Ladies and gentlemen, thank you for standing by, and welcome to the Genuine Parts Company Third Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Sid Jones, Vice President of Investor Relations.
Please go ahead.
Good morning and thank you for joining us today for the Genuine Parts Q3 2015 conference call to discuss our earnings results and outlook for the full year. Before we begin this morning, please be advised that this call may involve forward looking statements regarding the company and its businesses. The company's actual results could differ materially from any forward looking statements due to several important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward looking statements made during the call. We will begin this morning with comments from Tom Gallagher, our Chairman and CEO.
Tom?
Thank you, Sid. And I'd like to
add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. Paul Donahue, our President and Carol Yancey, our Executive Vice President and Chief Financial Officer are both on the call as well. And each of us has a few prepared remarks, and once completed, we will look forward to answering any specific questions that you may have. Earlier this morning, we released our Q3 2015 results, and hopefully, you've had an opportunity to review them. But For those who may not have seen the numbers as yet, a quick recap shows sales for the quarter were $3,922,000,000 which was down 2%.
Net income was $188,000,000,000 which was down 1% and earnings per share were $1.24 this year compared to $1.24 in the Q3 last year, putting us even in EPS for the quarter. As has been the case all year long, currency exchange has been a significant headwind for us, both on the revenue and earnings results and the impact accelerated in the Q3. Importantly, the local currency results for our international businesses remain solid, but when converted to U. S. Dollars, we lost 4% on the revenue line and $0.05 per share in EPS in the quarter.
Or stated another way, without currency impact, our sales were up 2% and EPS was up 4%. In addition to the currency headwind, we continue to experience a slowdown in specific segments of the economy, which impacted several of our businesses, but most significantly in industrial and electrical. We will comment on this factor a bit more as we review the individual businesses. And as we customarily do, I will cover the non automotive operations and then Paul will report on the automotive segment. Starting off with office products, this group saw deceleration on the revenue side in the quarter.
After being up double digits in sales growth in each of the first two quarters, the office products team ended the quarter up 3%. The deceleration is primarily attributable to anniversarying both the increased volume from the Office Depot OfficeMax merger last year, as well as the Impact Products acquisition that was completed in July of 2014. Each of these was a significant contributor to the double digit growth rates generated over the past 4 quarters, we anticipated the moderation in Q3. However, we would have to say that we saw a bit more deceleration than expected and more so as the quarter progressed. Our sense is that the underlying office products demand has softened over the past 90 days.
From a channel perspective, the softening was more pronounced on the independent reseller side and we ended the quarter down mid single digits. Our mega channel remains strong, posting another big double digit increase. On the product side, facility and break room supplies and furniture each had strong quarters and core office supplies were positive as well, but technology products were down mid single digits. So putting it all together, our office products segment was up 3% for the quarter, which in the current environment is probably a solid performance. However, we were expecting just a bit more in the quarter and are watching the recent slowdown closely.
Before closing on office products, we do want to mention an acquisition that was completed on October 1. MALT Industries is a $20,000,000 distributor of safety products and this acquisition will help to further diversify both the product and customer portfolios for Impact Products and for S. P. Richards and we're pleased to now have MALT Industries as part of our organization. They will contribute nicely to our office product results in the quarters ahead.
Moving over to the Industrial segment, Motion Industries experienced another challenging quarter, ending the quarter with a 4% decrease and demand patterns across our customer base were similar to what we have seen pretty much all year long. Customers in segments like lumber and wood products, food processing, cement and aggregate and automotive are generating solid positive results for us and we continue to make good progress with these accounts. Conversely, however, customers in the mining and resource, oil and gas, iron and steel, pulp and paper and original equipment manufacturing are all running sizable decreases for the Q3 and year to date. And notably the rate of decline actually accelerated as the quarter progressed. So despite the fact that there are a number of positives within our industrial results, they are being more than offset by some of the specific headwinds and circumstances that we are encountering and we don't see this changing in the near term.
In the meantime, our industrial team remains focused on key elements of their growth strategy. They were able to complete one acquisition in the quarter. Lake Erie Tool and Abrasive was acquired on September 1. This is the 3 location distributor of tools and abrasives with annual revenues of approximately $30,000,000 and Lake Erie will be a nice addition to the Motion organization. Additionally, the Motion team continues to make progress in the areas of securing new corporate account agreements, penetrating new markets and expanding share of wallet initiatives, each of which will contribute incremental revenue in the months ahead and will help to offset some of the declines that we were experiencing in the key customer categories mentioned earlier.
But as with office products, we saw a deceleration in our industrial results over the quarter, which we feel is reflective of the ongoing challenges being faced by many segments of the manufacturing sector of the economy. And this is a situation that will take a bit more time to work its way through. And I'll wrap up the non automotive operations with a few comments on EIS, our electrical segment entity. This group ended the quarter up 2%, But in looking at the results more closely, it shows that they are down 2% net of acquisitions and copper pricing. And similar to Motion, many of their manufacturing based customers are experiencing end market headwinds.
However, it's interesting to note that EIS is made up of 3 different business segments. Electrical is the largest at 40%, fabrication is 30% and wiring cable is 30%. And it's in the electrical segment where we are experiencing the most challenges. This business is running behind year to date, while our fabrication and wiring cable segments are both generating solid increases, validating the diversification strategy that was embarked upon several years ago, and this is something that they will continue to drive in the quarters ahead. End markets will remain challenging for the EIS team at least for the near term, especially on the electrical side, but they do have a number of potentially positive initiatives underway, primarily in the fabrication and wire and cable sides of the business, and we are pleased with the progress being made in each of these segments.
So that will conclude the comments on the non automotive businesses, and Paul will now review the automotive operations with you. Paul?
Thank you, Tom. Good morning and welcome to our Q3 conference call. I'm pleased to be with you here today and to have the opportunity to provide you an update on our Q3 performance of our automotive business. The quarter ending September 30, our global automotive sales were down 2% year over year. This performance consists of approximately 4% in core automotive growth, which is consistent with the 2nd quarter and improved from the 3% underlying growth we reported in the Q1.
