Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company Second Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. I would now like to turn the call over to Sid Jones, Vice President of Investor Relations. Please go ahead, sir.
Good morning and thank you for joining us today for the Genuine Parts Q2 2015 conference call to discuss our earnings results and outlook for
the full year. Before we begin this morning, please be advised this call may involve forward looking statements regarding the company and its businesses. The company's actual results could differ materially from any forward looking statements due to several important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward looking statements made during this call. We'll begin this morning with comments from Tom Gallagher, our Chairman and CEO.
Tom? Thank you, Sid. And I would like to add my welcome to each of you on the call today and to say that we appreciate you taking your 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 look forward to answering any specific questions that you may have.
Now earlier this morning, we released our Q2 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 $3,940,000,000 which was up 1%. Net income was $195,400,000 which was down 1% and earnings per share were $1.28 this year compared to $1.28 in the Q2 last year, putting us even in EPS for the quarter. So it was a challenging quarter for us both on the revenue and earnings side largely attributable to the impact of currency exchange on our international business as well as a continued slowdown in specific segments of the economy, which impacted several of our businesses. Paul and I will comment more on these factors as we review the individual business results in a bit more detail.
I'll cover the non automotive businesses first and then Paul will follow on the automotive segment. Starting with office products, this team turned in another strong quarter with sales up 14%. The biggest contributor to our overall growth rate continued to come from the mega accounts as has been the case for the past 4 quarters and we're enjoying strong results with this customer segment. On the independent reseller side, we saw some moderation in the overall results in the quarter. After 4 consecutive quarters of steady growth, the independent channel was flat in the 2nd quarter.
We were pleased to see a respectable month in June, however, from this important customer segment and hopefully this will carry on in the months ahead as well. On the product side, we were pleased to see solid growth across all 4 of our major product categories with facility and break room and furniture continuing to post the strongest increases, but we had solid results from technology products and core office supplies as well. Now as a point of information in the Q3, we will anniversary the acquisition of Impact Products, which was acquired on July 1 last year. Additionally, we will anniversary the increased volume from the Office Depot OfficeMax combination. So as a result of these two factors, our overall office products growth rates will moderate some over the second half of the year.
However, we continue to feel good about the progress that is being made by the office products team and they will turn in a solid performance for us in the second half and for the full year. Moving on to our 2 businesses that are tied to the manufacturing segment of the overall economy, EIS and Motion Industries. We'll start with EIS, our electrical company. After being up 1% in the Q1, this team posted a 3.5% increase in the 2nd quarter, which was good to see. But candidly, acquisition volume drove the improved results with the underlying business actually ending the quarter down 2%.
All of this decrease in the underlying business is attributable to the ongoing slowdown in the electrical side of the business. And this is largely due to the continued challenges faced by a number of our original equipment manufacturer customers, challenges faced by our oil and gas customers as well as a sizable reduction in copper pricing year over year. Conversely, our Wire and Cable and Fabrication and Coatings segments continue to perform well for us. These two businesses now account for just over 55% of our total EIS revenue and we're pleased with the progress that they're making. Looking out over the remainder of the year, our expectation is that we will continue to face challenges in the electrical side of the business, but we do expect a solid second half from the wire and cable and fabrication and coating teams.
Before turning it over to Paul, a few comments on Motion Industries, our large industrial distribution company. These folks had a challenging second quarter ending with sales down 2%. Unfavorable currency exchange was a factor in the quarter, but in addition to that, we saw further weakening in certain segments of the customer base in the quarter as well. From a product category perspective, across our top 13 categories, we had 6 categories that had increases. One category was flat and 6 categories had decreases in the quarter.
These 13 categories in total account for over 90% of our industrial business and you can see the inconsistency and the choppiness in the results. If we look at our top 20 customers, the pattern is somewhat similar. Among these 20 customers, 11 were up, 2 were even with the prior year and 7 were down, again inconsistent and choppy results. Our strongest performing customer segments both for the quarter year to date are in the automotive, aggregate and cement and lumber and wood products categories and these results would mirror the strength of performance of each of these segments in the overall economy. On the other side of the ledger, our weakest results will be with customers in the oil and gas, iron and steel, pulp and paper and original equipment and machinery segments.
And here again, we think that this is reflective of overall economic trends and the uneven recovery among the North American manufacturing base, with some segments bearing better than others. Of our 4 business segments, industrial is the one that is most challenged currently, largely attributable to the tepid and inconsistent end market environment and conditions right now. And this is not a situation that we see changing materially in the near term. So under these circumstances, our industrial team is focused on market share and share of wallet initiatives and actively looking for strategic bolt on acquisitions as they work to improve their revenue picture over the second half of the year. At this point, we'll ask Paul to update you on the automotive results for the quarter.
Paul?
Yes. Thank you, Tom. Good morning, everyone, and welcome to our Q2 conference call. I'm pleased to be with you here today and to have the opportunity to provide you an update on our Q2 performance of our automotive business. For the quarter ending June 30, our global automotive business sales were flat year over year.
