Good morning. My name is Saleema, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company third quarter 2014 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. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn today's conference call over to Mr. Sid Jones, Vice President, Investor Relations. Please go ahead, sir.
Good morning. Thank you for joining us today for the Genuine Parts third quarter 2014 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 this call. We will begin this morning with comments from Tom Gallagher, our Chairman and CEO. Tom?
Thank you, Sid. I would also 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, along with Carol Yancey, our Executive Vice President and Chief Financial Officer, and I will each handle a portion of today's call. Once we have completed our individual remarks, we will look forward to addressing any specific questions that you may have. Earlier this morning, we released our third quarter results. Hopefully, you've had an opportunity to review them. For those who may not have seen the numbers as yet, a quick recap shows sales for the quarter were $3,986,000,000, and this was up 8% over the prior year. Operating income was $298.3 million, which was up 10%.
Net income was $190.5 million, which was also up 10%. Our earnings per share were $1.24 this year, compared to $1.12 last year, which is an 11% increase. With revenues up 8%, net income up 10%, and EPS up 11%, we feel that we came through the quarter in good shape. As you will hear from Carol in a few minutes, all four of our business segments were able to show operating margin improvement in the quarter, which is encouraging and, in our opinion, indicative of an overall good job done by each of our management teams. Turning to the individual performances by business segment, as we customarily do, I will make a few comments on the non-automotive operations, and then Paul will follow with an overview of the automotive segment.
Starting with industrial, this is our second-largest segment, representing 31% of total company revenues on a year-to-date basis. We're pleased to report another solid quarter from the industrial team. Sales were up 10%. This continues a trend of sequentially strengthening sales results going back to the final quarter of last year. After being up 3% in the fourth quarter of 2013, we were up 4% in the first quarter, 7% in the second quarter, and 10% in the third quarter. If we look at it without acquisitions and foreign exchange impact, in the first quarter, we're up 2%, second quarter up 4%, and third quarter up 8%. A nice trend in the sales progression, and our industrial operations are now up 7% year to date.
In looking a bit more closely at the results on a product basis, we're pleased to see positive growth across all of our major product categories in the quarter. From a customer perspective, 11 of our top 12 customer segments are showing growth in the quarter as well. The strongest segments, in alphabetical order, are automotive, coal and aggregate, iron and steel, lumber and wood products, and pulp and paper. Similar to our overall sales results for the quarter, each of our top 12 customer categories had their strongest sales increases of the year, perhaps reflective of further strengthening in the industrial segment of the economy, which should bode well for our industrial business in the quarters ahead.
Moving on to EIS, our electrical, electronic, and wiring cable segment, we're pleased to be able to report another strong revenue quarter with sales up 35%, which is their strongest quarter of the year. However, it is important to point out that most of our revenue increase is attributable to acquisitions completed over the past 12 months, and the underlying business is up just slightly, similar to what we have seen pretty much all year long. Lower copper prices have been a slight headwind to our revenue growth on the electrical side, but more significant has been the deferred demand that we have seen from telecommunication customers in the wire and cable segment and reduced demand from several contract manufacturers in the electronic segment.
While we don't anticipate significant changes in any of these specific situations until early 2015, we do see some modest improvement in the early days of the fourth quarter. This, combined with the acquisition revenue, will enable EIS to report a strong finish to the year. Switching to the office product segment, S.P. Richards turned in a fine quarter with sales up 15%. As with our industrial operations, we have seen nice sequential improvement from the office products group. In the fourth quarter of last year, they were down 4%. They were even in the first quarter of this year, then up 4% in Q2 and up 15% in Q3.
Looking at it without acquisitions and currency exchange impact, we were down 4% in the fourth quarter of last year, down 1% in the first quarter of this year, up 2% in Q2 and up 8% in Q3. As just referenced, acquisitions accounted for approximately seven points of the increase in the third quarter. The increased volume from our new Office Depot agreement was a significant contributor as well. However, we were encouraged with the mid-single-digit growth that we saw with our independent office products resellers. This is back-to-back solid quarters with this important segment of our customer base, and we're pleased with the results that we're seeing here. We're also pleased to see solid results across all four of our main product categories.
Technology products, core office supplies, and furniture were each up mid to high single digit in the quarter, and facility and break room supplies were up low double digit. Good results across all of the product categories as well as across our two primary customer categories, the independent resellers and the megas. We are pleased with the consistency and the balance that we saw in our sales results in the quarter. Importantly, we feel that the Office Products team is well-positioned to end the year in good shape. That's a brief overview of our non-automotive businesses. At this point, we will ask Paul to bring you up to date on the automotive segment. Paul?
Thank you, Tom. Good morning, everyone. Let me add my welcome to our quarterly conference call. I'm pleased to join you today and to have an opportunity to provide you an update on the third quarter performance of our automotive business. As Tom mentioned in his opening remarks, our automotive business grew top-line revenues by 4% in the third quarter. This essentially reflects our core automotive growth for the quarter of 4.4%. This sales increase was in line with our expectations. We were able to deliver on our commitments in spite of the milder than normal temperatures here in the U.S., evidence of our teams out in the field continuing to perform at a high level. When evaluating on our quarterly performance, we are encouraged by the solid results across our automotive businesses, including the U.S., Canada, Mexico, and Australia, and New Zealand.