However, this was offset by a currency headwind of approximately 6% in the 3rd quarter, which is up from a 4% currency impact in the 1st and second quarters. Previously, our expectation was for currency to hold at or around 4%. Our U. S. Team posted a 4% sales increase in the 3rd quarter, which has improved from 3% growth we reported for the first and second quarters.
Our international businesses, which include Canada, Mexico, Australia and New Zealand reported another quarter of mid single digit growth in local currencies. We are encouraged by the positive trends we are experiencing in our U. S. Results and the steady growth across our international markets. We expect to see these trends continue in the periods ahead.
In the U. S, we are pleased with the progress we are seeing in our field operations across the country. While results vary by geographical region, our teams are executing on our key initiatives. And again, we are pleased with the progress. The Atlantic, Northeast, Central and Southern regions showed the strongest growth in the quarter.
Likewise, our sales in the Midwestern region of the country rebounded nicely in the quarter. This big group reported solid growth following flat sales in the 2nd quarter, which was directly related to the wet weather patterns experienced in the spring and early summer. A number of our stores throughout the Southwest, including Texas and Oklahoma, as well as a number of our stores in the Mountain division, which includes Montana and the Dakotas, continue to feel the effects of the downturn in the oil and gas business. So now let's take a look at our same store sales for Q3. We are pleased to report our U.
S. Company owned store group grew store sales grew comp store sales in the 3rd quarter by 5%. This is an improvement over the 3% comp store increases we reported for both the 1st and second quarters. This 5% increase is on top of a 6% increase generated in the Q3 of 2014, giving us a 2 year stack of 11%. Our 5% increase in the 3rd quarter was driven by a combination of increases on both our commercial wholesale side of the business and by our retail business.
Let's start with our retail results. As mentioned in previous calls, we continue to expand our revamped DIY initiatives across our company owned store group. We are pleased to report these initiatives are having a positive impact on our results as evidenced by an 8% increase in our retail business. This increase is being driven by both transaction and basket size increases and is up from a 7% increase in the 2nd quarter and on top of a 5% increase 1 year ago. As mentioned earlier, our retail initiatives have had a positive impact on both the size of our average ticket and the number of tickets moving through our stores.
In the Q3, we experienced an increase in our average retail ticket and a significant jump in the number of retail tickets. While we are still in the early days of our rolling out our retail strategy, we are pleased with the initial returns. We have a great deal of heavy lifting in front of us, but our team both in the stores and here at headquarters is truly energized. Moving along to our core commercial wholesale business. This is the dominant segment of our automotive business and in Q3, we turned in a 4% increase.
This is a nice improvement from the 2% increase we reported in the 2nd quarter and is on top of a 6% increase in the Q3 of 2014. The centerpiece of our commercial and wholesale business remains our major account alliances as well as our NAPA Auto Care business. Our NAPA Auto Care business surpassed another milestone in the quarter as our membership count has now gone over the 16,000 mark in the U. S. This group generated high single digit sales increases in the quarter.
And we can also report our major account partners delivered steady and solid growth in the quarter. Our fleet business bounced back after moderating somewhat in Q2. Sales to our fleet accounts showed a low mid single digit sales increase in the 3rd quarter, which is in line with the overall growth of our U. S. Commercial wholesale business.
Our wholesale ticket trend was consistent with what we experienced in the Q2. Our average wholesale ticket value was up mid single digits with no benefit from inflation, while we saw a slight decline in the average number of tickets. Let's take a look at a few of our key product categories and review the trends we experienced in the Q3. Our brakes category was a highlight again in the Q3 and it has been a strong category for us all year. And as mentioned in last quarter's update, we experienced a strong selling season with our heating and cooling categories.
The warm summer temperatures we experienced across many parts of the country drove strong air conditioning sales well into September. We also saw a resurgence with our battery sales in the quarter. This category was off its historical growth rates in the first half of the year, but we are pleased to see a rebound in the Q3. And finally, our NAPA import parts business continues to expand as we registered another quarter with low double digit growth. So looking ahead to the Q4 of the year, we expect the significant foreign currency headwinds impacting our reported results to continue.
That aside, we'll be working hard to further improve on our 4% underlying automotive growth achieved thus far in 2015. Turning to the trends we are seeing across the automotive aftermarket. The fundamental drivers of our business continue to be positive. The average age of the fleet remains in excess of 11 years. The size of the fleet continues to grow.
Lower fuel prices remain favorable for the consumer and miles driven continues to post substantial gains. U. S. Driving topped 1.8 trillion miles over the 1st 7 months of the year, which is a new record. In addition, the latest month with reported figures is July, which was up 4.2% year over year, also a new record.
This makes 17 consecutive months of increases in miles driven. As we look ahead, strategic M and A will continue to be a growth lever for our automotive business. We mentioned in our Q2 conference call that we entered into an agreement to acquire CUV Parts, a 25 branch distribution company in Western Australia. CUV's will serve as a nice complement to our existing Repco business as they are focused on original equipment and aftermarket automotive parts, truck products and mining and industrial consumable. We had hoped to close this acquisition on October 1, but are currently awaiting regulatory approval and are targeting a close date no later than December 1.
The addition of Cub's parts further expands our presence and scale in Western Australia and is expected to generate annual revenues of approximately $90,000,000 in U. S. Dollars. Based on back on August 1, we closed on a smaller store acquisition in Australasia. And although the revenues for this business are less than $10,000,000 annually, these types of bolt on acquisitions throughout North America and Australasia will continue to be a key focus for our teams.
So in closing, we are pleased to show progress in our Q3 automotive results and we're working hard to continue these positive trends. We would like to thank our teams both in North America as well as Australasia for their efforts and appreciate all that they do for the GPC Automotive business. So that completes our overview of the GPC Automotive business. And at this time, I'll hand the call over to Carol to get us started with a review of our financial results. Carol?
