Good morning. My name is Jennifer, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Genuine Parts Company third quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you'd like to withdraw your question, press the pound key. If you should need assistance during the call, please press star then zero for operator assistance. Thank you. I'll now like to turn the call over to Mr. Sid Jones, Vice President of Investor Relations. Please go ahead.
Thank you. Good morning, and thank you for joining us today for the Genuine Parts third quarter 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. 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've 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, and 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 $3,685,000,000, and this was up 9% over the prior year.
Net income was $173.7 million, which was up 1%, and our earnings per share were $1.12 this year compared to $1.11 last year, which is also a 1% increase. We will get into the segment detail in a moment, but as a general statement, we would say that the third quarter proved to be challenging for us, more so in our non-automotive businesses than the automotive segment. As you will hear from Paul in a few moments, the automotive operations performed reasonably well for us, and they showed good sequential trends in a number of key areas, and automotive continues to make solid progress. However, the same cannot be said about the non-automotive businesses, and this is where we came up short of our expectations in the quarter. Just to point out the contrast, automotive revenues in the quarter were up 22% and operating profit was up 20%.
Non-automotive revenues were down 3% and operating profit was down 13%. Clearly, our expectations were for a bit stronger performance from the non-automotive group in the quarter. Unfortunately, we saw a deceleration in demand patterns across each of these businesses as the quarter progressed, this weighed heavily both on our revenue and operating profit results. The industrial segment is our largest non-automotive business, they had a 3% sales decrease in the quarter. After showing modest sequential improvement in Q2, we regressed somewhat over the past three months. In looking at the various customer categories, we see uneven levels of demand across the customer base. Key customers in segments like food products, automotive, and lumber and wood products, among others, continue to grow. Customers in segments like equipment and machinery are finding it more challenging.
Equipment and machinery is our largest industry group, a number of customers in this group have been impacted by the slowdown in the oil and gas and mining and resource industries, both domestically and globally. While a near-term pickup in the oil and gas and mining and resource industries is not anticipated, we do anniversary the year-long slowdown that we have seen from each of these industries, and we see that anniversary in the fourth quarter, which will somewhat reduce the headwinds that we've encountered over the past 12 months in these two specific sectors. That, combined with the steady performance from some of the other customer segments, should put us in a position to show a gradually improving revenue picture in the quarters ahead. Moving to the electrical segment, we had another challenging quarter here as well, with sales coming in 5% below last year.
We see some of the same disparity among industry segments as we've experienced in our industrial segment. Customers tied to the transportation and housing segments are showing growth, as are the contract manufacturers to the electronics industry. These increases are being offset by decreases with customers in the coal and mining, alternative energy, and defense contract segments, with the latter primarily due to sequestration. However, while early, it appears that our business with the alternative energy and defense contractors is starting to stabilize and should not be as much of a headwind in the coming months. Additionally, we expect to close on a small electrical acquisition at month-end, which should add an additional $10 million-$12 million to our revenue over the final two months.
All of which should enable the electrical group to end the year with a more positive fourth quarter and position us for improved results in 2014. Moving on to office products. This group ended the quarter down 3%. As with several of the other businesses, we saw more pronounced deceleration late in the quarter. From a product perspective, both the cleaning and break room supplies and furniture categories showed positive growth in the quarter, these increases were offset by decreases in the technology and office supplies categories. From a customer perspective, our national account business was up low single digits in the quarter, while our independent reseller customers were down low single digits. Both the product category and customer segment results for the quarter follow a similar pattern on a year-to-date basis as well.
It's been a challenging year thus far for our Office Products team, unfortunately, we don't see any material changes in the external environment in the near term. As a result, the main areas of focus for our Office Products group are share of wallet and market share initiatives, both for our customers and ourselves, as well as continued work on product and customer diversification. Of all of our businesses, Office Products has the furthest to go to get back on positive footing, and our sense is that it's going to take a little longer than Industrial and Electrical to come back around. That's an overview of the non-automotive segments, and Paul will now cover the automotive operations. Paul?
Thank you, Tom. I'd like to add my welcome to each of you this morning. I'm pleased to join Tom and Carol to have an opportunity to provide you an update on the third quarter performance of our global automotive business. As was mentioned in last quarter's conference call, we are now including in our automotive recap the results from GPC Asia Pacific, which was consolidated into our results on April 1st. This business continues to perform as expected throughout Australia and New Zealand, we are encouraged with the progress we have seen thus far. As Tom mentioned in his opening remarks, we are pleased to report that our overall global automotive business grew top-line revenues by 22% in the third quarter. Let's move on to our North American automotive business.