In the U.S., all regions of the country are positively contributing to our sales growth. As has been the case the past several quarters, our Midwest and Central divisions continue to lead the way for the company. We also saw solid sales growth in the Southern, Atlantic, and Mountain regions of the country. Turning to our U.S. company-owned same-store sales. Comp store sales growth in the third quarter came in at +6%. This 6% increase is on top of a 4% in the same quarter of 2013, giving us a two-year stack of +10%. This solid performance continues a run of strong same-store sales numbers dating back to the fourth quarter of 2013, when our team delivered a 7% increase. The NAPA team continued to execute well as they delivered an 8% increase in the first quarter of 2014, followed up with a 7% increase last quarter.
While we are pleased with these strong numbers, we also are well aware of the tougher comps facing us in the quarters ahead. Our sales increase in Q3 was bolstered by continued strong growth in our commercial wholesale segment. We followed up our 7% increase in Q2 with another healthy increase of 6% in the third quarter. As most of you know, the key drivers of our commercial business are the NAPA AutoCare Centers and our strong alliance with our major account customers. These two big wholesale initiatives continue to exceed expectations, and we are proud of our dedicated teams in both these businesses. Let's start with our major account business. This important segment of our business delivered its fifth consecutive quarter of low double-digit sales growth.
Turning to our NAPA AutoCare Centers, we continue to grow the overall number of auto care centers, now totaling over 15,500. This team posted high single-digit sales increase in the quarter, and through nine months, they are up low double digits year-over-year. All in all, another fine performance by these two segments of our commercial business. Another segment of our commercial business worth breaking out is our all-important fleet business. As a reminder, this segment posted a 6% increase in the second quarter, and we follow that up with a 7% increase in the third quarter. This strong performance puts us at +7% through three quarters. We can also report improving trends in our average wholesale ticket value with little to no inflation support. We are also encouraged to see our average number of tickets continuing to increase.
We continue to be pleased with our improved performance in our retail business. This segment of our business grew 5% in the third quarter. If you'll recall, our retail business generated a 9% increase in the first quarter and a 7% increase in the second quarter. As we saw with our wholesale business, we generated a mid-single digit increase in our average retail ticket value, while we experienced a slight decline in our average number of retail tickets in the quarter. Our team has been working hard to drive both increased foot traffic and our average retail ticket value. These efforts are beginning to take hold, and we are pleased with this performance through nine months. Let's take a look at the product categories driving our growth. Our heavy-duty business continues to post strong results as this group generated low double-digit growth in the quarter.
We also experienced low double-digit growth in our brake business and strong growth from our tool and equipment business. Core product categories like chassis, ride control, and our filter business all experienced mid to high single-digit growth. Conversely, the milder temps experienced this summer had a negative impact on our heating and cooling product sales. In summary, we are encouraged by the growth opportunities available to us in both the retail and commercial sectors of the automotive aftermarket. While we have much work ahead of us, we remain optimistic that the initiatives our team is focused on will continue to drive strong results. We would also add that the industry fundamentals remain steady and positive for the aftermarket. The average age of vehicles on the road remains in excess of 11 years. The total fleet is large and growing. Deferred maintenance remains at historically high numbers.
Likewise, important metrics such as the price of gasoline and miles driven are trending favorable. Fuel prices continued to decrease. Accordingly, miles driven have increased now for six consecutive months through August and stand at +0.6% year-to-date. In closing, we are pleased with our third quarter results as well as our year-to-date performance. While we didn't experience the hot summer we were all hoping for, our NAPA team persevered and delivered another in a series of good quarters. We are proud of our management team and know they remain committed to driving profitable growth throughout 2014 and beyond. We would like to personally thank all of our associates, both at NAPA North America and at GPC Asia Pac and Australia and New Zealand for their efforts in the third quarter. That completes our overview of the automotive business.
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. We'll begin with a review of our third quarter and nine-month income statements and the segment information. Then we'll review a few key balance sheet and other financial items. Tom will come back up to wrap it up. Then we'll open the call up for your questions. As Tom mentioned, our total revenues were a record $4 billion for the third quarter, an increase of 8% from last year, which includes the 5% underlying sales growth, a 3% contribution from acquisitions, and this was offset by a currency headwind of approximately one-half of 1%. Our gross profit for the third quarter was 29.7% of sales, compared to the 29.9% gross margin reported last year.
For the nine months, our gross margin of 29.9% compares to the 29.6% reported last year, or 29.8%, excluding the one-time purchase accounting adjustment in 2013 that's previously been disclosed and also referenced in today's press release. The pressure on our third quarter gross margin reflects the impact of our ongoing customer and product mix shifts that we see in our businesses. For 2014, we expect our margins to approach the 30% range, with the gradual expectation of margin expansion in 2015 and the years ahead. This is an area that is receiving a good bit of our management team's attention. As an additional point of interest, we're seeing some slight inflation in our non-automotive businesses year-to-date. We continue to see very little inflation in automotive, and we don't expect this to change over the balance of the year.
Our year-to-date cumulative pricing for 2014 is 0.2% in automotive, 1.2% in industrial, 1.2% in office products, and 0.3% in electrical. Turning to our SG&A, our total expenses were $885 million in the third quarter, which is an improvement of 30 basis points to 22.2%, compared to the 22.5% reported last year. For the nine months, our total SG&A expenses are $2.6 billion, which is 22.5% of sales, compared to 22% in 2013, or 22.5% before the purchase accounting adjustment mentioned earlier. The improvement in our third quarter SG&A expenses continue to reflect a combination of our cost savings associated with the freeze of our pension plan effective January 1st, as well as the ongoing benefits of our cost-saving initiatives and expense leverage.