Thank you, Paul, and good morning. We'll begin with a review of our income statement and segment information, and then we'll review some key balance sheet and other financial items. Our total revenues for the quarter were $3,900,000,000 consisting of underlying sales growth of 1.4%, 0.7 percent contribution from acquisitions. These items were offset by a strong currency pressures of 3.7 percent, which was somewhat stronger than we had anticipated. For the 9 months through September, our total revenues of $11,600,000,000 a 1% increase, consist of 2.4% core growth and 1.2% from acquisitions, offset by a 3% currency headwind.
Our gross profit for the 3rd quarter was 29.8%, up slightly from the 29.7% gross margin last year. For the 9 months, our gross margin of 29.8% compares to the 29.9% reported last year. The progress we made in the 3rd quarter is encouraging and primarily reflects the improvement in our automotive margin, although the office and electrical businesses also increased. The improvement in these businesses was partially offset by the continued pressure we're experiencing in our industrial business, which is due to the sluggish sales environment and lower inventory purchases, which ultimately negatively impacts supplier incentives earned. Executing on our gross margin initiatives is a key priority for our management team, and we're committed to an enhanced gross margin for the long term.
We would also our gross margin initiatives are critical in offsetting the low inflationary environment that has persisted across our businesses for several years now, especially in automotive. Cumulative supplier price changes through September are negative 0.3 percent for automotive, positive 0.7 percent for industrial, positive 0.6 percent for our products and a negative 1.5% for electrical. Turning to our SG and A, our total expenses were $869,000,000 in the 3rd quarter, which is a 2% improvement from the Q3 in 2014 and at 22.1% of sales compared to 22.2% last year. For the 9 months, our total expenses are $2,600,000,000 which is a slight increase from 2014, but improved as a percentage of sales to 22.4% compared to 22.5% last year. Our teams remain focused on controlling expenses in this environment and we continue to take actions to further improve our productivity and streamline our operations to enhance performance.
Although we would expect to see more progress on this line in the periods ahead, it's also important to note that our SG and A as a percentage of revenue traditionally trends upward in the Q4 relative to the 1st 9 months of the year and we're planning for that. Now let's talk about our segment results. Our automotive revenue for the Q3 was $2,100,000,000 which is down 1.7% from the prior year and 52% of sales. Our operating profit of $202,000,000 is up 4.5% and their margin improved a strong 60 basis points to 9.8 percent, which was due to improved gross margins and also expense controls. For the year, automotive sales of $6,100,000,000 are down 0.7 percent and our operating profit of $560,000,000 is up 1.8 percent and our margin is improved year to date by 20 basis points to 9.2 percent.
Our industrial sales were $1,200,000,000 in the 3rd quarter, a 4% decrease from 2014 and 30 percent of our revenues. Our operating profit of $90,000,000 is down 5.4% and our margin was down slightly 10 basis points to 7.7 For the year, industrial sales of $3,500,000,000 represent 30 percent of our total revenues and are down 1% from 2014. Our operating profit of $267,000,000 is down 2 point percent and our margin is 7.5 percent, which is down 20 basis points from last year. This relates to the loss of leverage and lower incentives that have pressured this group for most of the year. Office products revenues were $511,000,000 for the quarter, up 2.9% and representing 13% of our revenues.
Our operating profit of $36,000,000 is up 9.3% and their margins showed nice improvement, up 40 basis points to 7.1%. This increase was driven by progress on both the gross margin and expense lines, and it was partially related to the Office Depot OfficeMax business, which we anniversaried July 1st this year. For the year, office products revenues were $1,500,000,000 up 10.9 percent from 2014. Our operating profit of $107,000,000 is up 9% and our margin is down 10 basis points from last year to 7.3 So we're pleased to see our margin for this business stabilize. The Electrical Electronics Group had sales in the Q3 of $197,000,000 a 2% increase and 5% of total revenues.
Our operating profit of $20,000,000 is up 12.5 percent, so the margin for this group showed strong growth of 100 basis points to 10.2%, which is a new record high. For the year, sales for this group were $574,000,000 up 2 percent. Their operating profit of $54,000,000 is up 8.6% and the margin has improved to 9.4% from 8.9% last year, so a very solid 50 basis point improvement. So for the Q3, our total operating profit was up 3% from last year and our operating margin improved by 40 basis points to 8.9% from 8.5%. For the year, operating profit grew 2% and our margin is 8.5%, which is up 10 basis points from the prior year.
Our margin expansion in the 3rd quarter was driven by improvement in gross profit and also solid progress in managing our expenses. We're very pleased with this expansion given our current sales environment. We had net interest expense of just over $5,000,000 in the 3rd quarter and our year to date interest now stands at $16,000,000 We expect net interest expense of approximately $21,000,000 to $22,000,000 for the full year. Our total amortization expense was $8,500,000 for the 3rd quarter and is 26 $1,000,000 through 9 months, which is consistent with last year. We currently estimate total amortization expense to be approximately $35,000,000 for the full year.
The other line, which reflects our corporate expense, was $34,300,000 for the quarter, which compares to $26,100,000 last year. Through September, corporate expense is $84,200,000 compared to $74,500,000 for the 1st 9 months of last year. Primarily unfavorable retirement plan valuation adjustments of $5,000,000 $7,000,000 for the quarter 9 months account for the increases. In addition, we've experienced slight increases in costs such as legal and professional and IT related investments. Looking ahead, we would expect the corporate expense line to be in the $100,000,000 range for the full year.
Our tax rate was 37.45 percent for the 3rd quarter and 36.85% for the 9 months. These rates are up from 2014 due to the changes in our mix of foreign income and the related foreign tax rates as well as the unfavorable retirement plan valuation adjustments that was recorded in the last two quarters. With these factors in mind, we currently expect our tax rate to be approximately 37% for the full year. Our net income for the quarter of $188,000,000 compared to $190,500,000 in the Q3 last year and our EPS at $1.24 was equal to last year. For the 9 months, our EPS at $3.56 is up 1% from the same period last year.