This performance consists of approximately 4% growth in core automotive, which is an increase from the 3% core growth we reported in the Q1. However, similar to the Q1, this was offset by approximately 4% of currency adjustments. The currency adjustment was relatively in line with our expectations for the quarter. For the 2nd consecutive quarter, our U. S.
Team posted a 3% sales increase, while our international businesses, which include Canada, Mexico, Australia and New Zealand, grew mid single digits in local currency. Overall, we believe this represents fairly steady growth across all of our markets and we expect to see this continue over the second half of twenty fifteen. In the U. S, we are pleased that nearly every region of the country positively contributed to our revenue growth in the Q2. This includes the Northeastern region, which was impacted in the Q1 by the strong weather driven comps of a year ago as well as the Southwest region.
This region has been hit hard by the current oil and gas lumps, so we are pleased to see even modest growth. Our strongest growth for the quarter occurred in our Atlantic and Central regions of the U. S. We should note the Midwest section of the country, which had reported double digit growth in 2014 and positive growth in the Q1 was flat in the Q2 as the rain and generally dismal weather patterns that have plagued this area in recent month dampened demand. Across Illinois, Indiana and Ohio rainfall records were set in the month of June with each state receiving twice its average monthly rain levels.
We are encouraged to report that 2 weeks into July as more normal weather summer weather has set in, our business is coming back strong. Let's turn to our same store sales. Our U. S. Company owned store group grew comparable same store sales in the quarter by 3% consistent with the Q1.
This 3% increase is on top of the 7% increase that's generated in a strong Q2 of 2014, giving us a 2 year stack of 10%. Our 3% sales increase in the 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 have put a renewed focus on this important segment of our business. Our retail associates out in our stores as well as our retail team here at headquarters continue to get the job done, driving a 7% increase in the quarter, which is up from a 6% increase in the Q1 and on top of a 7% increase from 1 year ago.
We are encouraged with these continued strong results and it confirms the initiatives our team is focusing on are the right ones. 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 Q2, we experienced an increase in our average retail ticket and a significant lift in the number of retail tickets. Our retail strategy continued to be refined, but be assured it remains a priority for us. We realize we've got a great deal of work ahead of us, but our results are reassuring and the opportunity for further growth is out there.
So now let's turn to our commercial wholesale business. This segment turned in a 2% increase in the 2nd quarter. So we experienced slight deceleration from 3% increase in the Q1. But with 7% growth last year, we can report a 2 year stack of 9%. Our fleet business, the key component of our commercial wholesale segment, moderated in the Q2 and while still positive, contributed to our overall deceleration in this segment of our business.
Highlights for the quarter included solid performances by our 2 major wholesale initiatives, NAPA Auto Care and Major Accounts. Our NAPA Auto Care Center is now totaling over 15,800 nationwide and our major account business delivered high single digit sales increases. We can also report solid trends in our average wholesale ticket value, which registered positive growth in the quarter with no inflation support, although we did see a slight decline in the average number of tickets flowing through our stores. However, we should point out after a slow start to the quarter, we saw our ticket count improve throughout the quarter and in the month of June, we experienced a solid increase. Let's take a look at a few of our key product categories and review some of the trends we experienced in the Q2.
Consistent with the Q1, we can report strong growth in both our brake business as well as our tool and equipment business. We are especially encouraged by the double digit growth we saw in the month of June with our heating and cooling products. After a slow start to the quarter, warmer than normal temperatures in the West, the mountain in the Southwest generated strong air conditioning related sales. In addition, our NAPA import parts business was once again up low double digits this quarter. Finally, in our Q1 call, we commented on supply chain interruptions with 1 of our key undercar lines.
We can report that this issue was mitigated in the 2nd quarter as we filled much of our unmet demand with alternative suppliers. So looking ahead to the second half of the year, we expect a significant foreign currency headwind impacting our reported results to continue at its current level. That aside, we'll be working hard over the second half of the year to improve on our 3% to 4% underlying automotive growth achieved thus far in 2015. We continue to be encouraged by the automotive aftermarket fundamentals. The average age of the fleet remains in excess of 11 years.
The size of the fleet continues to grow. Fuel prices are down on average of $0.89 from a year ago. And as you would expect, miles driven continues to post substantial gains, up 3.9% through April. Each of these fundamentals bodes well for future demand. We also have plans in place to drive stronger growth in the quarters ahead.
We announced last Friday the pending acquisition of Cubs Parts, a 25 branch distribution company in Western Australia. Cubs will be a great addition to our growing Repco business as this business is focused on original equipment and aftermarket automotive parts, truck product and mining and industrial consumables. The addition of CUBS Parts, which we expect to close by October 1, 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 This latest acquisition coupled with our continued greenfield store expansion puts us over the 500 store mark in the combined markets of Australia and New Zealand.