We remain focused on effectively managing our costs in every area of our business, and through these initiatives, we expect to show continued progress on our SG&A line in the periods ahead. Let's discuss the results by segment. Our automotive revenue for the third quarter was $2.1 billion and represents 52% of sales and is up 4%. Our operating profit of $193 million is up 7.3%. Their margin improved by 30 basis points to 9.2% from the 8.9% last year. For the nine months, our automotive sales of $6.1 billion is up 10%. Our operating profit of $550 million is up 12.8%, and our margin is up 20 basis points year-to-date to 9.0%. Our industrial sales were $1.2 billion in the third quarter, and this is 31% of our total revenues and up 10% from 2013.
Our operating profit of $95.3 million is up 20%, and our operating margin expanded a strong 60 basis points to 7.8% from the 7.2% last year. Year-to-date, industrial sales of $3.57 billion are up 7%. Our operating profit of $274 million is up 10.7%, and our margin of 7.7% is up 30 basis points from last year. Our office products revenues were $497 million in the quarter, or 12% of our revenues, and up a very strong 15.4%. Our operating profit of $33.3 million is up 19%. Their operating margin increased by 20 basis points to 6.7%. For the nine months, office revenues of $1.3 billion represent 11% of the total and are up 6.4%. Our operating profit of $98.4 million is up 8%, and our margin is up 10 basis points from last year to 7.4%.
The electrical group had sales in the third quarter of $193 million, and that's 5% of our revenue and up 35%. Operating profit of $17.8 million is up 41%, and their margin is 9.2%, which is up 40 basis points from last year's 8.8%. Year-to-date sales for this group are $562 million, or up 32%, and our operating profit of $50 million is up 41%. Our margin is up nicely to 8.9% from the 8.3% last year, which is a solid increase of 60 basis points. Our total operating profit was up 13% in the third quarter, and our margin improved to 30 basis points to 8.5%. This increase follows a 20 and 30 basis point margin improvement in the first and second quarters, respectively. For the nine months, our total operating margin is 8.4%, which is up 20 basis points from 2013.
As covered earlier, our overall margin expansion is supported by increases in each of our four business segments in both the quarter and the nine months. We're encouraged by this progress, and we remain focused on continued margin expansion in the periods ahead. We had net interest expense of $6.3 million in the third quarter, which is down from the $7 million last year. For the nine months, interest expense is $18.7 million, and we expect this cost to remain relatively steady over the balance of 2014. We currently estimate interest expense to be $24 million-$25 million for the full year. Our total amortization was $8.9 million for the third quarter, and this is $26.3 million for the nine months. Year-to-date, our amortization is up from last year due to the acquisition activity across all four of our segments.
We expect amortization expense to be in the $35 million-$36 million range for the full year. The other line, which reflects our corporate expense, was $26 million expense for the third quarter, which is relatively consistent with the first and second quarters, although up from last year. The increase from 2013 reflects an unfavorable $4 million swing associated with our retirement plan valuation adjustment, as well as higher expenses for a variety of items, including legal and professional, insurance, and incentive-related costs, which continue to impact this line item. For the nine months, this line shows $75 million of expense, and this is up from the $47 million last year, excluding the one-time purchase accounting adjustment in 2013 of $33 million. Currently, we expect this line to be in the $90 million-$95 million range for 2014.
Our tax rate was approximately 36.1% for the third quarter of 2014 and 2013. For the nine months, our 36% tax rate compares to a 34% tax rate for the same period the prior year. The increase in our nine-month tax rate is primarily due to last year's favorable tax rate on the one-time purchase accounting gain. Looking ahead, we expect our full-year tax rate for 2014 to be in the 36% range. Our net income for the quarter at $190.5 million compares to the $173.7 million, or up 10%. Our EPS of $1.24 compared to the $1.12 last year is up 11%. For the nine months, our net income of $546 million is up 9%, and our EPS of $3.53 is up 10% from the nine months of 2013 on a comparative basis. Let's discuss some of the balance sheet items.
Our cash at September 30th was $136 million, which was down from approximately $321 million last September and $197 million at December 31st. We continue to use our cash to support the growth initiatives in each of our businesses, and we remain comfortable with our cash position at September 30th. Our accounts receivable is $2 billion at September 30th, increased 12% from the same period in 2013 on an 8% sales increase for the quarter. We remain focused on our goal of growing receivables at a rate less than the revenue growth, and we have some work to do in this area in the periods ahead. We're very satisfied with the quality of our receivables at this time. Our inventory at quarter end was $3 billion, which is up approximately 6% from last September and up only 2% from December 31st.
Before the impact of acquisitions, inventory is basically unchanged from year-end and up 3% from last September. Our team continues to do a very good job of managing our inventory levels. We will remain focused on maintaining this key investment at the appropriate levels as we move forward through the year and also into 2015. Our accounts payable balance at September 30th was $2.5 billion, or up 15% from September 2013, and this is due to the positive impact of our extended payment terms and other payables initiatives established with our vendors and, to a lesser extent, the impact of acquisitions. Our continued improvement in this area and its positive impact on our working capital in days and payables is encouraging. We expect this favorable trend to continue in the periods ahead.
