus last year? And have there been any real shifts where you're starting to see some really compelling opportunities in one particular segment or a couple of segments versus the others?.

Yes. Well, our stated objective in terms of our M&A, we -- if you go back to my growth pillars, Elizabeth, I talked about aggressive but disciplined acquisition strategy and we do stay disciplined in our approach. We shoot for between 6 to 8x multiples. But occasionally, for the right strategic acquisition, we may exceed the outer boundaries of that.

But historically, and I can tell you that the majority of the times we do stay within our range and that would be our intention going forward as well..

Alright, thank you..

We'll go next to Seth Basham with Wedbush Securities..

Thanks a lot, and good morning. The last few quarters, you guys have given us gap between the performance in your auto business in your southern and northern regions. Can you provide that for this quarter..

Yes. So Seth, it's narrowing significantly, and what I would tell you is that a number of our divisions, we've got eight divisions across the country that are all in various geographical regions. Most of them this quarter were pretty tightly bunched together. We had a couple of outliers.

And in the outliers, one on the positive side, which posted some pretty good strong single-digit growth was up in the mountain part of the U.S I referenced in my comments that that's the one part of the country that saw a tough winter, a more normal winter.

And so if we ever really want to truly get a handle on does weather impact the business, we see it very clearly in the growth. And look, our teams did a good job up there as well, so it's not all weather. But we saw nice growth on the positive side of the mountain.

On the flip side to that, we saw a decline, a greater decline than we saw in our normal -- our regular divisions down in the northeastern part of the country. And again, the Northeast in Q1 had the warmest winter, I think, in 25 years with the exception of that northeastern that blew in, in March.

So those would be the two outliers, but the balance were pretty tightly bunched together..

Got it. So the range you're talking about for most of 2016, the 400 to 500 basis points gap between the North and South is much more narrow than that, would you say, 100, 200 basis points in that type of range..

In the 200 basis point range..

Got it, thanks for that. And then secondly, regarding the fleet business, you talked about some improvement in the oil economy and the benefits to the Industrial segment. But what about in the auto segment.

Why aren't we seeing any improvement in the fleet business that is somewhat oil economy-centric?.

Seth, it's a great question and one that we've discussed internally. We really think there's a bit of a lag effect in terms of the growth we're seeing because if you look at our business in the Southwest, whether it's our Industrial business or in our Automotive business, our Southwest business is bouncing back.

And we just think there's a bit of a lag effect that is yet to kick in, but we do believe that's coming and one of the reasons why we feel pretty good about the balance of the year..

Got it, okay. And last thing, in terms of the cadence really our business through the year. In the second quarter you talked about comparisons easing substantially but it also sounds like you're not planning for much of an improvement in comps here in the second quarter, so it's really back half that you're looking for.

What is it about the second quarter besides Easter that gives you a bit of pause?.

Well, it's still a bit early, Seth. And look, Easter absolutely has an impact and we've seen it in the month. So look, I think that as I mentioned to Chris earlier, the comps get a good bit easier here in Q2 and Q3. And our expectation, Carol walked you through what we still expect in our U.S. comps and that's where we expect to be..

Alright, very good, thank you guys..

We'll go next to Bret Jordan with Jefferies..

Good morning guys. On the Merle's deal, and I'm just sort of thinking about that consolidation of the auto distribution in the U.S. and they were I guess a parts plus member and back at the end of the year one of your alliance members. Do you see that is there more of a strategy of owning the retail distribution auto.

And do you think this is a result of further consolidation of the buying group members..

Well, look, I would tell you this, Bret.

We've known Steve and the team out there at Merle's for a number of years, and this happens to be -- Tucson is a market that Merle's dominated in, and we have a few stores but I would tell you they're the strongest player out there and it's a perfect fit for our Phoenix team in our Western Division and just fits very nicely.

That's not always the case. When we look at some of these groups and these players that are out there, many times, we have a number of conflicts in those markets and it's difficult to go in and bolt one on just because of the number of conflicts that it would present to us.