This type of bolt on acquisition will increasingly be a key focus for our teams throughout North America and Australasia. So in closing, we want to thank our management teams in North America as well as our team on the ground in Australia for all that they do for the GPC Automotive business. So that completes our overview of the GPC Automotive businesses. 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 2nd quarter income statement and the segment information, and then we'll review our balance sheet and other financial items. Tom will come back up, and then we'll open the call for your questions. Our total revenues previously stated were $3,940,000,000 for the 2nd quarter, an increase of 1%, which consisted of underlying sales growth of 2.2% and a 1.3% contribution from acquisitions. These items were offset by a strong currency headwind of 2.7%.
For the 6 months through June, total revenues are $7,700,000,000 a 2% increase consisting of 3% core growth, 1.4% from acquisitions, offset by a 2.5% foreign currency headwind. Our gross profit for the 2nd quarter was 29.9% of sales, and this compares to 30.2% gross margin last year. For the 6 months, gross margin of 29.85 percent compares to 30.05% reported last year. Primarily, the 2nd quarter 6 month declines reflect our ongoing customer and product mix shifts, which continue to pressure our gross margins. This has been especially prevalent in the office business over the last few quarters.
In addition, we experienced some added pressure in our industrial business gross margin in the Q2 due to the reduction in sales volume and the related impact of lower supplier incentives earned. Executing on our gross margin initiatives is a key priority for our management team and this area has our full attention. We are committed to making progress towards an enhanced gross margin for the long term. Our gross margin initiatives are also critical in offsetting the low inflationary environment that has persisted across our businesses for several years now, especially in automotive. And our supplier pricing through June would indicate more of the same for 2015.
Our cumulative supplier price changes through June were down 0.3% for automotive, up 0.5 percent for industrial, up 0.6 percent for office products and down 1.2% for electrical. Turning to our SG and A, total expenses were 8 $68,000,000 in the Q2, which is flat versus the Q2 of 2014. Our SG and A improved as a percentage of sales by 20 basis points to 22.0 percent. For the 6 months, our total expenses of $1,700,000,000 are 22.5 percent of sales versus 22.7% last year. In light of the 2 and 3% underlying sales growth for the Q2 6 months respectively, we're relatively pleased with our ability to control our costs and encouraged by the positive impact of these measures in this challenging period.
That said, we believe there are opportunities for more improvement in this area and we'll continue to focus on our SG and A line in the periods ahead. Now we'll discuss the results by segment. Our automotive revenue for the Q2 of $2,100,000,000 was flat with the prior year and 53 percent of our total sales. Our operating profit of $207,000,000 is up 0.4 percent and their margin improved 10 basis points to 9.9%. For the year, automotive sales of $4,000,000,000 are unchanged from the prior year, and our operating profit of $358,000,000 is up 0.4 percent and our margin is constant with 2014 at 8.9%.
Industrial sales of $1,200,000,000 in the 2nd quarter, a 2% decrease from 2014 and 30% of our revenues. Our operating profit of $89,000,000 is down 7% and our operating margin declined 40 basis points to 7.5% as the loss of leverage and lower incentives pressured this group in the quarter. For the year, industrial sales of $2,400,000,000 represent 31% of our revenues and are up 1%. Their operating profit of $177,000,000 is down 1% and our margin is 7.5%, which is down 10 basis points from last year. For office products, the revenues of $478,000,000 in the quarter, up a solid 14% and representing 12% of our total revenues.
Our operating profit of $35,000,000 is up 11% and their operating margin was down 20 basis points to 7.2% for the and for the year office revenues of $968,000,000 are up 16% from 2014. Our operating profit of $71,000,000 is up 9%, so our margin is down 50 basis points from last year to 7.3%. As mentioned earlier, the customer mix shift is impacting our net margin for this business, but we remain encouraged by our overall growth. The Electrical Electronics Group had sales in the Q2 of $195,000,000 a 3.5% increase and 5% of total revenue. Their operating profit of 18.6 $1,000,000 is up 13%, so the margin for this group improved to 9.5%, which is up 70 basis points and a new record high.
For the year, sales for this group are $377,000,000 and up 2%. Operating profit of $34,000,000 is up 6% and the margin is up to 9.0% from 8.7%, which is a solid 30 basis point increase. So for the Q2, our operating profit was flat with last year and our operating margin held constant at 8.9%. For the year, our operating profit is up 1% and our operating margin is 8.3 percent compared to the 8.4 percent for the same period in 2014. Not the type of expansion we would expect to produce over the long term, but relatively steady given the sales volume for the quarter the year.
We had net interest expense of $5,700,000 in the 2nd quarter and year to date our interest now stands at $11,000,000 We would expect net interest expense of approximately $21,000,000 to $22,000,000 for the full year. Our total amortization expense of $8,800,000 in the 2nd quarter and $17,400,000 through the 6 months, which is relatively consistent with last year. We currently estimate $36,000,000 to $38,000,000 in total amortization expense for the full year. The other line, which reflects our corporate expense was $25,000,000 expense for the quarter, which is consistent with last year. Through June, our corporate expenses are $50,000,000 which is up slightly from the 1st 6 months of last year.