Our working capital of $1.9 billion at September 30th compares to $1.8 billion at December 30th of 2013, an increase of 6%. Effectively managing accounts receivable, inventory, and accounts payable is a very high priority for our company, and our ongoing efforts with these key accounts have resulted in solid improvement in our working capital and cash flow. Our balance sheet remains in excellent condition at September 30th, 2014. Our total debt of $835 million at September 30th is relatively unchanged from last year, and it represents approximately 19% of our total capitalization. The September 30th, 2014 debt includes two $250 million term notes, as well as another $335 million in borrowings under our multi-currency syndicated credit facility agreement. We are comfortable with our capital structure at this time.
Thus far in 2014, our cash from operations is approximately $586 million, and for the full year, we currently expect cash from operations to be approximately $900 million. We expect free cash flow, which deducts capital expenditures and dividends, to be in the $425 million-$450 million range. We are pleased with the continued strength of our cash flows, and 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 have now raised for 58 consecutive years. Our annual dividend of $2.30 per share in 2014 represents a 7% increase from the $2.15 per share paid in 2013, and it is approximately 52% of our 2013 earnings.
That is well within our goal of the 50%-55% payout ratio. Our goal would be to maintain this level of payout ratio going forward. Our other priorities for cash include the ongoing reinvestment in each of our four businesses, strategic acquisitions where appropriate, and share repurchases. Our investment in capital expenditures was $34 million for the third quarter and $74 million for the nine months. We currently expect our capital expenditures to pick up further over the balance of the year, and we look for CapEx spending to be in the range of $120 million-$130 million for the full year. This is down slightly from our previous estimate of $130 million-$140 million, but in line with our prior year CapEx of $124 million. As usual, the vast majority of our investments will continue to be weighted towards productivity-enhancing projects, primarily in technology.
Depreciation and amortization was $35 million in the third quarter, consistent with third quarter last year, and $109 million for the nine months, which is up from the $98 million in the prior year. The nine-month increase reflects the impact of GPC Asia Pacific, as well as our more recent acquisitions. We currently anticipate depreciation and amortization to be approximately $145 million-$150 million for the full year. Our strategic acquisitions continue to be an ongoing and important use of cash for us, and they're integral to the growth plans for our company. In the third quarter, we made three acquisitions, including one small tuck-in for both our automotive and electrical businesses, as well as the July 1st addition of Impact Products to our Office Products group, which we discussed in our last call.
All in, we have made seven acquisitions thus far in 2014, including one in each of our four business segments. We expect these new businesses to contribute total annual revenues of approximately $390 million. We are encouraged by the growth opportunities we see for each of these acquisitions, and we'll continue to seek new acquisitions across our businesses to enhance our prospects for future growth. We're generally targeting those bolt-on types of acquisitions with annual revenues in the $25 million-$125 million range. Finally, thus far in 2014, we've used our cash to repurchase approximately 1.1 million shares of our common stock under our share repurchase program. Today, we have another 9.5 million shares authorized and available for repurchase.
We have no set pattern for these repurchases, but we expect to remain active in the program over the balance of the year as we continue to believe that our stock is an attractive investment, and combined with our dividend, provides the best return to our shareholders. That concludes our financial update. A solid quarter, but more room for improvement. In closing, we want to thank our GPC associates for all their hard work. We have a great team, and because of their dedication and hard work, the company is well positioned for continued growth in the fourth quarter and beyond. We look forward to updating you on our future progress when we report again. I'll now turn it back over to Tom. Tom?
Thank you, Carol and Paul, for those informative and comprehensive updates. That will complete our planned comments. In recapping our view on the quarter, we would say that we feel good about the performance turned in by the GPC team, with sales up 8%, net income up 10%, and earnings per share up 11%. As we look toward year-end, based upon our year-to-date results, we feel that some modest adjustments to our prior guidance would be appropriate. On the revenue side, we previously had guided automotive revenues to be up 7%-8%, and at this point, we would say that they'll be up closer to the 8%. In industrial, we previously had said up 5%-7%, and now we would say up 6%-7%. Office Products was 6%-7%, and at this point, we would say 8%-9%.
Electrical was 25%-30%, and we would suggest right at 30%. For the total company, prior guidance was to be up 7%-8%, and now we would say we'll be up 8%. On the earnings side, we previously had guided in the $4.54-$4.60 range. We're comfortable tightening that up some, and we now feel that $4.56-$4.60 is more appropriate, and that would represent an earnings per share increase of 9%-10% for the full year. At this point, we'd like to address your questions, and we'll turn the call back to Saleema. Saleema?
As a reminder ladies and gentlemen, to ask an audio question, simply press star then the number 1. Again, to ask a question, please press star then the number 1. Your first question comes from the line of Mark Becks with J.P. Morgan.
Hi, thanks for taking the question. I guess, just to start off on the automotive side, looking at your guidance of 8% sales growth, by my calculations, it looks like it's sort of like a 3 percentage number in sales growth for NAPA in 4Q. Maybe just want to get update on how you're thinking about the automotive trends. Obviously, they're still very solid, but you're lapping some pretty impressive comparisons. Maybe what you're seeing in the business now. Thank you.
I'll try to answer that. The guidance would suggest some modest deceleration. However, as you pointed out, the comps are getting a bit more challenging. We also don't know what early winter weather impact we may get this year. As far as the current trends, we would say that we're pleased with what we see, in automotive, specifically in the beginning or the early days of the fourth quarter, I might say that same comment would hold true for the other businesses as well. We're early in October, but we do like what we see at this point.
Okay. Then on the gross margin side, a little bit of a headwind there. Can you elaborate a little bit on what caused the pressure there? Is there any change in the promotional activity going on in the category? Is that maybe some acquisition-related impact? Thank you.
