Paul Donahue - President, Chief Executive Officer Carol Yancey - EVP, Chief Financial Officer Sid Jones - Senior Vice President of Investor Relations.

Christopher Horvers - JP Morgan Matt Fassler - Goldman Sachs Scot Ciccarelli - RBC Capital Markets Bret Jordan - Jefferies Jacob Moser - Wolfe Research Mike Montani - MoffettNathanson Jason Haas - Bank of America Seth Basham - Wedbush Securities Carolina Jolly - Gabelli.

Good day and welcome to the Genuine Parts Company, first quarter 2018 conference call. Today's conference is being recorded. At this time all participants are in a listen-only mode. [Operator Instructions]. At this time, I would like to turn the conference over to Sid Jones, Senior Vice President of Investor Relations. Please go ahead..

Good morning and thank you for joining us today for the Genuine Parts Company, first quarter 2018 conference call to discuss our earnings results and current outlook for 2018. I'm here with Paul Donahue, our President and Chief Executive Officer and Carol Yancey our EVP and Chief Financial Officer.

Before we begin this morning, please be advised that this call may include certain non-GAAP financial measures, which may be referred to during today's discussion of our results as reported under Generally Accepted Accounting Principles.

A reconciliation of these measures is provided in the earnings Press Release issued this morning, which is also posted in the Investors section of our website. Today's call may also 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, including this mornings' press release. The company assumes no obligation to update any forward-looking statements made during this call. Now, let me turn the call over to Paul..

Driving greater share of wallet with their existing customer base, employing an aggressive acquisition strategy focused on both geographical in-fill and product line adjacencies, expanding our digital capabilities and lastly further expansion of our U.S. and international store footprint.

We continue to see these growth pillars combine with the diversity in our operations, both across our core business segments and geographies, creating ongoing shareholder value.

As we look to our Global Automotive Group, total sales were up 29.6% in the first quarter, including an approximate 1.5% comp sales increase, as well as the benefit of acquisitions and favorable foreign currency translation. Breaking it down further, sales for our U.S.

Automotive operations were up 3.5% in the first quarter, with comp sales up slightly. This is consistent with the sales comps we saw throughout 2017 with retail sales outpacing commercial sales. With that said, we estimate that the winter storms across the North East and Atlantic regions of the U.S.

during the quarter which resulted in multiple distribution center and store closers, as well as the shift in the Easter holiday and approximate 1% negative impact on sales.

By customer segment, we were encouraged to see our sales to NAPA Auto Care improve further in the first quarter up low single digits and our major account sales moved in the right direction as well. So the combination of a more normalized winter seasons in most parts of the U.S.

coupled with the ongoing initiatives with our commercial customers, which includes an expansive and growing list of value added services, should drive stronger sales over the balance of the year.

Turning to our retail business, we remain focused on the many opportunities we have with our DIY customers and this continues to play out in terms of positive sales comps.

Among our initiatives, the NAPA Rewards Program now has over 7.1 million members, NAPA Online sales continue to grow and our retail impact store project which is a multiyear initiative to modernize and refresh our NAPA Store layouts.

This project has resulted in our team upgrading and updating 535 company owned and independent owned stores through March of this year. These stores continue to produce our strongest retail sales comps and we look forward to the positive impact of this initiative as we roll this platform out to another 250 to 300 stores in 2018.

We expect to see the overall aftermarket industry and ultimately our U.S. Automotive Sales strengthen over the balance of 2018 for several reasons. We expect to see the demand for failure and maintenance parts increase due to the impact of a more normalized winter weather pattern, something we haven’t experienced for two years.

We expect the number of vehicles and the aftermarket sweet spot to stabilize in 2018 after falling for the past few years due to the historically low new car sales and the post recession years after 2008.

Long term fundamental drives for the automotive aftermarket remains sound, with a growing total fleet and relatively stable fuel prices, despite the recent increases which continue to drive increased miles driven among consumers.

Total mils driven increased 1.2% in 2017 and they were up another four-tenths of 1% in January of ’18, the most recent data available. We also expect our ongoing acquisitions to positively contribute to our future sales.