Now let's turn to our balance sheet, which we were able to further strengthen again in the Q3. Specifically, this speaks to our ability to effectively manage our working capital and drive increased cash flows. Our cash at September 30 was $199,000,000 an increase from $136,000,000 at September of last year. We continue to use our cash to support the growth initiatives across our distribution businesses. Accounts receivable of $2,000,000,000 at the September 30 is down 1% from the prior year and relatively in line with our 2% decrease in sales for the Q3.
We continue to closely manage our receivables and remain satisfied with the quality of our receivables at this time. Our inventory at the end of the quarter was $3,000,000,000 or down 1.5% from September and a decrease of approximately 2.5% from year end. Our team continues to do a very good job of managing our inventory levels and we'll remain focused on maintaining this key investment at the appropriate levels in the periods ahead. Our accounts payable at September 30 was $2,900,000,000 up 12% from last year, which reflects the positive impact of our improved payment terms and other payables initiatives established with our vendors. We're pleased with our continued improvement in this area and we're encouraged by the positive impact it has on our working capital and days in payables.
Our working capital was $1,900,000 at September 30, an improvement of 5% from last year. Effectively managing our working capital and in particular, accounts receivable, inventory and accounts payable remains a high priority for our company, and we're pleased with our ongoing progress in this area. Our total debt at September 30 was $625,000,000 which is a decrease from the $835,000,000 last year and a decrease from $850,000,000 at June 30. Our total debt to capitalization is approximately 16.5%, and we're comfortable with our capital structure at this time. We believe it provides the company both the financial capacity and flexibility necessary to take advantage of the growth opportunities we may want pursue.
So in summary, our balance sheet is in excellent condition and remains a key strength for the company. We also continue to generate solid cash flows driven by the significant improvement in our working capital. We are raising our 2015 cash flow projections for the full year. We are now planning on approximately $950,000,000 in cash from operations. Additionally, we currently expect free cash flow, which deducts capital expenditures and dividends to be approximately $450,000,000 We remain committed to several ongoing priorities for the use of our cash, which we believe serve to maximize shareholder value.
Our first priority for cash is the dividend, which we have raised for 59 consecutive years. The 2015 annual dividend of $2.46 per share represents a 7% increase from the $2.30 per share paid in 2014, and it's well within our goal of a 50% to 55% payout ratio. Our other priorities for cash include the ongoing reinvestment in each of our 4 businesses, strategic acquisitions and share repurchases. Our investment in capital expenditures was $25,000,000 for the Q3 and through the 9 months, capital spending is $62,000,000 We expect our expenditures in the 4th quarter for the full year to be in the range of $105,000,000 to $115,000,000 The vast majority of our investments will continue to be weighted towards productivity enhancing projects, primarily in technology. Our depreciation and amortization was $34,000,000 in the 3rd quarter and it's $106,000,000 through 9 months, which is down slightly from 2014.
Looking ahead, we're projecting depreciation and amortization to be approximately $140,000,000 to 100 and $50,000,000 for the full year in 2015. Strategic acquisitions continue to be an ongoing and important use of cash for us and they're integral to our growth plans. For the 9 months through September, we've invested approximately 115,000,000 for the acquisition of several new distribution businesses, including the 2 in the 3rd quarter previously covered by Tom and Paul. Also, as previously mentioned, we closed on an acquisition on the office products business, malt industries, and we expect to acquire Cubs, as Paul mentioned, later this quarter. So as you can see, acquisitions are important to our growth plans and we'll continue to seek new acquisition opportunities across our distribution businesses to further enhance our prospects for future growth.
Although many of these opportunities will be smaller sized companies with annual revenues in the $25,000,000 to $150,000,000 range, we're open minded to new complementary distribution businesses of all sizes, large or small, assuming the appropriate returns on investment. Finally, during the quarter, we used our cash to repurchase approximately 950,000 shares of our common stock under our share repurchase program. For the 9 months, we have repurchased 2,500,000 shares and today we have 7,000,000 shares authorized and available for repurchase. We have no set pattern for these repurchases, but we've been slightly more aggressive with our repurchases given the value of our stock price during most of this year. We expect to remain active in the program in the periods ahead and we continue to believe that our stock is an attractive investment and combined with the dividend provides the best return to our shareholders.
That concludes our financial update for the Q3 9 months. So in summary, we have growth plans in place and are intensely focused on showing progress in the periods ahead. Despite our recent challenges and the relative uncertainty in the global economy over the near term, we're encouraged by the fundamental opportunities we see across our distribution businesses. In closing, we'd like to thank all of our GPC associates for their hard work and commitment to their jobs. Our people truly are our greatest assets.
Now, I'll turn it back over to Tom.
Thank you, Carol, and thanks to you and Paul for your comprehensive updates. So that will conclude our prepared remarks and clearly it was another challenging quarter for us. However, underneath the headline numbers there were a number of positives as well. Few examples, the 4% constant currency increase in automotive and 5% company store same store sales growth shows steady progress as does our mid single digit local currency increases in Australasia, Canada and Mexico. Also in automotive, the continued strong results coming from the NAPA Auto Care and major account initiatives, our 2 primary commercial programs and the solid 8% increase in our retail business show good progress on both the commercial and retail sides of the business.
The completion of 2 key acquisitions in the quarter, 1 in office products and 1 in industrial, and we expect to announce a few others of similar size before year end. And all of this will give us a bit of a sales lift going into 2016. Gross margin improved 12 basis points in the quarter and SG and A decreased 6 basis points, enabling us to show operating margin improvement in 3 of our 4 businesses and an overall GPC operating margin improvement of 40 basis points. On the balance sheet, good work was done in the areas of accounts receivable, inventory and accounts payable, enabling us to show a nice reduction of working capital as well as a nice increase in cash generation. And there are ongoing progress being made by GPC team in a number of other key areas as well, which will all serve us well in the quarters ahead.