But I would tell you that we're really excited to have Steve and the Merle's team join NAPA, and we feel really good about the nice fit that that's going to have on our -- with our Phoenix group..

Did you talk about what you paid for on a multiple basis?.

No, we did not..

Okay.

Ballpark?.

Ballpark and our ranges that we discussed..

Okay. And you talked about the margin and I think you talked about lower supplier incentives. Was that lower supplier incentive on the auto side just because the negative comp you weren't getting as much supplier participation. Or is that supplier incentives in other businesses as well..

So actually, it was Automotive, Industrial and office, a little bit more in Automotive and more driven by the lower comps..

Okay, great. Thank you, it was great..

We'll go next to Brian Sponheimer with Gabelli..

Hi everyone, good morning..

Hi, Brian..

Want to talk about Inenco. And can you just discuss the purchasing mechanics for the remainder of the business, and is there an agreed-upon price right now? Or is that something that is up for negotiation down the road..

So Brian, it's similar to what we did with Asia Pac is there is a future earnings target that's been set and there's a period of time that we expect that to happen, and again, it would operate -- that remains to be seen when the time period is. But as we saw with Asia Pac, we ended up doing a little bit quicker than what we thought.

So it's structured very similar to our previous ones, so an earnings target in a period of time out. So whether it's two years, three years, it remains to be seen..

Brian, I would just add that our hope and what we anticipate is that it will be sooner rather than later much like we saw with our acquisition on the Revco business and it's a good business and one that -- again, we've known the family. It was a family-owned business. We've known them for a number of years.

There was always a good relationship between the Inenco team and our Motion team. It's one that I -- honestly, we're pretty excited about..

It seems like a great opportunity. Just within Motion, so you talked a little bit about channel inventory and what you're seeing from your own customers and whether some of this is restocking ahead of optimism about the market or just simply meeting demand with purchases..

I think it's more of a meeting demand with purchases. I think and, look, that's why we were kind of we want to give a little bit more time to know that this growth is sustainable. So there's definitely signs there's new business, but I don't think it's as much as you described at the beginning.

I think it's just more of the normal sales that's going on right now..

Alright, terrific, well, good luck..

Thanks, Brian..

And we have time for one more question from Scot Ciccarelli from RBC Capital Markets..

Hi this is Mike [ph] for Scott, thanks for taking my question. Maybe talk a little bit about efforts you're making to improve margins in the coming year.

And was just wondering if you could provide some context on the cadence of when you expect those improvement to show through, particularly maybe with some more color around the recent pressure in Office Products and Electrical..

Okay, sure. So we're probably -- and our guidance kind of implies a plus 3.5% to plus 6% in earnings per share, and we would say that, that's probably more of a second half of the year and, specifically, how are we getting there, what are we doing.

So we had said kind of originally kind of a flat margin for those -- for the business in the year, but we're getting some improvement obviously out of the tax line. But what we're doing specifically on the EIS side, they have done significant reductions in facilities as well as headcount and then also working on the gross margin side right now.

So this was a quarter we had a nice core growth of 2.5%. So it takes that to start flowing through later in the year with continued growth core growth.

On the office side, they took some steps last year in Q4 and there were some additional steps taken in Q1 which pertain to headcount reductions, changes in freight, some of our pricing, looking at facilities. And so I would say it would be more in the SG&A line and more second half of the year.

But in total, I think for those businesses, we're speaking towards -- when you put Automotive, Industrial with office and Electrical, that's where you may -- it's going to but beach other out depending where the growth is..

Okay, thank you..

I'd like to turn it back to our presenters for closing remarks..

Well, we'd like to thank you for participating in today's call and we thank you for your support and interest in Genuine Parts Company and we look forward to talking to you in July with our second quarter results. Thank you..

That concludes today's conference. We thank you for your participation. You may now disconnect..