Thus far in 2018 we added Smith Auto a Fresno, California based automotive group with five stores and approximately $17 million in annual revenues to our U.S. network. Smith Auto as well as other accretive tuck-in acquisitions remains an important part of our growth strategy and we see additional opportunities to expand our U.S. store footprint.

So now let’s turn to our International Automotive Businesses in Europe, Australasia, Canada and Mexico. We will begin with the newest addition to our growing automotive footprint Alliance Automotive Group.

As you will recall, we acquired AAG one of the leading automotive aftermarket distributors in Europe with operations in France, the U.K., Germany and Poland back in November of 2017. So this was their first full calendar quarter as part of the GPC family.

We are pleased to report that this business is performing quite well, posting low single digit sales comps and in line with our plans for both sales and profits. The AAG team completed several small bolt-on acquisitions in the first quarter and has a full pipeline of additional acquisitions for the periods ahead.

In addition, our management teams are working hard to deliver the $25 million in synergies we announced with this transaction and expect to realize over the next three years. These synergies primarily relate to our sourcing opportunities and we remain confident that we will achieve the targeted goal.

As we work through this integration which is going very well, we expect the talented management team at AAG to drive strong results throughout 2018. AAGs growth plans are supported by the backdrop of solid industry fundamentals and steady economies across their markets.

We look forward to their continued positive impact on our overall automotive results. Now a brief review of our other international automotive businesses. As a group, these operations delivered a 6% total sales increase in the first quarter, including a 2% comp sales increase in local currency.

In Australia and New Zealand total sales in local currency were up mid single digits in the first quarter, driven equally by an increase in comp sales and the ongoing benefit of acquisitions. The Asia-Pac business operated with 560 stores in the first quarter of ‘18 and this business has plans for further store expansion in the future.

In addition, the Asia-Pac team continues to make important e-commerce investments in several areas, including the strategic investment in a leading ongoing business to enhance our digital capabilities.

We expect these initiatives in addition to the sound underline fundamentals for the Australasia after market, including a growing car park driven by record sales, relatively low gas prices, an upward trend in miles driven and an overall healthy Australian economy will drive continued solid results for our Australasian automotive business.

At NAPA Canada, sales remained strong in the quarter with total sales in local currency up mid single digits and comp sales up low single digits. These results include the acquisition of the Universal Supply Group purchased back on December 31.

Universal ads 21 Ontario based stores to our operations, generating strong sales across both light vehicle parts and heavy duty truck parts. Finally, the industry fundamentals and general economic climate in Canada remain positive. So we remain optimistic for another good year from our Canadian team.

In Mexico our automotive operations finished the first quarter of 2018 with total sales up mix-single digits before the favorable impact of currency. The NAPA Mexico footprint includes 42 total stores and we look forward to expanding our store base further over the balance of the year.

We expect this expansion combined with our other growth initiatives in Mexico to further accelerate our revenue growth in this large market. Turning now to the industrial parts group which includes the combined results for EIS and Motion.

Following a 7% increase in 2017, total sales were up 8.3% in the first quarter, including 5% comp sales growth and the benefit of acquisitions.

The industrial economy continue to experience favorable conditions in the first quarter with positive reports from the major industrial indicators such as purchasing managers index, industrial production, rate counts and U.S. exports.

These industry fundamentals, as well as our ongoing growth initiatives continue to drive robust growth across our product categories and the industries we serve. Each of our major product groups posted sales gains in 10 of the 12 industries where we compete were up as well.

Additionally the equipment and machinery industry, our largest single sector, showed the strongest growth among the industries we serve for the second consecutive quarter.

Other sectors, performing especially well include open paper, iron and steel, lumber and wood products, aggregate and cement, equipment rental and leasing and oil and gas extraction.

Our industrial management teams at Motion and EIS are working closely together and making progress to generate economies of scale and improved efficiencies in the newly combined organization. The opportunities we see ahead for our larger and strong industrial group are encouraging and we expect strong results throughout 2018.