Our team delivered a 5.3% sales increase in the third quarter, consisting of core growth of approximately 4.5%, which is in line with our second quarter performance. This 4.5% increase was offset approximately 1% due to the impact from foreign currency, primarily related to our Canadian operations. On the plus side, we had the benefit of one additional billing day in the quarter, which contributed approximately 1.5% to sales. We would also mention that as we look at our sales results across the regions of the U.S., we are encouraged to see that all are positively contributing to our sales growth, with our Eastern Division performing exceptionally well. Within our U.S. company-owned store group, comparable same-store sales growth in the third quarter came in at +4.3%. After a challenging first quarter, we have now rung up consecutive quarters of better than 4% comp store sales growth.
This performance was driven by a strong 7.9% overall sales increase in the quarter, or 6.1% on a per-day basis in our commercial and wholesale side of the business. Diving deeper into our commercial results, our non-fleet related business turned in another strong quarter, generating a 9.7% increase, or 8% on an adjusted basis. This segment was supported by double-digit sales growth among our major account customers and high-single-digit growth from our 15,000-plus NAPA Auto Care Centers. Our fleet business held steady at 5.1% growth, 3.4% on an adjusted basis in the quarter, which is consistent with our performance in Q2. Our wholesale average ticket value increased low-single-digit, and our average number of tickets was up mid-single-digit in this segment of our business. We are encouraged by both of these sales trends.
Turning to our retail business, we experienced a slowdown in this segment during the quarter and ended with sales down 1.8%, or 3.3% on a same-day basis. The month of September was especially soft. We believe this is consistent with many other retailers' lackluster September store sales. Implementation of the Affordable Care Act and the first government shutdown in 17 years certainly impacted consumers' willingness to spend. That said, we were pleased to see our average retail dollar invoice trending up slightly for the quarter. However, this positive trend was offset by a slowdown in foot traffic and a slight reduction in our average number of invoices. We will continue to drive this strategically important segment of our business with a number of ongoing sales initiatives. From a product category standpoint, we continue to see strong sales in our electrical category, primarily driven by our NAPA battery business.
Our electrical business has been a key contributor in 2013, generating just shy of a double-digit increase. An additional positive product trend is our improved sales in our all-important brake business. This is significant as we experienced slowing in this critical category back in 2012 and only began to see a modest recovery in the first quarter of 2013. Back-to-back strong sales quarters in our brake business confirms our team's efforts are succeeding in getting this business back on track. One last mention on the product front is a comment about our seasonal air conditioning business. Milder summer temps in some parts of the country led to a downturn in our AC business for this past quarter. In summary, we are pleased to see both our North American, Australasian automotive operations report another quarter of solid results.
We remain positive about the core fundamentals of the automotive aftermarket and the growth opportunities available to us in both the retail and commercial sectors. Many of the key metrics remain positive. Total miles driven is tracking positive for the year. Fuel prices remain steady, and the average age of vehicles on the road remains in excess of 11 years. Our management team remains committed to driving profitable growth in the fourth quarter, and we are optimistic we'll continue this growth into 2014. We'd like to personally thank all of our associates, both at NAPA North America and at GPC Asia Pacific and Australia and New Zealand, for their strong efforts in the third quarter. That completes our overview of the automotive business. At this time, I'll hand it over to Carol to get us started with our review of the financial results. Carol?
Thank you, Paul. We'll get started with a review of our third quarter and nine-month income statements and the segment information, then we will review a few key balance sheet and other financial items. Tom will come back and wrap it up, then we'll open the call up to your questions. As we turn to the income statement, we want to reiterate that our September 30th, third quarter, and year-to-date consolidated results referenced in our commentary include GPC Asia Pacific acquired April 1st. With that said, total sales of a record high of $3.7 billion for the third quarter, an increase of 9% from last year, as Tom mentioned. For the nine months, our total sales of $10.6 billion, up 7% from 2012.
Before the impact of the GPC Asia Pacific acquisition, total sales are up 1% for both the third quarter and year-to-date, reflecting the difficult conditions in our non-automotive businesses. Our gross profit for the third quarter was 29.9% of sales, up 100 basis points from 28.9% last year. For the nine months, our gross margin of 29.6% is up from the 29.0% for the same period last year, or an increase of 60 basis points. Our improvement in gross margin can be attributed to the favorable impact of higher gross margins in our Australasian business, which owns 100% of its stores. This benefit was partially offset by a slight decrease in our core North American gross margins in the third quarter, primarily related to our industrial business and, to a lesser degree, our automotive business.
