Genuine Parts: Once Again, Positioned to Beat EPS Expectations

| About: Genuine Parts (GPC)

Genuine Parts (NYSE:GPC), a conglomerate distributor of auto parts (NAPA), industrial maintenance and repair parts (Motion Industries), office supplies (SP Richards) and electrical components for manufacturers (EIS), is once again positioned to beat EPS forecasts for its fourth quarter ending 12/31/2010.

The First Call analyst consensus EPS forecast for GPC's fourth quarter is for $0.68, but I think it will be more like $0.75 as the auto parts business has remained robust and the Industrial distribution and office supplies should both exceed expectations based on stronger than expected underlying industry trends. This will be the fifth consecutive quarter the company has been able to exceed expectations, all the while paying out a juicy dividend that currently yields about 3.2%.

I have written about Genuine Parts before as a great stock that essentially pays you while you wait for a recovery in the industrial side of the US economy (see here and here). That recovery began this year, and despite predictions for a slowdown, has continued strongly into fourth quarter. GPC's industrial distribution division, which represents just under a third of its sales, has tended to track, on a unit basis, closely with the Industrial Production statistic published by the Federal Reserve. This statistic was published Tuesday for November, showing a 0.4% growth from October. This was the strongest growth since July and was slightly ahead of expectations ( summary).

Based on the Industrial Production Index and reports from other industry participants like WW Grainger (NYSE:GWW), I believe GPC's industrial division is poised to report sales growth at the high end of guidance for 18%-22% growth and potentially exceed this level if December turns out as strong as Oct/Nov.

The auto parts division is also firing on all cylinders. The whole industry has been benefiting from consumers holding on to cars longer and choosing to do more of the repair work themselves. This trend was augmented by a hot summer, which historically has lead to increased failure of parts in vehicles. Competitors have also been reporting stronger sales in time frames that overlap with the beginning of GPC's quarter. We think GPC should be able to hit the high end of its sales guidance for this division at 6%-8%.

Finally, office supplies look to finally be turning positive after eight consecutive quarters of declining sales. The industry has been suffering from low levels of new employment growth since before the 2008 recession began, but the combination of easy multi-year comparisons, modest restocking by retailers and company specific initiatives should help this quarter. Additionally, some suppliers in this space are apparently doing well this quarter which could suggest GPC is seeing some strong sell through. Guidance is for flat to 2% sales growth and I suspect revenue here will also come in towards the high end of this range.

Given strong performance in all divisions, total sales should slightly exceed the guidance at 9%-11% which, when combined with tight cost controls at corporate, should result in stronger than expected EPS.

Finally, as a bonus, it appears highly likely that the company will once again raise its dividend in February. Genuine Parts Company has paid a dividend every year since going public in 1948 and 2011 would represent its 55th consecutive year of increased dividends to shareholders.

Disclosure: I am long GPC.