We would also add that we are very pleased with the ongoing growth at Inenco; the Australian based industrial distribution company we partnered with in 2017. This business is performing quite well and continues to expand its footprint across Australia and New Zealand, while also operating in Indonesia and Singapore.

Inenco announced earlier today the acquisition of HCD Flow Technology, a leading supplier of industrial hose and pumping equipment, further solidifying our market leading position in New Zealand. Today we have a 35% investment in Inenco and we look forward to investing further in this business within the next 12 to 18 months.

This quality organization will be a great addition to our global industrial group. Now, a few comments on S.P. Richards, our business products group which reported a 4.8% decrease in total sales for the first quarter.

This business remains challenged by the continued pressures and demand for traditional office products, while sales and the facilities break room and safety supply category continues to partially offset these headwinds and post solid growth.

Due to the challenges we have faced in this business we have been evaluating our long term strategic outlook for S.P. Richards for some time. As referenced at the beginning of my comments, last week we announced that after a comprehensive review of our options, we entered into an agreement to spin-off the S.P.

Richards business and merge it with Essendant, another national business products wholesaler. This transaction made sense for several reasons. It maximized the value for S.P. Richards.

GPC shareholders will gain 51% ownership of the combined company, allowing our current shareholders to participate in the significant upside of the newly combined company.

The newly combined company in the best interest of all stakeholders, as it will be better positioned to effectively compete in the business product space with greater ability to support the customer community.

This option allows us to strengthen our focus on our core and larger, higher growth and higher margin global automotive and industrial businesses, and finally the $347 million in cash payments to GPC further enhances our capital allocation strategy. We believe the combination of Essendant along with S.P.

Richards creates a stronger, more diversified business. Together these talented management teams and complementary cultures with a shared commitment to serving customers will be better positioned for future success. For employees, the new company will have the scale and depth to compete more effectively. We look forward to supporting the S.P.

Richards and Essendant teams in facilitating a seamless integration. The transaction is expected to close before the end of 2018 subject to regulatory and Essendant shareholder approvals and other customer closing conditions. So that is the summary of our consolidated and business segment sales results for the first quarter of 2018.

It was another eventful quarter for us and we believe the steps we have taken in Q1 will set us up well for not only a successful 2018 campaign, but an even brighter future for GPC. So with that, I’ll hand it over to Carol for her remarks. Carol..

We continue to expect total sales to be in the plus 12% to plus 13% range, excluding the benefit of any future acquisitions as well as an impact from foreign currency.

By business we continue to expect plus 19% to plus 21% total sales for the automotive segment, plus 4% to plus 5% for the industrial segment, as sales decrease of minus 3% to minus 4% for the business products segment which will continue to be included in our guidance until the spin-off transaction is closer to completion.

On the earnings side we continue to expect earnings per share to be in the range of $5.60 to $5.75, which is consistent with our initial guidance announced in our last call. This EPS guidance includes the benefit of a full year of operations for S.P. Richards, the Business Products Group.

In closing, we made progress in several important areas that better position us for the future and although we have much work ahead of us, we move forward excited about the many opportunities we have to grow our sales and improve our operating performance in the quarters ahead and over the long term.

We’d like to thank all of our GPC associates for their continued hard work and dedication as our people are our greatest asset and we’re excited about the long term growth prospects for Genuine Parts. Paul, I’ll turn it back over to you. .

Thank you, Carol. As we reflect back on the first quarter we have several accomplishments we’d like to highlight. We established a new sales record at $4.6 billion and up 17%. Our adjusted earnings per share of $1.27 increased by 18% from 2017.

We reiterated our full year sales and earnings guidance with sales at plus 12% to plus 13% and comparable EPS of plus 19% to 22%. We completed our first full quarter with AAG and this business continues to perform well and we are making progress on our integration.

We took two significant steps to optimize our portfolio, further enabling us to focus on our higher growth and higher margin global automotive and industrial businesses. First, we combined EIS with Motion to form a larger and stronger industrial products group with expected revenues exceeding $6 billion annually.

In addition we entered into an agreement to spin off the business products group and form a new company with Essendant.

We made significant IT investments in the quarter to improve our digital capabilities and enhance our B2C online offerings, as well as enhance our operational efficiencies and productivity in the U.S., Canada, Mexico and Australasia.