This is relatively in line with our expectations. And for the year, we would expect corporate expense to be in the $1,000,000 to $95,000,000 range. Our tax rate was 37% for the 2nd quarter and 36.5% for the 6 months through June. These rates are up slightly from 2014 due to changes in the mix of foreign income and the related foreign tax rates as well as a less favorable retirement plan valuation adjustment in the Q2. For the full year, we expect our tax rate to be in the range of 36.7% to 37%.
Net income for the quarter of $195,000,000 compares to $198,000,000 in the Q2 last year and our EPS was $1.28 which is basically flat with 20.14. Now let's turn to a discussion of the balance sheet. During both the quarter the year, we have further strengthened our balance sheet, which positions us well for future growth. Specifically, this speaks to our ability to effectively manage our working capital and drive increased cash flows. Our cash at June 30 was $224,000,000 an increase from approximately $153,000,000 at June 30 last year.
Our cash position is strong and we continue to use our cash to support the growth initiatives in each of our businesses. Accounts receivable of $2,000,000,000 at June 30 is up 5% from the prior year on a 2% core sales increase for the Q2. We continue to closely manage our receivables and we would add that June had an extra billing day relative to 2014, which accounts for a portion of this increase in the quarter. We also remain very satisfied with the quality of our receivables at this time. Our inventory at quarter end was $3,000,000,000 which is up a marginal 1% from June of 2014 and actually improved by approximately 1% from year end.
Our team continues to do a very good job of managing our inventory levels and we'll continue to remain focused on maintaining this key investment at the appropriate levels in the periods ahead. Accounts payable at June 30 was 2,700,000,000 dollars up 10% from 2014, which reflects the positive impact of our improved payment terms and other payable initiatives established with our vendors. We have shown continued improvement in this area for several periods now and we're encouraged by its positive impact on our working capital and days and payables. Our working capital was $1,900,000,000 at June 30, an improvement of 6% from last year. Effectively managing our working capital and in particular key accounts such as accounts receivable, inventory and accounts payable continues to be a very high priority for our company and we're pleased with our ongoing progress in this area.
Our total debt at June 30 was $850,000,000 This includes $250,000,000 term notes as well as another $350,000,000 in borrowings under our multi currency syndicated credit facility. Our total debt to capitalization is approximately 21%, and we're comfortable with our capital structure at this time as we believe that provides us with both the financial capacity and the flexibility necessary to take advantage of the growth opportunities we may want to pursue. So in summary, our balance sheet is in excellent condition and remains a key strength of the company. We also continue to generate solid cash flows and we're raising our 2015 projections for cash from operations and free cash flows by $50,000,000 For the full year, we're now planning for cash from operations to be in the $850,000,000 to $900,000,000 range. Additionally, we currently expect free cash flow, which deducts capital expenditures and dividends to be in the $350,000,000 to $400,000,000 range.
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 paid every year since going public in 1948 and we've now raised for 59 consecutive years, a record that continues to distinguish genuine parts from other companies. The 2015 annual dividend of $2.46 per share represents a 7% increase from the $2.30 paid in 2014 and it's approximately 53% of our 2014 earnings, which is well within our goal of a payout of 50% to 55%. Our goal is to maintain this level of a payout ratio going forward. 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 $21,000,000 for the Q2, which is consistent with 2014 and through the 6 months our capital spending was $38,000,000 down slightly from the $40,000,000 last year. Our expenditures should increase in the second half of the year and we're currently planning for CapEx spending to be in the range of $125,000,000 to $135,000,000 for the full year. As usual, the vast majority of our investments will continue to be weighted towards productivity enhancing projects, primarily in technology. Our depreciation and amortization was $36,000,000 in the 2nd quarter $71,500,000 through 6 months, which is down slightly from 2014. Looking ahead, we're projecting depreciation and amortization to be approximately $145,000,000 to $155,000,000 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. In the 1st 6 months of 2015, we invested approximately $80,000,000 for the acquisition of several new businesses, including Miller Bearing in the Industrial segment and Connect Air for the electrical business as well as a couple other smaller companies. In addition, last Friday, we announced the acquisition of CUV's Parts for our Australasian automotive business, which we covered earlier. We will continue to seek new acquisition opportunities across our business segments to further enhance our prospects for future growth. Although we find that many of these opportunities are smaller sized companies with annual revenues in the $25,000,000 to $150,000,000 range, we're open minded to new businesses of all sizes, large or small, assuming the appropriate returns on investment.