However, the one area that continues to give us significant challenges is revenue growth across all of our businesses. Currency is having an effect on each of the businesses to one degree or another, both directly and indirectly. And specific economic issues are impacting us, especially in industrial and electrical. Although both of these issues are transitory, we don't expect them to moderate in the near term. Additionally, as mentioned, we saw deceleration in our growth rates in 3 of our 4 businesses as the quarter progressed, and the early October results are a bit softer than planned.
At this point, we don't see any evidence of share loss across the businesses, and our sense is that we're seeing further softening in overall end market demand. With all of that said, considering current market circumstances and trends, we feel that's appropriate to revise our year end guidance downward. Prior, we gave you guidance on automotive of being up 1% to 2%, and currently we would say that automotive will be flat to up just slightly with a 5% headwind from currency exchange. Industrial, our prior guidance was flat to up 1, and now we would say down 2% to down 3% with a 1% currency impact. Office products will remain the same, prior it was up 7% to 8%, and currently we say it will be up 7% to 8%.
And electrical, prior guidance was to be up 3% to 4%, and we'd say now up 2% to 3%. So for total GPC, prior guidance was up 2% to 2.5% and right now we would say flat to up slightly with a little bit more than a 3% impact from currency exchange. And with revenues at these levels, our prior guidance for earnings per share was to be 4.65 to 4.70, but we would say now 4.55 to 4.60 with a $0.15 to $0.16 per share currency exchange impact. And on a comparable basis, that would put us at 4.70 to 4.76, which will be up 2% to 3%. So that will conclude our prepared comments.
And at this time, we'll turn the call back to Victoria to take your questions. Victoria?
Your first question comes from the line of Elizabeth Suzuki with Bank of America Merrill Lynch.
Good morning, guys. Can you parse out the foreign exchange impact between Australia and Canada, etcetera? And do you think the headwinds should start to ease in maybe not the next quarter, but starting 2016?
Well, I'll try to answer that Elizabeth. We can't give you the specifics right now on the impact by country, but I can tell you that currency exchange quarter end over quarter end, we were down about 20% in Mexican pesos, about 18% in both Canadian and Australian dollars, if that helps and we'll be happy to follow-up with you.
Okay, thanks. And in the industrial segment, are there cost cutting measures or price cuts that you can execute to try to offset the demand headwinds? And are you noticing any market share shifts among your competitors at all?
We are adjusting our cost structure as we go forward. What normally happens when we get into periods like this and we've seen prior periods similar to this, revenues decline a bit more quickly than we can get the cost structure down, but eventually we'll catch up with it. And then at least based upon prior experiences, what we have seen is that when revenue does start to come back, the earnings come back fairly quickly and at a bit stronger pace because of the good work that the team does on the cost side of the business. As far as share shifts, we don't see anything right now that would indicate to us that we're losing business. I've mentioned in my comments that good work is going on in landing new agreements with specific customers, which might suggest that we're at least holding our own perhaps picking up a little bit, but it's being overshadowed by the declines we're seeing in certain categories right now.
Okay. Thank you.
Thank you. Thank you.
Your next question comes from the line of Mark Bex with JPMorgan.
Hi, thanks. On the sales guidance, I just wanted to sharpen the pencil on automotive and industrial. So it looks like it's implying kind of 5% to 9% declines in industrial. And then in automotive, it seems like 4Q is like 2% to 6%. So I was just hoping you can obviously with 4Q being a little bit as a smaller quarter, it gives a wide range.
So I hope you can drill that down a little bit.
You're going to have to help me on that. I get a little confused when you referenced 2nd quarter.
Yes. So if we use the guidance for down 2% to 3% in industrial, it seems to imply a down 5% to 9% decline in industrial. So I want to see if that seems appropriate. And then similarly with automotive, if we should be thinking about kind of 2% to 6% sales growth in that category for the Q4?
I think on the industrial, you're probably a tad high. I mean, what we saw as Tom mentioned, the latter part of the quarter got worse in the industrial segment. So, we are guiding for a little bit worse in Q4. So it's probably more at the lower end of the range that you talked about. And then I think as you look out for what automotive would be Q4, I think you're in line with what we're using.
I mean, part of that is the currency. Currency won't be quite as strong of an impact in Q4. It's going to be more back to where it was like Q3 Q2.
All right. That's helpful. And then with industrial more specifically, if I look at your 4% sales decline, it looks like it was a little bit more severe than some of the competitors out there. I was just curious who you see the major competitors being, whether it be an Interline or perhaps maybe a Grainger or Fastenal who look like their top line was a little bit stronger?
Yes, we would not say that they are direct competitors. The best comparison I think would be with Applied Industrial Technology, with Command and with DXP. They would be the ones that we would encounter most frequently and where we'd have the cross the clearest overlap in product offering. If we look at Interline or if we look at Grainger or Fastenal, we really don't overlap with them as much on the product categories that we sell.
Understood. And then just last question, you operated a distribution business essentially with 4 distinct segments. I know some of the facilities are shared warehouses, but I was just hoping you can kind of tease out what benefits you derive from operating the multiple segments and then the potential synergies you gain, whether it be from fleet or transportation or shared services from the various segments? Thank you.
You mentioned 3 of the areas where we do get some leverage certainly on transportation, both inbound and to a degree outbound. We certainly get it in the area of shared services without question. We don't share facilities to a large degree today. Each business runs independent facilities. That's something that we think potentially we could do as we go forward.
We're looking at it now between a couple of the businesses. But we share technology enhancements and capabilities. We generally pilot something new in one of the businesses, prove the concept and then start to roll it into other businesses. There are several things that we do across all of the businesses once we prove that the concept gives us the kind of returns that we're looking for.