We generated solid cash flows improving our cash from operations relative to 2017 and finally we increased our 2018 dividend for the 62nd consecutive year. So with these accomplishments we move forward in 2018 better positioned to address our challenges and maximize the growth opportunities available to us.

We remain focused on both organic and acquisitive sales to drive long term sustained revenue growth and will continue to execute on our plans and initiatives to enhance our gross margins, reduce cost and build a highly productive and cost effective infrastructure.

We expect our focus in these key areas to improve the operating performance in our core businesses and for the company overall. As always, we look forward to updating you on our progress again in July when we report our second quarter 2018 results. So with that, we’ll turn it back to Ashley and Carol and I will be happy to take your questions..

Thank you. [Operator Instructions] We’ll take our first question from Christopher Horvers with JP Morgan. Please go ahead..

Thanks, good morning everybody..

Hey, good morning Chris..

I want to first focus on the U.S. NAPA business. Can you share how much the impact of Easter was by itself and I understand the weather headwinds in March with all the nor easters that came up the east coast, but at the same time it would seem like you had a pretty favorable January. So I just wanted to get your thoughts there.

Do you think it – is it fair to you know call out weather in March and not acknowledge the strength in January?.

Yeah, so Chris the – and it’s a fair question. The cadence of the quarter, certainly January started out pretty good and that cold weather helped our business for sure. February was pretty good as well. Where we began to see it tail off was in March and specifically in the second half of March. Easter had an impact.

Probably to address your question specifically, Easter was probably less than 0.5% overall impact, but you know the – you take three nor easters that hit the Northeast in the month of March, we had numerous DC store shutdowns in both the Northeast and Atlantic and that absolutely had an impact.

What we see right now Chris is that certainly too much winter weather is not a good thing. We’ve seen our Ag business is off to a slow start, agriculture business. Our break business which is, you know we are usually taking off this time of the year is soft, but look in the long run the cold weather is a benefit for us.

We think we’ll see a pick up most likely in Q2 and on into Q3 as parts fail, maintenance come into play, pot holes begin to take their toll. So longer term it is going to be a positive for us..

And then, you know it sounds like you know with the slightly positive U.S.

comp and DIY better, was do-it-for-me thus down negative and I am just curious, you’ve been around this business for a long time, what do you think has changed in the do-it-for-me business, because it’s you know clearly DIY doing better than do-it-for-me is something very different from what had occurred for a long period of time..

Well, I again – and Chris look, it would be fair to point out that our NAPA business is not like our peer groups. We are improving our retail business and we’ve had an initiative to upgrade our stores for some time. But retail for us DIY is still less than 25% of our overall business.

We’re still largely driven by our DIFM business and our commercial business. As I mentioned, we saw improved results in our auto care business which we have 17,000 NAPA auto care centers. That business was up low single digits, which has improved.

Major accounts while improving somewhat from previous quarter, we’re still challenged and what we hear in the marketplace Chris is that overall their business overall is pretty much flat. So specifically on your question about our DIFM business it was pretty much flat in the quarter..

Understood. And then one last one. Just as you think about the SG&A dollar growth, can you talk about where that played, the SG&A dollars played out relative to your expectations for the first quarter and you know what’s the stripping out all on the acquisitions. What’s sort of the core growth rate in your, you know the SG&A structure this year.

Thanks very much..

Yes so Chris, when we look at SG&A in the quarter and where our expectations were, so our core growth in U.S. automotive was not quiet where we thought it would be, much about what Paul mentioned earlier, what we saw certainly in March and then our business products division, their core growth was a little bit worse than what we saw.

So having said that, it’s Q1 and what we certainly, we look at the 300 basis point increase. Looking at, you got the deal costs in there, you got AAG, you’ve got increased interests in amortization and that would be about half of the increase. The rest is really from the lower core growth and payroll is the biggest driver there.

So we look at our businesses and we look at headcount and we look at headcount being flat as an organization, but these wage pressures, the increases we are facing in fuel, I mean those are real dollars.