The margin, as I think we mentioned in our last call, the margin is being impacted a bit by the customer mix and the product mix that we see across our businesses. As you know, the larger the customer, in any of our businesses, the greater the discount that they receive. The margin can pack some. However, the offset to that is, the greater the volume, the more leverage that we can get. In the quarter, our gross margin was down 18 basis points, but our SG&A was down 29 basis points. We did have a positive 11 basis point improvement in our operating margin. That's the primary thing that's happened. If we look at it on the product side, we see nice growth, in a couple of the areas that Paul mentioned.
Certainly, our heavy-duty business was up, and that's a little bit lower gross margin, but higher ticket values. The same thing would be true on tools and equipment in the automotive. If we look at the office products business, I mentioned that our technology products were up, again, higher ticket value, but lower margins. I think they would be the primary contributing factors.
Then just to follow up to the margin comment. On the industrial side, presumably, you might have hit some vendor rebates kicking in with the big acceleration there, maybe where that's coming from and the sustainability of that. It looks like incremental margins were kind of mid-teens, maybe historically what you've seen with incremental margins on the industrial side. Thank you.
Mark, on the gross margin on the industrial, what we would say is, certainly with their core growth coming back a bit, we are seeing some of the volume incentives come back. I would say it's really more trending in line with what their sales increases are. It was primarily more their cost savings and the leverage that came through on that for the industrial side.
The next question comes from the line of John Lovallo with Bank of America.
Hi, this is Elizabeth Suzuki on for John. In terms of the acquisition landscape, which segments are you most interested in, and how do the multiples being paid for acquisitions compare to that a year ago?
I'll try to answer that. I would say that our overall growth strategies across each of the businesses include a component for acquisition growth. We have been able to make acquisitions in each of the four businesses over the course of this year. In terms of where the acquisitions may come from prospectively, we've got active discussions going on in each of the businesses, but there are more possibilities, in the industrial and the electrical sides of the business, only because those industries continue to be the more fragmented of the two industries that we're in. In terms of the valuations are relatively constant with where they've been. They might be pushing the top end of what we would consider to be reasonable valuation, but they're still relatively consistent.
I would also, just as a point of information, I would say that we continue to be what we would consider to be fairly consistent in our valuation models. If it doesn't fit our model, there's a high probability it won't be a deal that we do. We're not going to do any deals that are dilutive to our shareholders.
Great. Just one other quick one is that, GPC once operated in Europe. Do you foresee any future operations there?
As it turns out, I actually was involved in that business back then. I think our primary emphasis would be in North America, in Australasia, and potentially, Southeast Asia, then also into more in Mexico and Latin America. Not to the exclusion of Europe, but that would be down the list. We think there may be other opportunities for us in these other areas that might be more attractive.
Okay, thanks very much.
Thank you.
Thank you.
The next question comes from the line of Aaron Rubenson with Wolfe Research.
Hi, this is actually Chris Spadicleri on for Aaron.
Morning, Chris.
Hi, good morning. If you can walk us through the incremental margins, maybe by segment and what you're seeing, particularly perhaps ex-acquisitions. It seems like you had a lot of very strong growth, obviously, in industrial on an organic basis, and the same with office. Maybe just talk about your maybe implied margins for what it was this quarter, what it could see in Q4, and maybe just long term, where you expect those to trend.
Couple things on the margin. What we're seeing there, and again, you're seeing it in total, there's some gross margin pressure, but you're seeing our improvement on SG&A, and that really applies to all of our segments. I think where we're seeing the improved top-line growth, we're able to really see that push through on the SG&A line. Where we are more on the nine-month year-to-date basis, and when you look at what our margins are up for each of our segments, we're still going to really hope to keep the 10 to 20 basis point improvement for each one of those, and a little bit greater than that in the electrical. I think maintaining where we're at through the nine months and looking for just a continued 10 to 20 basis points for each of the segments.
Okay, thanks. One other additional small question. Can you talk a little bit about the industrial, just what's causing the explosive growth in organic revenue, at least compared to industrial production? It seems to really have accelerated this past quarter. Maybe what are the segments that you point out might be outperforming versus the benchmark?
Well, we mentioned five, I think it was five categories or customer segments that we've enjoyed a little bit stronger growth than the overall. They pretty much follow what you're seeing happening in the economy. If you look, automotive is a strong segment for us right now, and you see what's happening with new vehicle sales. Lumber and wood products and the mining and aggregate are both fairly strong for us, and we think that may follow what's happening with construction, both housing as well as commercial construction. I think we're following the overall trends within the economy. The external indices, industrial production capacity utilization, they've actually been fairly strong for a number of months now. It's been our expectation that we would see some improvement in our sequential growth rates. I think we're just now beginning to experience some of that.
One other thing I might add is that in prior calls, I think we've mentioned that we keep track of what we would call project work, which is work that our manufacturing customers are planning to do where they may take a line down or they may do a complete refurbishment. To the best of our ability, we try to quantify what that might be. We follow the patterns on that. For a period of time, what we saw is a relatively consistent dollar amount of project work. The takeout on that was not flowing as it had historically. We had seen some deferrals, some delays, and we're beginning to see some of that work being done now. That's probably contributing a bit to the overall growth rates as well.
Okay, great. Thank you very much for your help.
Thank you.
Thanks, Aaron.
Next question comes from the line of Bret Jordan with BB&T Capital Markets.