In addition, in association with the GPC Asia Pacific acquisition, we recorded a $3 million expense to cost of sales in the quarter as the final piece of a purchase accounting adjustment related to the Australasian inventory write-up to fair value. The original $18 million adjustment was recorded in the second quarter for a total year-to-date impact of $21 million. As an additional point of interest, we continue to see very little inflation in our businesses. Our year-to-date 2013 cumulative pricing is down two-tenths of 1% in automotive, up 0.9% for industrial, up 0.5% for office products, and up 0.8% for electrical. Turning to our SG&A, our total expenses were $829 million for the third quarter, up 18% from 2012 and at 22.5% of sales. For the nine months in 2013, our total SG&A expenses are $2.3 billion, or up 10%, and at 22.0% of sales.
Our SG&A expenses as a percentage of sales are up 160 and 80 basis points for the quarter and the nine months respectively. This primarily reflects the impact of higher SG&A expenses at GPC Asia Pacific, again, due to their 100% owned store model. We've also seen a decrease in our leverage associated with our non-automotive businesses. Year-to-date, our SG&A includes the positive one-time pre-tax adjustment of $54 million, net of expenses, associated with the revaluation of our original 30% investment in GPC Asia Pacific that was required on April 1st. Excluding this adjustment, our SG&A for the nine months as a percentage of sales was 22.5%. We continue to focus on effective cost management in every area of our business.
A few notable cost control measures include ongoing investments in technology, which has positively impacted our operating efficiencies in our distribution centers and stores, as well as supply chain initiatives in areas such as freight and logistics. Turning to the segment results. Our automotive revenue for the third quarter was $2.02 billion and represents 55% of sales and is up 22.1%. Our operating profit of $180.2 million is up 19.6%, and their margin is down 20 basis points from last year to 8.9%. This relates to some slight gross margin pressure in our North American operations, which in part can be attributed to the lack of pricing, which we mentioned earlier. For the nine months, our automotive sales were $5.57 billion, representing 52% of total revenue and up 16.4%.
Our operating profit of $487.6 million is up 16.6%. The margin is up 10 basis points to 8.8% from 8.7% last year, which is a very good job. The industrial group had sales of $1.11 billion in the quarter. This is 30% of our total revenue and a decrease of 2.5%. Our operating profit of $79.6 million is down 15.9%. We saw the industrial margin decrease to 7.2% from 8.3%. Through September, industrial sales of $3.34 billion, which is 32% of our revenues, are down 1.6%. Our operating profit of $247.4 million is down 9.7%. Their margin is down 70 basis points to 7.4% from 8.1% last year.
We attribute the margin declines for the quarter and the nine months to a decrease in volume incentives associated with lower purchasing volumes with our suppliers, general gross margin pressures in a weak demand environment, and the loss of leverage on a lower sales volume. Moving on to office products, we had revenues of $430.5 million, which is 11% of our total sales and down 3.1% for the quarter. Our operating profit of $28.1 million is down 6.2%. Their margin is down 20 basis points to 6.5% from 6.7%. Year-to-date, office sales of $1.25 billion represent 12% of our total revenue and are down 2.4%. Our operating profit of $91.1 million is down 7.2%. Their margin is 7.3% versus 7.6% last year or down 30 basis points.
For the quarter and the nine months, this margin decline is due to the loss of leverage on the lower sales volume. Our electrical group had sales in the quarter of $142.8 million. That's 4% of total revenue and down 5.3%. Our operating profit of $12.6 million is down 6.9%. Their margin came down to 8.8% from 9.0%, but that's still a very strong margin. For the year, electrical sales were $425 million, which represents 4% of our total revenue and down 5%. Our operating profit of $35.3 million is down 8.2%. Their margin is down 30 basis points to 8.3% from 8.6%. As with the industrial and office businesses, the decline in margin for electrical for the quarter and the nine months is primarily a function of the loss of leverage on the lower sales volumes for these periods.