So the headwinds on wages and fuel are real and that was probably a little worse than we thought in the quarter and we mentioned the additional investments we are going to be making in IT and digital and certainly that was planned for.

So where probably we were short was the lower core growth and then seeing the additional stronger wage pressures and increases in fuel and deliveries. .

Thank you. .

And we’ll take our next question from Matt Fassler with Goldman Sachs. Please go ahead. .

Thank you so much and good morning to you. My first question just based on quantifying the impact of AAG to gross margin and I’m not sure whether that’s intrinsic marginrate and if it is that much higher, curious as to why or whether it’s just kind of P&L geography.

I know we saw this popup to a smaller degree in Q4 when you only had ownership of that business for part of the quarter, but just so that we can model that appropriately over the next couple of quarters, if you could talk about why this is driving the reported gross margin so much higher. .

Yeah, happy to take that. So gross margin was up 170 basis points in the quarter and I would tell you AAG was about 100 basis points, and the remaining amount is due to improvement on the industrial side and also slight improvement on the automotive side offset by declines in business products.

The reason that AAGs gross margin is stronger and we’ve spoken to – sometimes we’ve have acquisitions, Asia-Pac in particular and now AAG that come in with a higher gross margin and higher SG&A, but these are comparable from an operating margin basis.

The big driver for AAG and I think we mentioned this early on when we made the acquisition, they have growth revenue that is more around slightly over $2 billion but the GAAP reported revenue, so growth billings will be much higher. The GAAP reported revenue is more like $1.7 billion.

So when you look at the gross margin and the SG&A you are going to have higher gross margin by lowering your sales number. .

Understood. The second quick question I have relates to operating leverage in the automotive business.

If you think about the underlying intrinsic business ex-acquisitions, can you talk about the kind of sales growth that you think you need to breakeven in terms of automotive unit margin?.

Yeah Matt, this is Paul. We generally take about 3%. We have been kind of mired in this flat to 1%, 2% comp growth here now for few quarters in the row and we got to generate some top line growth. I covered our growth pillars with you earlier.

Our team is laser focused on driving top line growth so that we can leverage that fixed expense that we have, but we generally look at 3% as a must. .

And is that breakeven higher today, given both some of the discretionary investments that you are making also you spoke about the backdrop in terms of wages and fright and obviously that something that everyone is coping with. Does that take that number above 3% or is 3% still, is leverage still at....

No, 3% is a good number Matt and we are absolutely our committed to the investments that Carol mentioned. But 3% is a good number. .

And then very quickly finally. So I think you said in the other line items, just to understand P&L geography of the dealer related costs. I think you broke out $13 million of cost, part of it in gross margin, part of in SG&A, in your initial comments. Then you also saw about $13 million in other line item.

I just want to make sure, and I’m like just be in my own confusion that I understand where exactly that $13 million that we exclude, resides in your disclosure. .

Yeah, so in the segment information there are no deal costs in any of the operating segments. So we put the deal cost of $13 million the other net line and then when you look at the income statement, we had $5.8 million in cost of goods sold and $7.2 million in SG&A. .

Got you. So you broke it out on that divisional P&L and you just articulated it where it shows up on the consolidated P&L, that’s very helpful. .

Correct, but it’s all the same $13 million. .

Perfect. Thank you so much guys. .

Thank you, Matt. .

And we’ll take our next question from Scot Ciccarelli with RBC Capital Markets. .

Good morning guys, Scot Ciccarelli. .

Hi, Scot.

I had two questions. Hi, the first is, I know it’s probably hard to figure out just given the changes occurring, wage expense, etc.

Can you give us an idea how much of your cost structure in the auto business is fixed versus what you consider is variable?.

Well, I would tell you on SG&A when we look at our cost in SG&A and we’ve said as always at least two-thirds of our costs are payroll and payroll related.

Having said that, when you look at facilities and a portion of the payroll being fixed, we are probably 55%-ish that we would say would be fixed, and that why when we talk about what we need to leverage, it keeps at that 3%ish growth in order to leverage. .

Alright, so 55%....