And Mark, I just want to be clear on the automotive guidance that we talked about. What we were talking about is probably flat to up slightly for Q4. That's what's implied, but the FX would be about 4%. So that is kind of what you were talking about.
Okay. So with the kind of the 4% core automotive growth rate, it seems like that's a good number to think about for Q4 as well.
Yes, it is. And last year Q4, our automotive comp was a 6%. So but that's a good number.
Okay, great. Best of luck. Thank you.
All right. Thank you.
Your next question comes from the line of Greg Milich with Evercore ISI.
Hi, thanks. Tom, I think in your final comments, you mentioned that revenue decelerated across the business through the quarter. Could you help just give a little bit more color on that into October and specifically in auto, what you saw? Does that mean that auto had a really strong beginning of the quarter and now it's just at that lower level that you just deferred or what do you think is going on there?
Well, we saw the quarter was softer. The underlying business, as Paul mentioned, was pretty good, but we did see deceleration in our U. S.-based business as well as in the international businesses. The delta is not as significant in automotive as it is in industrial, for instance, and to a degree in office products. The only business that we did not see deceleration across the quarter was in our electrical business.
The other 3 all declined. If we look at the early results in October, it's pretty much in line with what we saw in the back half of the quarter, softer than what it had been. And we think right now based upon what we can gather from talking with our customer base and with our supplier base is we think end market demands have pulled back a bit from what we had seen earlier in the quarter and certainly through first half.
And if I could follow-up on the gross margin. What drove the expansion there, again, especially in auto? Is it the stronger dollar helping, price optimization, vendor leverage? What are you seeing there?
Yes. Actually, Greg, it's all those things. We were pleased. This has been our 2nd quarter of gross margin improvement with automotive. And some of the things that we put in place earlier in the year and certainly you talked about it with our foreign operations, we had to put some things in place on both the buy side and the sell side to combat the currency issues.
Those are working quite nicely for us in Q2 and Q3. And then really on the U. S. Business too, their core gross profit is up as well. And that's really just strong focus on both the buy side and the sell side.
And it's just really all across the board. So we've been pleased to see their improvement. I would tell you going into Q4, the only headwind is the headwind is going to be coming with industrial and just a further softening in their top line. So if we can maintain where we're at or be flat or slightly up through the rest of the year, but we've got a little bit of headwinds with industrial.
Your next question comes from the line of Matthew Fassler with Goldman Sachs.
Thanks a lot and good morning to you. The first question I want to ask is about the cadence of cost control. The company responded quite well to the revenue slowdown in the quarter, both in SG and A and in working capital. And the decel and SG and A growth or I guess the move to a decline was a real step change from where you had been. The guidance that you gave as best I can tell suggests a trend in SG and A much closer to the year to date number than what you saw in the Q3.
So can you talk about what enabled you to cut costs so substantially in Q3? And why you don't expect that same pace of expense reduction to persist into Q4?
So what we talk about is, look, we were extremely pleased with the progress in Q3. And I would tell you from an SG and A standpoint, again, our team is adjusting our cost structure to where we saw the top line to be. And it's in a lot of different areas on SG and A. And we've seen improvement that's come in automotive really all year with SG and A. It's really hard with industrial and their lack of top line for them to have.
I mean, they're going to have continued pressure on their SG and A line. When you look at the full year, I'd really point you to looking at our operating margins through the 9 months, where each of our businesses except industrial have improvement through the 9 months and where we are at 10 basis points operating margin. That's really probably more where we expect to be for the full year. We can get we had sequential better sales in Q3, especially in automotive, so we leveraged better on the SG and A. Q4, you just have a lower sales volume, there's seasonality.
You don't get as much SG and A leverage. And then we're guiding on the corporate expense. You see like a change there for the end of the year. We had some favorable one time items in corporate expense at the end of the year, and we called those out last year, and there was a swing of almost there'll be a swing of almost $10,000,000 in that retirement plan adjustment. So some of those things are factoring into our full year guidance to get us more to the year to date number you're looking at.
Okay. Secondly, and very briefly, I know you announced a couple of new acquisitions. Is it possible just to sum up, I guess, the annualized revenue that you acquired and just how we think about that factoring into the full year guidance? I suspect that the numbers are going to be reasonably small contributors, but anything we need to factor in as we build up our organic versus acquisition model for Q4?
Well, we've given we've contemplated those acquisitions in our guidance. The one that Paul mentioned, the Cubs acquisition doesn't close to December 1. So there's a very small amount that would go in there. But if you look at the ones we've already closed on, you're talking about probably around $140,000,000 on an annual basis and that excludes the Cubs deal that hasn't closed yet.
And these are acquisitions, the $140,000,000 for acquisitions you announced today?
Those are ones going back to January 1. We've had about 7, but those are in our 2015 guidance already.
So the new news we have to add to our models kind of immaterial for the rest of the year?
That's correct. That's correct.
Okay. And then finally, interesting commentary on office products. And I guess wondering for your insights on the independents sort of bearing the brunt of the slowdown, when do you typically see that in a cycle? I know that there can be some volatility by channel, so I don't want to make too much of it, but you did call it out. So curious for your read from the field on what that typically means.
Well, the independents, this is 2 consecutive quarters that the independents side of the business has been down. And we see further consolidation happening in that customer segment currently. We see more of that continuing, honestly, as we work our way through year end. But our expectation would be that the independent side of the business will be positive for us in 2016, probably have another quarter or 2 where it will be negative ahead of us yet.
It sounds like you have visibility, Tom, to some consolidation, the actual deals that have happened that are changing the landscape a bit and then those run their course?
Well, there's some of that. That's right. That's right. And we have the visibility to some that we think are going to happen.
Fair enough. Got it. Okay. Thank you so much, guys.
Thank you.
Your next question comes from the line of Seth Basham with Wedbush Securities.
Good morning, and thank you for taking my question.
Good morning. The first question is
from Michael. Hopefully,
you can hear me.