Our total operating profit was up 4% in the third quarter. Our operating profit margin decreased 40 basis points to 8.2%. For the nine months, our total operating margin held steady with the second quarter at 8.2%. It's down from the 8.4% for the same period in 2012. The decline in our operating margins thus far in 2013 continues to reflect the impact of weak sales conditions in our non-automotive businesses. We would add that the operating margin at GPC Asia Pacific remains in line with our core automotive businesses as we expected. We remain committed to expanding our operating margin in the periods ahead through some of our ongoing initiatives. We had net interest expense of $7 million in the third quarter. Year-to-date, our interest expense is $18.2 million.
Interest is up from 2012 due to an increase in the total debt. Based on our current projections, we would expect net interest expense of approximately $25 million-$26 million for the full year. This is slightly improved from our prior guidance of $26 million-$28 million. Our total amortization expense was $7.7 million for the third quarter and $20.5 million for the nine months. This is up from 2012 due to the Quaker City acquisition in May of last year and April's acquisition of GPC Asia Pacific. We currently expect amortization to be in the $29 million range for the full year, which is down slightly from our previous projection. The other line, which reflects corporate expense, was a $14 million expense for both the third quarter and the nine months.
This line also includes the net impact of the purchase accounting adjustments discussed earlier in association with gross profit and SG&A. In summary, this amounted to a $36 million favorable adjustment in the second quarter and a $3 million expense in the third quarter. We currently project this line to be approximately $30 million in expense for the full year. For the quarter, our tax rate was approximately 36.1% compared to 36.3% last year. For the nine months, our 33.9% rate compares to the 36.4% rate for the prior year. That current rate reflects the favorable impact of lower Australian tax rate applied to GPC Asia Pacific's pretax earnings. In addition, the improvement in the year-to-date rate also reflects the favorable tax rate on the second quarter gain that was associated with the remeasurement of our Australasian investment.
We expect our tax rate in the fourth quarter to approximate 36.0%-36.5% for an annual rate of 34.5%-35.0% for 2013. Our net income for the quarter of $173.7 million was up slightly and EPS at $1.12 compared to $1.11 last year was up 1%. For the year through September, our net income of $534.5 million is up 10%, and our EPS of $3.43 compared to the $3.11 for 2012 was also up 10%. We'll move on to the balance sheet. Cash at September 30th was $321 million, which was down from the $400 million at December 30th last year and December 31, 2012. We're pleased with our current cash position and continue to generate strong cash flows as a result of our increase in earnings, our effective working capital, and asset management, as well as cost containment measures.
Our accounts receivable of $1.8 billion at September 30th increased 9.5% from the same period in 2012 on a 9% sales increase for the quarter. We have a little work to do in this area, and we remain very focused on meeting this goal in the periods ahead. We are very satisfied with the quality of our receivables at this time. Our inventory at quarter end was $2.8 billion, which is up 12% from September 30th of 2012, primarily due to the GPC Asia Pacific inventory added at the start of the second quarter. Excluding the impact of Australasia, our inventory is up just 1% from last year and down 2% from December 31st.
Our team is doing a very good job of managing our inventory levels, and we remain very focused on maintaining this key investment at the appropriate levels as we move into the final period of 2013. Our accounts payable balance at September 30th was $2.2 billion, up 26% from September 30th of last year. Excluding the impact of GPC Asia Pacific, our payables were up 18%. Our ongoing growth in trade payables reflects the positive impact of our extended payment terms and other payables initiatives established with our vendors. We're very encouraged with our improvement in this area and its positive impact on our working capital and days in payables. We expect this trend to continue in the periods ahead. Our working capital of $1.8 billion at September 30th is down approximately 26% from September of 2012, primarily due to the increase in current debt in 2013.
Excluding our current debt, working capital is down approximately 5% from last year. 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 tremendous improvement in our working capital position and cash flows. Our balance sheet remains in excellent condition at September 30th of 2013. Our total debt of $834 million at September 30th includes two $250 million term notes, which we've carried for some time now, as well as another $334 million in borrowings under our multi-currency syndicated credit facility agreement. This adds to total debt to total capitalization of approximately 21% at September 30th, which is down slightly from the 23% at June 30th, while up from the 14% at September 30th the prior year.
We're comfortable with our capital structure at this time, and we currently expect total debt to approximate $850 million at December 31st, 2013. We should add here that as we mentioned in our last call, we plan to renew the $250 million term note that's due November 30th of 2013. Under this plan, we will extend this debt for 10 years at a 2.99% fixed interest rate, thus replacing the 4.67% fixed interest rate on the current note with more favorable terms. We expect the renewal to become effective on November 30th of 2013. As we stated earlier, we continue to generate solid cash flows and expect another very strong year in 2013. For the nine months through September, our cash from operations was approximately $837 million, and for the full year, we currently project cash from operations to approximate $900 million.