Hi, good morning.
Hey, morning, Bret.
Quick question, I guess, on the auto. I was about to ask that project work question a second ago, but just to sort of follow up on that. What's the expectation? If we sort of look at the quarter on the industrial side, how would it weight percentage that was sort of just general disposables as opposed to project work from a contribution standpoint? Just sort of trying to get a feeling for where we are, what inning we are into the expansion of project work.
Bret, I'll try to answer that. I would say that it was more weighted toward the day in and day out needs than it was the project work. We were pleased to see some increased activity on the project work, the overall growth rates were more driven by good, steady demand from ongoing operations.
Okay. Back to my other question. If we look at sort of any perspective or early look at market share shifts, are you seeing anything shaking out as far as recent consolidation? I think a question was asked earlier about increased promotional levels, are you seeing maybe a shift in some of the customers' bias to go with you as a commercial supplier as opposed to other competitors?
I think the best way we could answer that would be to point to our NAPA Auto Care and our major account business. Paul referenced in his comments that we've enjoyed nice growth again this quarter, we've had a number of really good quarters there. I think those results would indicate that there has been a bit of share gain with those customers or share gain by those customers, whichever. I think we're benefiting from that. I don't know if there's any more that Paul might want to add to that.
No, Tom hit on it, Bret. Those two businesses, as we've discussed before, continue to perform well and show no real signs of slowing.
I would think with the kind of growth rates that we've seen, high single-digit out of our NAPA AutoCare Centers this past quarter and low double-digits out of our major accounts. We're very pleased with that performance, our teams really got it going on all cylinders.
Paul, one last question. You mentioned that all regional markets were up and some of the standout strong markets. What were the weaker markets relative, just geographically?
As we've seen a good bit this year, Bret, out West, and certainly, when we always like to talk about weather. Certainly, the drought has impacted, we believe, some of our customers out there, both on the installer side as well as some of our independent owners. That would be absolutely one that would stand out.
All right, great. I appreciate it. Thank you.
Okay, thank you.
Bret.
Question comes from the line of Robert Higginbotham with SunTrust.
Good morning.
Hi, Robert.
Quick first question on auto and imports specifically. Your major competitors have really increased their attention on that piece of the business, and they're doing it in a couple of different ways. A couple of people using the warehouse distributor model and then some cross-sourcing to the legacy stores, if you will. Then one, focusing on developing private labels specifically for imports. You guys really don't talk much about that. Could you give us a sense of how you view that piece of the market, how important you see it, and how you see yourselves attacking that going forward?
Yeah, Robert, this is Paul. I'll give it a shot. I'm assuming you're referring to a couple of our competitors and recent acquisitions. You're right, we don't talk much about the OE import business, but I would tell you that six-plus years ago, we did an acquisition of a company called Altrom, which is an OE-branded provider that we acquired six years ago. They do business both in the U.S. and Canada. We viewed it then, as we view it now, as a very strategic and integral part of our overall automotive business. We've been getting after it for a number of years. I think that what you're seeing with our competitors' recent acquisitions, which I think is a good move on their part, it just further reinforces the opportunities that are in that segment of the business.
Okay, then on Asia Pacific, when you look outside of Australia, in the past, you've somewhat loosely alluded to opportunities outside of Australia and using Australia as a foothold, as a platform for growth in a larger region. Could you give us a sense of what you see in those neighboring markets, specifically automotive in terms of size, competitive fragmentation, what the opportunity is there?
I'll take that one, Robert. First of all, our primary and near-term focus is continuing to build out in Australia and New Zealand, and the team there is doing a really good job for us in that regard, and we continue to see some pretty attractive opportunities in those markets today. At the same time, we're looking at some other markets. I've mentioned that China is not high on our list, although it's a large and rapidly growing market. It's not one that we think is ready for a company like ours yet, or a company like ours is not yet ready for China, either way. There are some other markets, although they're smaller, they're enjoying very attractive growth rates in the vehicle park. When you total up a couple of them, they become fairly significant.
We're in the process of trying to gather as much market intelligence as we can currently, make as many contacts as we can with existing players in those markets, and at some point, it's probable that we'll make a move to start to do business in some of those markets.
Okay, let me sneak one quick one in, hopefully. In the past, you talked about a stronger dollar hurting the export business of some of your customers, and then that, of course, flowing through to softness in your own business. Are you seeing any of that happen now, or are you concerned about that?
Yeah, it continues. The dollar continues to be quite strong vis-à-vis other currencies. That continues to be an issue for those customers of ours, primarily capital goods type customers who are shipping and selling product into some of these other markets. Then you combine that with a general malaise in the global economy, and you've got a combination of maybe a bit softer demand and the higher dollar that causes some compression for some of those customers.
Okay, great. Thank you.
You're welcome. Thank you.
Thanks, Robert.
The next question comes from the line of Matthew Fassler with Goldman Sachs.
Thanks a lot, and good morning.
Morning, Matt.
My first question on office products to change it up a bit and a couple of quick follow-ups on automotive. If you think about the pop that you saw and the underlying growth rate in office supply, and if you could sort of isolate as best you can some of the drivers of that, can you talk about how much maybe layering in the OfficeMax business would be versus you're getting just a bigger share of the pie, given your new deal down at Office Depot? Then finally, what you're seeing in terms of intrinsic demand, which based on what you saw from the independents also seems like it wasn't so bad.