Now having said that, we are working hard to make sure that we are address our cost base and whether we look at rationalization of facilities, investments in productivity improvements, optimizing our fright and delivery, all these things to help take some of these costs that could be fixed to lower basis. .

Got it, understood. And then secondly, can you also comment on merchandise margin performance in the U.S.

auto business just given the concerns out in the market place regarding price transparency?.

Yes, so our gross margin on the U.S. automotive business was flat. We actually, I think this is our second quarter where we’ve seen flat to maybe just up slightly gross margin and we’ve talked about we are not seeing impact on our gross margin as it relates to price transparency.

Having said that, we are looking and always trying to optimize gross margin dollars, we got several initiatives going on. So not really – again part of that gets back what Paul mentioned, being the next that we have of commercial versus retail too. .

Understood, okay thanks a lot guys. .

Thanks Scot. .

Thanks..

And we’ll take our next question from Bret Jordan with Jefferies..

Hey, good morning guys..

Good morning. .

Morning. .

I was on a hare late. Did you talk about regional performance in the U.S.

auto market?.

We did not Bret, but I’m happy to talk about it. We got a – about five of our eight divisions across the U.S. that are pretty well grouped together and they range from a point down to a couple of points up, so a very narrow band. Our outliers, and we’ve got a couple of outliers, certainly one would be the Northeast as you might expect.

As Chris asked earlier, that winter weather certainly has been a boon for Northeast business and our Northeast business has performed quite well. Despite the interruptions with the nor easters that business has performed quite well.

On the flip we’ve got one of our businesses, one of our divisions in the mid-Atlantic area that would include Memphis, Richmond that part of the country. They’ve been hit hard again with winter disruptions and we’ve had a number of store closers DC closures. They are not equipped to handle the snow like they are in the Northeast.

So that’s pretty much what we’ve seen through Q1. .

Okay, great. And then the comment on inflation, I guess not seeing a lot in the first quarter in auto.

What’s your expectation hearing more about Asian labor and obviously some material inflation and the cost of factoring for your suppliers? Do you think the bias is to more inflation in the second half of the year?.

We do. In talking to our merchants and our suppliers, we do think we are going to be at a half a percent or maybe even a full percent for the year maybe in the later part of the year.

And as far as, there is still a lot of uncertainty around the tariffs as I mentioned, so we are still just waiting on that but I think we are coming off of five consecutive years of having deflation.

So the fact that we can come up with flat to up slightly, we do think we’ll see that in the back half of the year?.

Okay and then one last question, on Smith Auto and some of the deals you have done, Merle's and of the little acquisitions.

What’s the percentage of auto sales that are company owned stores now versus independent?.

It’s a good question, perhaps let me think on that for just a minute. You are right to point out Smith and Merle's and we’ve had three or four others in the past number of quarters. It’s still holding fairly steady when you look at independent versus company stores, independence would acquire for better than two-thirds of our overall business. .

Okay, great, thank you. .

And the mix of stores is staying pretty much the same. .

Okay great, appreciate it. Thank you. .

You’re welcome. .

And we’ll take our next question from Chris Bottiglieri with Wolfe Research..

Hey guys, this is Jacob Moser for Chris. .

Good morning. .

So now that you have been involved with AAG for almost 6 months. We’re curious to see what you’re going about differences in the European market. And then for the semi related, like how mature is – thinking in terms of the growth outlook.

Will that most be at Greenfield and existing markets there or do you think mostly growth in Europe will sort of opportunistic M&A driven..

Yeah, I’ll take that one. Look the difference in between the European market place and the U.S. What we found, and again it’s early. But it’s very similar, we’ve got many of the same suppliers when you think about our large global supplier base, its folks like Bosh, NGates and SchaefflerKYB, NGK they supply us around the world.

The folks at AAG have a, they are more commercially oriented, much like we are here in the US. They have a blend of both company stores and independently owned stores. So the differences are really very subtle.

If you think about our growth outlook, one of the things that drew us to Europe and to AAG is we are very bullish on the growth opportunities in the future and we think that the consolidation that is taking place now in Europe will only accelerate and certainly we intent to be part of that consolidation.