Finally, during the quarter, we used our cash to repurchase approximately 670,000 shares of our common stock under the company's share repurchase program. For the 6 months, we repurchased 1,540,000 shares and today we have 8,000,000 shares authorized and available for repurchase. We have no set pattern for these repurchases, but we expect to remain active in the program in the periods ahead as 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 report for the Q2 6 months of 2015. In summary, we're looking to improve on our first half results over the balance of 2015.
We have our growth plans in place and we're intensely focused on showing progress in the periods ahead. Despite our recent challenges and the relative uncertainty in the economy over the near term, we're encouraged by the fundamental opportunities we see across our 4 businesses. We look forward to updating on our future progress when we report again in October. Now I'll turn it back over to Tom.
Thank you, Carol, and thanks to you and Paul for your updates. So that's a quick recap of our Q2 and mid year results. And in summary, we would certainly say that we found it to be a challenging quarter. And as we look back over the quarter from our perspective, there were 3 strong headwinds that were encountered. 1st, the strength of the U.
S. Dollar and its impact on the currency exchange second, the continued and pervasive impact of the slowdown in the oil and gas sector and third, the further slowdown in certain segments of the manufacturing sector of the economy. As pointed out earlier, currency had a 3% negative impact on our combined GPC sales in the quarter and a negative 4% per share in earnings. Our automotive operations experienced the most significant revenue impact with currency being just over a 4% headwind. But it's important to point out that our core NAPA business continued to perform well as evidenced by their 3% same store sales increase on top of the 7% same store sales increase in the Q2 of last year.
So we feel that we continue to make progress on the Napa side of the business. Additionally, our non U. S.-based automotive operations each generated solid mid single digit local currency increases indicative of continued progress by our Canadian, Australasian and Mexican teams. Unfortunately, these all translated to sizable decreases when converted to U. S.
Dollars. And then in looking at the cadence of the quarter, we were encouraged to see that our automotive sales improved sequentially as the quarter progressed despite the impact of currency exchange. Additionally, the early July results are in line with June and hopefully a positive indicator for the months ahead. Our industrial operations were also impacted by currency exchange, which cost them 1% revenue growth in the quarter. But even more impactful was the continued and further slowdown in certain segments of the industrial end markets.
As mentioned earlier, we saw mixed results among our top 20 customer segments with 11 showing increases, 2 being flat and 7 posting decreases. While the 11 at the top remained relatively steady from Q1 to Q2, the rate of decline for the 7 that are running decreases actually accelerated during the quarter, which significantly impacted our results. And at this point, unfortunately, we don't anticipate a reversal of this trend in the near term. So due to the ongoing challenges of currency exchange and the continued and accelerating rate of decline among certain segments of our industrial customer base, we feel that downward adjustments to our prior full year guidance are appropriate at this time. On the revenue side, our prior segment guidance was for automotive to be up 2% to 3% at year end.
And right now, we would say that should be 1% to 2%, net of a 4% currency exchange headwind. Previously, we guided industrial to being up 5% to 6% and now we would say flat to up 1% net of a 1% currency exchange adjustment. Electrical, we were at 5% to 6% and we would say 3% to 4% currently. And in office products, we previously guided 6% to 7% and we're actually increasing that to 7% to 8% at this time. In total, our prior guidance was for GPC to be up 3% to 4% and now we would say plus 2% to plus 2.5 percent net of a 3% currency exchange impact.
On the earnings side, we previously guided to $4.70 to $4.80 and currently we would say that $4.65 to $4.70 is more appropriate and this includes a $0.15 per share currency adjustment. On a percentage basis, we'll be up 1% to 2% unadjusted and up 4% to 5% on a comparative basis. So that will conclude our prepared remarks and we'll turn the call back to Stephanie to take your questions. Stephanie?
Your first question comes from the line of Greg Melick with Evercore ISI.
Hi, thanks. I wanted to follow-up on a couple of things. So, Carol, you talked a lot about gross margin and some of the industries you have in place there. Could you help us understand a little better what drove the decline in the quarter and specifically what initiatives you have? Is there anything on vendor rebates that may have moved things around or how moving some of the segments?
And then I had a follow-up on SG and A.
Okay. On the gross margin, I would say, really what we saw this quarter, the big impact that we had was the industrial area. I mean, that was what was different than say last two quarters. We've had the continued pressure on gross margin in the office segment that we've talked about before. But on the industrial side, the combination of their lower volume and having to do also with their customer and product mix, but also the volume incentives that are related to that.
And as we adjusted what our thinking is between now and the end of the year, that's factoring into what our adjusted guidance is, is lowering that for the industrial volume incentives. And then some of the initiatives actually our core automotive gross profit and we put some things in place over the last 6 to 12 months and we're pleased with how that's working, but we're up against some of the other pressures that's in the other segment. So it's on the buy side and the sell side. It's really initiatives that we work on all the time across all of our businesses.
And Greg, if I could also add one point, the fact that office products was up 14% in the quarter had an impact on the total gross profit as well.
Is it fair to say
if you
Ex industrial and office products for gross margins up in the auto business?