Maybe we'll take them in reverse order, Matt. The demand was actually encouraging
There's been a lot of work going on by our office products team to work with independent owners to help them improve their position in their respective marketplaces, and I think that's a partial contributor to results that we saw. Additionally, we had seen some slowdown in governmental spending as a general statement, and that has a ripple effect on a number of our independent customers, and we saw that improve some over the last two quarters. That's been a contributor as well. As far as looking out a little bit, we're encouraged by what we've seen on the independent side, and the expectation is that it should continue to generate reasonably good growth for us over the next quarter or two for sure. It's hard for us, moving on to the question on the incremental volume from Office Depot and OfficeMax.
It's hard for us to be able to extrapolate that very precisely. I can tell you that the aggregate volume is running very much in line with what we thought it would be and what the Office Depot folks thought it would be. We're very pleased with what we see in the early days, and I think it's a reflection of the combined entities, but it's also, I think, a reflection on some improved demand for the combined entity today, and I think they're doing a pretty good job.
Great. On automotive, kind of a quantitative question. If you could just help us understand the difference between the 4% reported total growth and the 6% comp. Presumably, there would ordinarily be, I guess, store growth, but that might have gone the other way. You have Forex. Anything else that would have driven that delta?
No, you hit on it, Matt. Just to reemphasize the 6% same-store sales number that we mentioned, that's reflective of our U.S. company-owned store base. There is a combination of factors this past quarter that impact the overall number a bit. We had a sales return adjustment that we contended with, as well as a couple of store consolidations. Certainly, as you mentioned, the FX impact as well.
And if we think about-
Matt, excuse me for a minute.
Oh, sorry.
If you aggregate those three things that Paul just mentioned, that pretty much accounts for the delta between the 4.4 increase that we had and the 6% comp store.
Great. Then also on the automotive number, if your aggregate commercial business, I believe you said, was up 6%, if I got that right, and your same-store sales number was up 6%, there were a number of initiatives. You talked about major accounts running double digits and AutoC are running high singles. If we solve for the residual, which I guess would be commercial outside of major accounts and AutoC are, there is some piece of it that must track below 6% for the math to work. Can you talk about, is that just your undesignated commercial business, or is there anything else happening in the business that might be a bit weaker outside of those efforts?
No, you're right. The business that was not highlighted in Paul's comments is running up, but it's running up low single digit. It is the unaccounted for. It's the all other in our commercial business.
Fair enough. Then I promise the last one. Carol, if you could talk about the impact of FX by segment, just whatever the revenue impact was for each segment. I know it was 50 basis points overall, I'm not sure how that was distributed.
Give us a minute on that one.
Yeah, I'll give you just a sec on that.
Okay.
On the automotive, I think Paul already gave you that number.
The industrial, it was a negative 1%. Really no impact on office or electrical to speak of. In total, it was one half of 1% in total.
Guys, thank you so very much.
Thank you, Matt.
Thank you.
The next question comes from the line of Gregory Melich with ISI Group.
Greg, I wanted to first ask about in automotive, if you could just help us understand a bit what's driving the continued double-digit type strength in major accounts. Is there business wins that you've had with new customers, or are the existing customers just doing more business and you're getting more wallet share? Can you help us understand the drivers there?
It's certainly a combination of both. Our teams are executing extremely well in the field, Mike, when you look at the major account business, you mentioned it's continued growth with our existing, plus some wins along the way. When you combine them both, then you combine it with the strong execution in the field, our team continues to do a great job.
Great. I wanted to follow up with Carol, actually, on the other line item, which looks like now it could be $125 million-$130 million versus the prior guide, I had $115 million-$117 million. Can you just help us understand, I guess, incrementally, what the major changes are and anything to be aware of into the fourth quarter there?
Just to be clear, the other net line, which is excluding the interest and the intangible, we gave guidance of $90 million-$95 million for the full year. That's been running about $25 million each quarter, and we're at $74 million year to date. The things that are going in there, you certainly have some increase in some of the costs that we've talked about for some time. Legal and professional insurance, we have some of our corporate, be it shared services, it could be IT, payroll benefits, depreciation on corporate assets. It's pretty consistent quarter-over-quarter. We also have, there'll be some things that are sort of non-recurring or we have some unusual items, like we mentioned, the $4 million retirement benefits adjustment that was unfavorable.
We didn't change it a whole lot, but we are looking at more of a $90 million-$95 million for the full year.
Got it. Thank you. Two last follow-ups. One was on the cash flow guidance, which, by my math, appeared to be about $50 million lower than last quarter. Just hoping to understand the puts and takes there. Lastly was on sort of incremental margins, because you guys ended up putting up certainly stronger growth than I had looked for, at least for this quarter, but yet the margins were kind of flattish in total. Help me, if you could, to understand some of the initiatives you have there to get EBIT margins expanding at the total company level.
Okay. Well, I'll take the cash flow one. You're right, we did probably tweak that a little bit. I would tell you, we had 2 outstanding cash flow years the last 2 years. We feel really good about cash from operations at around $900 million, but we feel good about the numbers. We feel like there's improvement going ahead, but we just felt like it was time to firm that up just a bit. I would say the change is really in the working capital area, kind of a combination of AR and AP. The folks are doing a really good job in inventory, but I think, like I said, we felt like it was time to firm that up a bit. I think on your margin question, again, I would just point to where we kind of are on a year-to-date basis.
I think where we can maintain our SG&A improvement between now and the end of the year, I think you're going to see the segment margins that we have year-to-date, that would basically continue through the end of the year.