Yes.
Yes. My first question is on the industrial side, looking at the margin performance there, which was very good, all things considered. Can you help us understand a little bit more on the gross margin side versus SG and A side, where you saw more pressure and how you expect it to play out in the 4th quarter?
Well, so on the industrial side, their gross margin is actually down and then their SG and A has not improved either. That's the one area that I mentioned that, look, besides the top line, it's also the volume incentives. So their volume incentives are down similar to their sales decrease in the quarter. And we would expect those to be down for the full year as well. So they're just not getting the same level.
And so that's going to be, I think, both pressure on gross margin and SG and A. So where their margin is down 10 basis points through the 9 months, given where we've guided to for the full year, we could see a little more pressure on that operating margin for the rest of the year.
Got it. So not only a little bit more than 10 basis points, I mean 20, 30 or even more severe than that?
Well, I would hope it would not be more severe than that. Look, we're really hopeful that right now, we just don't know, but it's hopefully it's something what you described.
Got it. Okay. And moving on the auto side, looking at the core business on the wholesale side in the U. S, this is the 2nd quarter in a row that you've talked about ticket counts being negative, not dramatically so, but any more color there, why that's happening, Paul?
Yes, Seth. And I think you and I talked about that last quarter. Look, there's a couple of things happening here. 1, certainly vehicles, vehicle quality is a heck of a lot better today. And I think we're seeing some of that impact on the number of cars coming into the base.
But what you do see when they do come in, that the repair is at a higher price, which we're seeing and we're pleased to see as our average ticket value continues to go up in the right direction. So it's something that we're watching a bit. Seth, you are correct, that is 2 consecutive quarters and we're going to continue to monitor it, but we would expect that to bounce back in 2016.
Is there one segment of your wholesale business that's showing more weaknesses of the up and down the street garage customer?
No, not really, Seth. I mean, if you the numbers that we shared with you, our Auto Care business continues to be strong and that's all different sizes of shops. Our major account business continues to be solid. So no, there's no one area jumping out. Jeff, I
think it may be reflective of what's happening with car counts in the bays. And I think there's some inconsistency across the board in the industry with car counts. I think some are experiencing increased car counts and others are flat to maybe down just slightly.
Understood. Okay. Thank you very much and good luck.
Thanks, Seth. Thanks, Seth.
Your next question comes from the line of Tony Cristiello with BB and T Capital Management.
Thanks. Good morning.
Good morning, Tony. Good morning. Welcome back.
Thank you. Tom, can you sort of maybe categorize a little bit how this slowdown feels versus other slowdowns you've experienced? I mean, the severity doesn't seem like it's as bad in any way, but the beginning stages here, I guess, give pause. And I think you even alluded to watching some things to maybe give you an indication how this may play out.
It's an interesting question, Tony. On the one hand, we look at a set of data points that would indicate that things are going along okay. On the other hand, you look at a different set and they suggest to you that it's inconsistent with what the first set of data might indicate. Right now, it feels like we're in a grind it out mode in several of our businesses. And there seems to be quite a bit of caution on the part of a number of our customers, primarily in the non automotive businesses in terms of CapEx and investing for future growth.
And I think people are being very careful about how they're spending their money right now or investing for the future. So right now, at least from my perspective, we still have a couple of quarters, I think, to work our way through this. And I think it's going to be a gradual path forward, not anything that's going to be a hockey stick type recovery. I think it's going to be slow for another quarter or 2 and then hopefully we'll start to see the evidence of that. If you look at the disconnect on the industrial side, the disconnect between industrial production and capacity utilization, they seem to be going in different directions right now.
And historically, they tend to move in line with one another. So again, just conflicting sources of information currently.
Okay. And was there something in particular on the office side as well, which seemed to be holding up better that gives you a little bit of a pause in a different manner than what you've seen industrial?
Well, on the office product side, we felt like the team put together a pretty darn good quarter, having anniversaried the 2 significant impacts being up 3% in the current environment, I think is reflective of some good work being done by the office products team. The thing that gives us a little bit of pause though is that we actually thought we might be just a slight bit better as we went into the quarter. We thought it might be a little bit stronger than the way it turned out and we saw some deceleration as the quarter progressed, as I mentioned, and that's continued on into the first half of October. So we don't have a sense right now as to what the real cause is. What we do know is, and talking with our primary vendors, is that this is not unique to SP Richards or Genuine Parts.
They're seeing this across most of their customer base and it just seems to be a temporary slowdown that hopefully will reverse itself as we work our way through the quarter.
Okay, that's great color. And maybe if I can ask one more. On the automotive side, you're having very good success in terms of the DIY and gaining some traction with various initiatives. And maybe if you could just add a little color to that in terms of is it simply you're a much higher percentage commercial business and so adding that emphasis on DIY is easy to gain that share. Is there something you're doing perhaps differently than what your traditional DIY focused retailers would?
Or is it a situation where even your affiliates are seeing an increased appetite for that type of product and maybe they're gaining some share from what seems to be a competitive marketplace with some disruption over the last couple of years?
Yes, Tony, this is Paul. I would tell you that and we've talked about it a bit in previous calls. We have put a renewed focus on our DIY business. We've addressed many of the fundamentals, expanding our store hours, additional training for our folks. We've added some personnel in the stores.
And we've also are testing out a new retail store format, Tony, that we've begun to roll out in 2015. And it's very early yet, but we're pleased with the results and we'll be reviewing that, the balance of this year and make a decision as we go into 2016. Generally, what takes place, you mentioned our affiliates, our independent owners, they will many times let us pioneer some new ideas and certainly new approaches. I think they will get on board when they see the kind of success that we're driving in the retail side. And many of our independent owners do a heck of a job today in the retail side of the business anyway.
So it's early yet, Tony, but I would tell you we're pleased with the results that we're seeing.
Okay. No, that's great. I appreciate the time. Thank you.
Thank you. Your
next question comes from the line of Carolina Jolley with Gabelli and Company.