That would
be a fair assumption.
Yes. We actually had improvement in both electrical and automotive.
Great. And then on
SG and A dollars, I noticed they're nicely controlled. Would the impact there on FX be the same as on the top line? In other words, if FX went away, we'd expect SG and A dollar growth to be closer to 3% to 4%, not flattish?
Yes. We would say, if you think about the FX kind of all the way down the income statement, if you will, it's pretty consistent. I mean, there's really not an impact on our net margins. So you can pretty much just take it all the way down the income statement. It's pretty consistent.
All
right. Thanks a lot.
Thank you, Greg.
Thank
you. Your next question comes from the line of Scot Ciccarelli with RBC Capital Markets.
Good morning, guys.
Good morning, Scot.
Hi, how are you?
I was hoping
to get a little bit more color on specifically what has softened so much on the industrial side. Obviously, it's a pretty big seat change coming out of you guys, Tom, and we haven't seen that in multiple years. And I guess what I'm asking is, is it particular products or product lines? And maybe another way of looking at is, of the 7 end markets that we saw the deterioration in, are there certain ones that were much worse than others? Like you highlight this because it's down 10%, 15%.
What's the best way to kind of think about those? Thanks.
Well, I think you've kind of answered your own question in a way Scott in that the ones that we highlighted in no order oil and gas, iron and steel, pulp and paper and the original equipment manufacturing segment, they're the ones that had the most significant decreases in the quarter for sure. And as I mentioned in my commentary, what got our attention a bit was the sequential deceleration in the decreases. So these four categories were down in Q1, but they were down even more dramatically in Q2. And maybe to put a little more color on it, if you look at oil and gas, obviously, the fact that the number of rigs running is down over 50% year over year certainly that has an impact directly. But the indirect impact ripples through other customer segments as well.
Certainly, the steel segment for any steel manufacturer that has been producing piping to go into exploration, they're having the same situation that we're experiencing. So their volumes are down. You can look at some of the pumping manufacturers. Those that have downhole pumps would be experiencing some of the same contraction that we're experiencing. So it runs it pretty much runs through a number of other categories in addition to the oil and gas.
And part of it too is the fact that some of the businesses, iron and steel and pulp and paper would also be having some issues because of currency exchange. They're not exporting as much. And in fact they're fighting some import pressures some product coming in from offshore. So it's a combination of factors.
So when you look at the second half in these particular end markets, is the assumption that they kind of do in 3Q and 4Q what they did in 2Q? Or is there an expectation that they actually deteriorate further from here given the additional declines we've seen in some of the commodity complex?
Well, I'd preface my comments by saying we just don't know as clearly as we would like. But our expectation is that we've experienced the worst of the deceleration. We may see just a bit more or we may have stabilized some. But it's going to be another couple of quarters before we see this start to turn back up in our opinion.
Got you. And then just one quick clarification if I might. You talked about some of the cadence that we saw in the auto business. And just to be clear, you were talking about it on an organic basis. Is that correct in terms of the acceleration?
Yes.
Okay.
Great. Thanks a lot guys.
All right. Thank you.
Your next question comes from Mark Bex with JPMorgan.
Hi. Thanks for taking my question. I guess just to pick up where Scott had left off. On the industrial, can you speak to how your growth looks like for the market? And I guess across your segments, can you clarify how you look at the growth whether you've been maintaining share or perhaps gaining or losing share?
Well, I think as best we can tell, we're maintaining share at a minimum and maybe gaining just a little bit based upon the data that we have. And it's all not doom and gloom within the segment. Certainly, we've got some customer categories that are really challenged right now. But as I pointed out, we do have 11 of our key 20 customer categories that are showing increases. And additionally, we've got some positive things going on within the Industrial segment.
It's just unfortunate that the 7 that are down are down in such a magnitude that they're overshadowing some of the good things that are going on. But over time, we think that they'll show themselves and things will start to turn back up. But we're just not ready today to say that we're starting to see some of that upturn. We think we got another quarter or 2 before we'll experience some of that.
Okay. And then can you give a little bit more color on the Australasia landscape? That's now well over $1,000,000,000 business for you and you just did the $90,000,000 Cove parts. What's the size of that market? And how does the margin profile look versus the U.
S. Business? And then just given your recent investments over there, what does that say about your outlook for the U. S. Market?
We would by our numbers, we would say that we would have market share that's in the mid teens there in the Australasian marketplace. And the outlook we think is generally favorable in local currency. But I would say that the economies over there are equally challenged. And I think the numbers that our team has put up would indicate that we're gaining a little bit of share over there currently. In terms of the outlook and future growth prospects, I think we'll continue to have reasonably good organic growth from the team over there.
I think we'll sprinkle in a couple of acquisitions over time. And we continue to feel like we get a good return on our invested capital in that marketplace. The margin structure is very much similar to what we would experience in our core automotive business. So it's equal in worst case and perhaps slightly accretive in best case.