But at the same time our folks at AAG are seeing, are seeing good comp store growth as well. So we are very bullish on our future and with our European partners. .

Great. Thanks for talking the question. .

You’re welcome. Thank you..

And we’ll take our next question from Greg Melich with MoffettNathanson. Please go ahead..

Hey guys good morning, its Mike Montani on for Greg. .

Hey Mike..

Just wanted to ask if I could a couple of quick ones. One was, if you could talk a little bit about some of the other acquisitions that you had made year to date thus far besides the AAG. Just want to make sure we have accurate total incremental revenue contributions in the model..

So it was really minimal in the quarter. We talked about Smith Auto that was the one that Paul mentioned. In Europe there was eight single store acquisitions that are just small bolt on acquisitions, but really in the quarter its Smith Auto that we mentioned earlier..

And just as a reminder Mike, you know AAG was actually late last year. So that was not a 2018 acquisition. .

Yeah, got it. Okay and then if I could just follow up a little bit; you guys had mentioned there was optimism around industrial and seeing some margin expansion there as we work through the year. I guess I am just wondering, is the same sentiment fair for the U.S.

automotive division give the thought that the comps will be improving here, at least towards that two to three range it looks like?.

Yeah, well certainly two different industries. I’ll make be touch on industrial first Mike and you are right, we are very optimistic. You know we had a terrific year last year with Motion and we have seen that continue on in the first quarter. Last year each quarter we were up 7%, first quarter this year we were up 8%.

So they continue to rock along, PMI numbers, rig counts, industrial production, all are positive. Manufacturers are bullish right now about the U.S. and so we don’t see any slowdown in industrial. Automotive, it’s a different industry, differ business, but we are optimistic about our U.S. automotive business as well.

We think as I mentioned earlier that certainly this winter weather that we experienced in Q1, although I think being offset somewhat with business disruptions in Q1, I think we will see the benefit in Q2 and beyond and again, most of the fundamentals in automotive remain positive. So there is no reason we shouldn’t continue to grow our U.S.

automotive business and get it back into those 3% to 4% comps that we historically have posted. .

Okay and if I could just ask about sourcing for a minute, I know you all have done a lot of work in the past sourcing out of Asia. Can you just update us on what percentage of the buy you all will be doing there, especially in light of the S.P.

Richards divestiture? How to think about just kind of the ability to source from other countries as well if that were to come up?.

Yeah, so Mike we have a sourcing office in China, we’ve had it for well over 10 years that services all of our businesses. The amount of volume rolling through that office as a percentage of our total is still a small percentage and a bit of that was in our office products business.

What I would comment on Mike is, you know as we now move into Europe and Australia and New Zealand continues to expand, as we look across our souring and our supplier base, you have really four different sources if you will. You have your U.S.

exclusive suppliers, you have European exclusive suppliers, you’ve got global suppliers of which I’ve already listed a number of those and then you have of course Asian sourcing as you just mentioned.

We are working very closely with our team in Europe and working through that suppler base and that sourcing model and we think there is real opportunity for us to continue to build and to drive global synergies across all of our businesses. .

Great. Thank you. .

Thank you..

Thank you..

We’ll take our next question from Elizabeth Suzuki with Bank of America..

Hi, this is Jason Haas for Elizabeth Suzuki. Thank you for talking the question. So I just got a follow-up regarding your comments on inflation.

Can you provide color on what product categories you have the best pricing power in and might be the best position to pass along any inflation that we might see?.

Well actually, the comments that we have, I mean right now we are flat in automotive and what we would look for if we do have some inflation in the back half of the year to around a half a point, those increases would be passed along to customers. So it wouldn’t necessarily be a different there is product categories and how we pass that along.

Because these would be increases of such that are passed along in the broad market; this is not something specific to us or to a certain supplier. So they would be broad market related. And quite honestly, that’s how the potential would be with tariffs or any of those changes is that it would be broad based.

So out of those we’ve got color on exactly what categories as we are going to come in, but we think about it in a much broader sense. .

Thanks, and then as a follow-up. So we’ve seen the weather in April has been a lot colder than last year.