Okay, great. Thanks. Good luck.
Thanks. Bye.
Thanks. Bye.
The next question comes from the line of Seth Basham with Wedbush.
Good morning.
Morning, Seth.
My first question's on the auto group. Can you give us a sense of the cadence of comps for the U.S. company-owned stores throughout the quarter?
Yeah. We talked about this in the last call, Seth. If you think back, that was in July. We mentioned that early July, we saw some softer numbers coming out. That started to strengthen in the second half of the month. Our numbers firmed up as the quarter progressed. We're actually pleased with the way the quarter came about.
Remind us, looking forward here for October, November, December, how the cadence of the comps compares for Q4 are?
Maybe I'm not sure I follow that.
Just the comparisons for the months of Q4.
Okay.
Well, we don't give out monthly guidance.
I guess, Tom, another way to ask the question is how much stronger was December relative to October last year? That's when the cold weather started.
Well, December was, if I recall, I don't have it right in front of me, Seth, but if I recall, it was the strongest month of the quarter because we were getting the benefit of some of that cold weather flow through.
Yeah, I would also just mention, Seth, last year, Q4 was when we really saw our business start to come on strong. Our total Q4 last year, we were plus 7% same-store sales.
Right. Okay. Secondly, maybe Carol, you could give us some more color around AR. You talked about it being a focal point. Can you give us a sense of where the increases are coming from, which segment, and what the initiatives are to bring that a little bit more under control?
Well, I would tell you on the AR, it's really across all of the businesses. I think we talked about where we have some of these larger accounts. Associated with some of those larger accounts, they may have slightly different terms. What we're able to do is get those same terms back through our vendors. I think we also have some acquisitions that are also flowing into that. We're trying to integrate the acquisitions in. The thing is, with our accounts receivable, the quality of it is outstanding. We have no concerns there. It's just making sure that we're getting all the AR in line to be slightly less than our sales increase. That's what all of our internal teams are focused on.
Got it. Thank you so much.
All right.
Thank you, Seth.
The next question comes from the line of Scot Ciccarelli with RBC Capital.
Hey, guys. Scot Ciccarelli.
Hey.
Hi. Another auto question as well. How much of a difference did you see in geographies? You mentioned that the West was soft, can you help us understand how soft that was, number one? Number two, you did mention drought conditions. Can you help us better understand, I guess, outside of wipers and such, what else from a product standpoint really struggles under those kinds of conditions?
Scot, I'll take the first stab at that. In terms of the delta, we wouldn't want to quantify that, we would go back to what Paul said, and that is that all of the geographic areas had positive growth for us in the quarter. Some were stronger than others, with the West being on the bottom end of that. In terms of the impact of the drought, you're right about something like wiper blades, it goes a whole lot further than that when you think that California, for instance, is a big agricultural state. The impact that the drought has on the crops there, that impacts not only demand from the agricultural concerns, but it impacts the truckers who haul that product. It impacts the processors who process the product. It has a pretty long tail in terms of how it can influence demand.
A lot of the workers in the ag community may not have quite as much disposable income. It can affect our retail business. It's a significant factor.
Tom, specifically, who are your primary competitors when it comes to stuff like the agricultural products? Is it the right way to think about it just as a long tail that you mentioned because it has just a cascading effect?
I think the right way is the long tail. When we talk about the competition, it's all of the companies that you would know, we're all located in those respective markets. There'll be some specialists as well. For us, for the product that we're selling, the primary competitors would be our peer group, and the companies that you're well aware of.
Got it. Okay. Thanks a lot, guys.
Thank you.
Thanks, Scot.
Our question comes from the line of Mario Gabelli with Gabelli and Company .
Yeah, I have to ask the question, you and Paul and Tom. Paul, when you sit down with Tom and he says to you his experience in Europe, what structurally does he remind you about that he had as a problem that you won't encounter in Southeast Asia, either political rigidity of labor or just the notion of only traveling eight hours versus 24?
You know what, Mario? I think I better let him answer that question. I'm staying clear of that one.
That one's upward delegation right there, Mario. The structural, if what you're getting at was my comment about.
Yeah, Tom, that was about 35 years ago, wasn't it?
In terms of our business over there, it's performing really well. We will in fact, expand it outside of those countries at once.
What happened in Europe that says, I don't want to go back as a high price.
In Europe, what we saw, was we had our doubts about how long it would take for the common market, or the EU, to actually come into being. Number two, how successful would it be over the long term? We didn't have any insight beyond anybody else's, but I think current situation might suggest that we were asking appropriate questions back then. Back then, you didn't have the common currency that you have today, but you've got different languages, you've got different rules of law, you've got different methods of approaching the business. Our feeling at the time was that we would continue to be successful, but it was going to be a much tougher slog than what we were accustomed to. Keep in mind also that we had just acquired S.P.
Richards and Motion Industries, we had been approached by someone who wanted to buy our business, we felt we could repatriate the money and invest it in S.P. Richards and in Motion and do a better job for the shareholder. I think that has proven to be the case for the most part.
Well, the conclusion we agree with, it's been a fantastic 35 years since you got out of Europe. Thank you very much.
Thank you, Mario.
Thank you.
I will now turn today's conference call back to management for closing remarks.
We want to thank everybody for participation on the call, and we thank you for your interest in and support of Genuine Parts Company. We look forward to reporting out in February on our fourth quarter earnings. Thank you.
Thank you. This will conclude today's conference call. You may now disconnect your lines.