Hey, Mark, this is Paul. I would also add you mentioned the U. S. Market. We it's our intent to continue to grow our footprint here in the U.
S. As well. But I would also say the same about Canada and Mexico.
Okay. That's helpful. And then just last question. Can you shed a little light on the dividend and how you might be thinking about that this year? You've raised it for 59 consecutive years now.
It looks like earnings growth will basically flat given the updated guidance. And I know you target a 50% to 55% payout ratio, but just curious how you think about the growth factoring in EPS which has been a bit of a drag from FX but then your cash flow position strengthening? Thank you. It's
a little bit early perhaps because we visit the whole dividend discussion at our February Board meeting. But at this point, we would suggest to you that you'll see an increase in the dividend in February of 2016 and we'll pay out 50% to 55% of prior year earnings. We just can't comment now on the size of the increase, but you'll see an increase.
Okay. Thank you. All right. Thank you. Thanks, Mark.
Your next question comes from Seth Basham with Wedbush Securities.
Good morning.
Good morning, Seth.
I'd like to ask a couple
of questions on the auto business. Tom, you mentioned that trends for the quarter were improving. But how do they look on a 2 year stack basis? As I remember, you had some pretty easy comparisons toward the end of Q2, twenty fourteen?
We're going to get that number for you right now, Seth.
Okay. And related to that, you mentioned extra billing day in June. Any quantification of how much of a benefit was to your sales in auto or across the rest of the enterprise?
No. But the numbers that I cited are on a per day basis. So we saw sequential per day increases and strengthening as the quarter progressed. And the same thing would be true in our month to date results. So I think we're looking at an apples to apples comparison.
Yes. Just to be clear that we had the same number of days in the quarter, but the comment on the extra day for June related to more of the increase in accounts receivable because the extra day was in June and we had one less day in May.
Got it. That's helpful, Carol. And then you mentioned, Paul, that number of transactions in the wholesale side were down in the quarter. Any thoughts as to where the weakness was coming from? Was it in fleet or was it some other area of the business?
Yes. We saw a little deceleration in the fleet business, Seth, which really we attribute really to some of the ongoing pressures on the oil and gas side, but it did come back towards the latter part of the quarter. So I don't think it's anything structural. We've been seeing solid increases quarter after quarter in our ticket counts. I think it was a bit of an aberration that we'll see bounce back in Q3.
Got it. That's helpful. With that outlook, you ticked down your sales guidance for the segment for the year. Any more color as to your thought process there?
No. It's part of it is due to the fact that we think currency is going to continue to play a factor for sure. I think that might be a primary driver. I want to go back to what I think I understood to the question earlier Seth and you asked about the comps. And if we look at our comps in Q2 of this year and last year, in Q2 last year we had 7% comps both for DIY and for DIFM.
And this year, we were 7% on the DIY and 2% on the DIFM. So it's not that comps weakened in the quarter. I think we were going up against some pretty good comps. And if we look out over the remaining quarters of this year, we were up 6% in Q3 and we were up 7% in Q4 of last year. So I think we're going up against reasonably good comps and I think we'll come through it fine.
But I do think comps don't soften any for us in the near term.
Got it. And just lastly to clarify on FX, are you saying that you expect more FX headwinds for the year than you initially did in the auto segment?
Well, I think across all of our businesses that are affected. And maybe just to put a little color to that, if we look at year over year FX comps and I looked at it on the 15th July and 15th, the difference between July 15, 2014 and July 15, 2015, we had 19% deceleration versus the Canadian dollar and the Mexican peso and a 21% decline against the Aussie dollar. So that's a little stronger than what we had originally anticipated.
Got it. All right.
Thanks and good luck.
All right. Thank you very much.
Your next question comes from Elizabeth Suzuki with Bank of America.
Good morning. Given the miles driven in the U. S. Really started to accelerate in recent months, I think the expectation may have been that the auto division would have been a little bit stronger in core growth. Do you think auto is going to start reflecting that improvement in driving trends and vehicle usage in the coming quarters?
Or are there competitive pressures at play that could hold back some of that same store growth?
Well, what I would say first of all is the underlying growth for automotive was I think reasonably good at 4%. And I think historically that's a pretty good number. I think Paul referenced some of the underlying factors are generally favorable. Miles driven as instance through the last report we've seen are up 3.9% year to date. That's the best we've seen in a while.
So our expectation would be that demand should remain pretty good over the remainder of the year. One thing that impacted automotive as Paul referenced in his comments was the abnormally wet conditions we experienced up through the Midwest. And that affected not just the normal DIFM type of business, it certainly affected our agricultural business up to that part of the country as well. But assuming that we don't hit any abnormalities, I think that demand patterns should be reasonably good as we work our way through year end.
Okay, great. And with foreign exchange having a larger and larger impact as you grow internationally, are there any plans to put currency hedges in place? It just seems like FX is causing a lot more fluctuation in your earnings than we're used to.