So I’m curious just quarter-to-date if you have seen any sort of pickup in demand or do you think the weather is going to kind of push those sales later maybe into May or June?.

Well its, Jason I mean it’s early to comment on that, but what I would tell you is we need to get on with spring. I know you guys are getting some winter weather up there still in the northeast. We had – just last week we had over a foot of snow in the Midwest, many parts of the Midwest, that’s not great for our business.

We are in the time of the year where farmers got to get out in the field and we do a ton of business with agriculture, fields are frozen, covered with snow. This is break season; the break season is now really being delayed.

So look I think that business will come but it’s getting pushed out a bit because of this unseasonably cold winter weather in late March and April. .

Thanks..

You are welcome..

We’ll take our next question from Seth Basham with Wedbush Securities. .

Thanks a lot and good morning. .

Good morning. .

I have a follow-up question along those lines. Just thinking about your performance in the quarter in the U.S.

auto business, can you provide color on how weather sensitive versus non-weather sensitive categories performed overall?.

Yeah, it’s a good question Seth.

When you look at our key product categories, I guess not surprisingly with a little more severe winter weather, batteries were our number one growth business and I would tell you it’s a little bittersweet because we had a good -- we had a really good quarter in batteries and we had some service interruptions early in the quarter that I think it even could have been better.

Our tool and equipment business was good, our hydraulics business was good, chemicals as you would expect performed quite well, so all of those categories were strong in the quarter. Where we saw some underperformers was around our under car business.

So again going back to what I had mentioned earlier, when you get into March we generally consider the month of March as the kickoff of break season and with some of the weather that we had across the U.S., I think that’s going to get pushed out a bit. .

Got you, a follow-up on that, March beginning the break season. With your commercial customer focus, how does weather play into that? I can understand DIY-ers not being able to work on their cars outside, but it wasn’t so bad that it created difficulties in taking cars to a shop to get fixed. .

No, it certainly wouldn’t Seth but I just think that consumers are putting it off and it also certainly relates to, when you look at the categories performing well just as batteries it directly relates to failure.

So I think just some of your maintenance categories are just going to get delayed, going to get pushed out a bit, and that’s regardless of whether it’s DIY or DIFM. I think that’s the case. .

Got you. Thank you and then one housekeeping item, you may have addressed this before, but thinking about the seasonality of AAG business, can you remind us how it compares to the U.S.

or the Global Auto business?.

Very similar, very similar to the U.S. and on that note Seth as I now give the weather report across the U.S. I can talk about Europe as well and we got hit hard. The UK was basically shutdown for two days in Q1 that impacted AAGs business.

I think we would have seen, I don’t think – I know we would have seen even stronger numbers out of that team without that, but the weather patterns are very, very similar the U.S..

Thank you. .

You’re welcome. .

And we have time for one more question. We’ll take our last question from Carolina Jolly with Gabelli. .

Hi, thanks for fitting me in. Just one question I guess. This is another quarter where you have seen some weakness in your national account business.

When you talk to those customers, do they give you any other factors outside of weather that might be affecting your business?.

Well, and I didn't glean this directly from conversations with our major account customers. But as you look across some of the headwinds, Carolina you would have to, I mean certainly weather isn’t always going to be near the top of the list. But let’s face it, vehicles and parts are seeing less failure these days.

Vehicles are much better made, the quality of vehicles are much better made and I think you are just seeing less failure. But I do believe in the long run this major account business will bounce back. We don’t believe we are losing any market share with our key partners. We’ll continue to drive to try to grab a greater share of their spend.

As I mentioned in our key growth pillars that is absolutely our first and foremost is grab a greater share of wallet. So the business is there for our teams. We just got to promise that we got to execute a bit better..

Alright, thanks a lot..

You’re welcome..

And that does conclude our question-and-answer session for today. I would like to turn the conference call back over to management for any additional or closing comments..

We’d like to thank you for your participation in today’s first quarter conference call. We thank you for your support at Genuine Parts Company and we look forward to talking to you with our second quarter results. Thank you..

And that concludes today's conference. We thank you all for your participation and you may now disconnect..