Great. Thanks. Good morning.
Good morning, Carolyn.
So looking at your results, you've got some challenged end markets promotion. Has this distressed made any potential acquisition targets, maybe something similar to Lake Erie more willing to discuss a potential sale?
Well, as you know, it takes a willing seller and a willing buyer. We are a willing buyer. We just have to find more willing sellers that are willing to sell at prices that we think are favorable to the shareholders of Genuine Parts Company. I mentioned in my comments that we have a couple of more that we think we'll announce prior to year end, none of which will have any material influence on Q4, but will help us as we go into the Q1 of next year. So there are a number of conversations that are going on a couple of further along and we feel confident that we'll get a few closed by year end and hopefully we can generate some additional interest from some others.
Your next question comes from the line of Bret Jordan from Jefferies.
Good morning.
Good morning, Bret. Hey, Bret.
Hey, Bret. A quick question. I guess as we talk about Mexico and it was about a year ago that you began to go to Mexico with the Napa brand as opposed to Auto To do. Could you give us any color on how the traction is building there as you're rebranding?
You bet, Brett. It was you got a good memory. It was just about exactly 1 year ago that we launched our initiative in Mexico and bringing the NAPA brand on to Mexico. Where we are currently, we're on track, we're on target, we expect to end the year with 20 to 25 NAPA stores in the region. I would also tell you that probably since we last talked, we're in the process of recruiting and strong a couple of strong entrepreneurial independent owners who are opening stores down in the region as well.
So far we're on track.
Okay. And then one other regional question. You mentioned some of the energy states were a little softer than the average in performance in the quarter. How about the West ex the energy states? If you go all the way out to the coast, how was the regional performance there?
Yes. So the West and I didn't mention our team out West, but they're holding their own, Brett. They were right at the overall growth number for the commercial business and our overall business. So West is holding up okay. We're seeing, as I mentioned, solid growth up and down the East Coast, all the way down into the Southern and Florida groups.
Most of our softness or where our softness is, it's almost directly tied to some of those oil and gas markets.
Okay.
And then one last question. As you're talking about M and A, is there any thought about increasing the company owned store base within Napa, either just buying in independents as they retire or doing something more structural there? I mean, obviously, as you're getting a retail operation, you get maybe better return on the average store. Is there thought about upping the company owned store count?
I think you'll see that happen as time goes on, Brett. Our basic philosophy is we'll own the stores in and around the major metropolitan areas and we'll have good independent owners in the outlying areas. And I don't think that will change materially going forward. But as a percentage of our total automotive volume going out a few years, you probably see the corporate stores represent a little bit higher percentage of the total volume than the independent stores do today.
All right, great. Thank you.
Hi, Brett.
Your next question your final question comes from the line of Scot Ciccarelli with RBC Capital Markets.
Hey, guys. Thanks for letting me in under the wire here. Good morning, Scot. Hi. Couple of things.
First of all, I guess, obviously, we did see at least slight deceleration in auto despite what seemed to be pretty favorable weather for most of the quarter. So at the sake of focusing on a bit of admittedly short term issue, I guess the question is probably for Paul. Do you have concerns that we could start to see a little bit of incremental softening if the mild weather we've seen for most of the fall here continue deeper into the quarter?
Well, Scott, you hit it. Our we did see slight deceleration as the quarter progressed. We had a really strong, both June July, saw a little bit of a downtick slight downtick in August September. It's early yet, but we're certainly optimistic that the quarter will come in as we projected. But I think as Tom mentioned in his comments in the overall environment that we're in, we are in a we're definitely in a grind it out kind of mode right now as we go into the Q4.
So would you attribute that a little bit of deceleration that we saw in auto to weather or is it something else just so it's kind of clear for everyone?
No, I don't think it's tied to weather. Scott, actually the weather throughout the summer and even into September, we had I think a warmer than normal summer, which resulted in some good numbers for us and categories like air conditioning was strong, batteries were solid in the quarter. So no, I don't think it's attributable to weather at all.
You've mentioned before that you guys are exposed to more industrial related stuff in Napa than maybe some of your competitors are. Is that where you're seeing it, some of the items that you've mentioned before on that front?
So as I mentioned in a previous question, where we are seeing softness, it is directly in some of the more dominant oil and gas market Southwest for sure, some of the mountain areas, which includes some of the fracking country up in the Dakotas and Montana. We do a lot of business in the fleets, Scott. We do a lot of heavy duty business. We do a lot of heavy duty filter business. And we are seeing some fairly significant declines in those categories in those markets.
Okay. Yes, I know you mentioned the geography. I was just trying to clarify on the product. Yes. That's helpful.
And then, previously, I think as Carol mentioned, you guys are comfortable with the receivables. Can you help us understand how much exposure you have to some of these troubled end markets? You've referenced mining, oil, gas, etcetera. And is there a point where you start to consider changes to terms to some of these customers as you try and protect against potential losses, just given the strain on some of their own balance sheet?
Yes. No, we actually we very closely monitor accounts receivable and certainly what you're speaking about in the industrial area. Right now, we're not taking steps additional steps to modify anything, but I can tell you it's just a constant focus on our receivables. We feel like we're in pretty good shape. We actually already have an outlook and an estimate for what our full year bad debt expense will be, and we don't have anything that we're concerned about.
I think our customers and the terms that we have, we have a pretty close insight as to what's going on. So I wouldn't see anything there.
Got you. Okay. Thanks a lot guys.
Got you. Just one last point. Keep in mind that I think across the enterprise, our team has done a very good job in accounts receivable management. Carol pointed out earlier that we're down 1% in receivables year over year, which I think is a pretty good job.
We'd like to thank everybody for participating in this quarter's conference call. And if you have any further questions, let us know, but we appreciate your interest and support of the company and we look forward to talking to you again after our Q4 earnings in February. Thank you.
This concludes today's conference call. You may now disconnect.