We're looking at it. We haven't done anything as yet, but we recognize it's something that we need to spend a little more time on.
Okay. Part of the FX when you're just translating the dollars into your income statement, you can't really hedge against that. What we're looking at is more on the cash flow and balance sheet side. But when we're just translating the sales in from these foreign countries, I mean, we do have an impact there that you really just have to translate the lower dollars.
All
right. Thanks very much.
Thank you.
Your next question comes from the line of Matthew Fassler with Goldman Sachs.
Thanks a lot and good morning to you.
Good morning, Matt. Good morning, Matt.
A couple of follow-up questions on automotive. Can you give us a sense for the order of magnitude of fleet deceleration? Just trying to understand how much it contributed to the DIFM slowdown. It looks like your DIFM comps slowed from 3% to 2%. We had assumed that in the Q1 your fleet business was up kind of mid singles.
Was fleet down in on a year on year basis?
No, Matt. This is Paul. Fleet business was actually up a couple of points in the quarter, but it wasn't at the trend that we've seen in recent quarters, which you already hit on was closer to mid single digits. So we saw a little bit of deceleration in the quarter. And if you break it down, it's certainly an element of our overall commercial wholesale business.
And it's an important element for sure. But again, we don't think there's anything structural there and that we'll see that bounce back in Q3 and the balance of the year.
And then just follow-up, Paul. So we have your new automotive revenue guidance for the year and we have the number gross of FX net of FX. To the extent that you ran a U. S. Comp of 3% in both the Q1 and the Q2, what's the directional expectation for that number within the automotive business in the second half?
This is Tom. We would say probably consistent with what we've seen through the first half of the year.
Got it. Okay. Thank you very much guys.
Thank you. Thanks Matt.
Your next question comes from the line of Brian Sponheimer with Gabelli.
Hi, good morning.
Good morning,
Brian. Good morning, Brian.
To try and focus more on the positive within Motion, can you talk about outside of auto production maybe some of the sub pockets of growth that you may not have foreseen heading into the year? Is construction one of them?
Yes. Anything related to construction Brian, we're showing good results. So if you get into the aggregate and cement category that's a nice category for us currently. Lumber and Wood Products is a nice category for us as well. So it's I think it's fair to say, if you looked at those segments of the manufacturing sector that are performing reasonably well, they tied pretty closely to those segments of the overall economy that are performing pretty well right now.
So All right.
And then just on the OE side within Motion, would you say that it's driven more on the equipment side by mining? Or is this now fully an ag and potentially some broader machinery issue?
Well, I think it's a combination. And I think it's a factor of curtailed demand here domestically, but also it's an FX situation as well straight to the dollar. Some of these companies that have reasonably strong export businesses are not getting the same type of demand that they might get under more normal FX circumstances. So I think it's a combination of both elements quite honestly.
All right. Thank you very much. Thank you.
Thanks, Brian.
We have time for one question. Your last question comes from Bret Jordan with Jefferies.
Good morning, guys.
Good morning, Bret.
Just a quick question on the DIY trend. Obviously, 7% is better than the market. You're seeing market share gains in any particular regions? Or do you see yourself picking up share from any particular channels? Brett, it's hard to tell.
Our retail increases are widespread. And I think as I've said in prior calls, it's our team that's been really just focusing on the basics, better store hours, better training, better planogram execution, better in store stocking. We've gotten I
will tell
you, we've gotten creative in some of our recent promotions that have performed well for us. But it's hard to say if we're actually taking market share or not, but I would think with the kind of increases we've been showing, we are most likely taking it from 1 of the competitor. Okay. And then as far as temperature control, you mentioned the double digit growth. Was that something you're talking about double digit growth regionally?
I think you called Southwest or was that double digit growth as an entire category? And I guess to follow-up, how are inventory levels when you're seeing that kind of growth? Are you being able to meet the demand? Yes. So the double digit growth was that's across all of Napa.
That was we really it was driven in the western part of the country. We had record heat out west in the month of June, Brad, in California, Oregon, Washington, record temps. So they really drove the increase. But we're seeing significant increases across the country. And right now, we're in good shape in our inventory levels.
Okay.
And then one last question. Mexico, the branding under NAPA as opposed to Auto To Do, what are you seeing? Are you picking up share sequentially with NAPA? Or is there is it too early to tell? It's too early to tell.
We're still early in our rollout. We have 11 company stores up and running. We have a certainly goal to continue to increase that. But our it's still early, Brett, but we're on plan and on target. All right, great.
Thank you.
You're welcome. Thanks, Brett.
Thank you. This concludes the Q and
A portion of today's conference. I'll turn it back over to management for closing remarks.
We thank you for your interest in Genworth Partners Company and your continued support and we look forward to reporting to you in October with our Q3 results. Thank you.
Thank you. This concludes today's conference call. You may now disconnect.