Likewise, we expect free cash flow, which deducts capital expenditures and dividends, to be in the $450 million-$500 million range. The continued strength of our cash flows is encouraging, and we remain committed to several ongoing priorities for the use of our cash, which we believe serves to maximize shareholder value. Our first priority for the cash is the dividend, which we've paid every year since going public in 1948 and have now raised for 57 consecutive years. This is a record that continues to distinguish Genuine Parts from other companies. Our annual dividend of $2.15 per share for 2013 represents a 9% increase from the $1.98 per share paid in 2012, and it's approximately 52% of our 2012 earnings per share, which is well within our goal of a 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 $33.3 million for the third quarter, up from $20.3 million in 2012. For the nine months, our capital spending totaled $84.1 million, an increase from the $71.6 million for the nine months in 2012. We expect our capital expenditures for the full year to be in the range of $130 million-$140 million. That's an increase from the $102 million in the prior year due to the addition of GPC Asia Pacific, as well as some anticipated expenditures for our North American businesses. The vast majority of our investments will continue to be weighted towards productivity-enhancing projects, primarily in technology.
Our depreciation and amortization was $35.2 million in the quarter, which is up from the $25.6 million for the third quarter in 2012. For the year, depreciation and amortization is $98.1 million compared to the $73.3 million for the same period in 2012. The increase on this line reflects the impact of GPC Asia Pacific, as well as the amortization expense related to Asia Pacific and Quaker City. We currently expect depreciation and amortization for the full year to be $130 million-$140 million. Strategic acquisitions continue to be an ongoing and important use of our cash for us. They're integral to the growth plans for our company. We remain excited about the growth opportunities we see at GPC Asia Pacific. We continue to seek new acquisitions across our businesses to further enhance our prospects for future growth.
In fact, our current pipeline of potential acquisitions is building somewhat today. We would expect to have more to report in this area over the next several periods. Generally, our primary targets are those bolt-on types of acquisitions with annual revenues in the $25 million-$125 million range. Finally, we have been active in the company's share repurchase program since 1994. Thus far in 2013, we've purchased approximately 900,000 shares. We have another 11.3 million shares authorized and available for repurchase today. We have no set pattern for these purchases. We would expect to be active in the program in the quarters 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 is our financial update. In closing, we want to thank all of our GPC associates, including our friends in Australia and New Zealand, for all that they do every day for Genuine Parts Company. In these challenging times, our team works even harder to execute on our growth strategy, our working capital, and our cost-saving initiatives to help position the company for growth. 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. That recaps our third quarter results, and as we said at the outset, it proved to be a challenging quarter for us in many ways, especially so for our non-automotive operations. As Paul mentioned in his remarks, automotive came through the quarter in pretty good shape with overall sales growth of 22%, core NAPA growth without acquisitions of 5.3%, and this was led by a solid same-store sales growth of 4.3%, high single-digit growth in our NAPA Auto Care business and low double-digit growth in our major account business. Our expectation is for another solid quarter from automotive in Q4. As Carol covered, we continue to make progress in the areas of cash generation and working capital efficiency, with further improvements anticipated in the months ahead.
Where we really came up short, both on the revenue and operating side, was in our non-automotive businesses. As we look ahead to the full year, we find that our revenue outlook today is quite different from our thinking back in July when we last updated our guidance. Today, we see our total sales picture down approximately $250 million-$300 million from our July guidance, with the majority of this decrease coming from our non-automotive businesses. In the July timeframe, we remained hopeful for an economic recovery over the second half of the year. This simply has not happened in the non-automotive segments. At least from our perspective, the industrial recovery has been pushed out into 2014.
At this time, we're not expecting any help from the economy in the fourth quarter, and we currently estimate a total GPC sales increase of 7% for the full year, which is down from our previous guidance of 9%-10%. As mentioned, the lower revenue guidance primarily relates to the more difficult sales environment in our non-automotive segments. Our current expectation is for sales in our automotive segment to increase by approximately 18%-19% for the full year, including the sales contribution from GPC Asia Pacific. Without this acquisition volume, we expect our automotive sales to increase in the 5% range for all of 2013, consistent with where we find ourselves now. Turning to the other businesses, we currently project industrial sales for the full year to be down -1% to -2%, which is a reduction from our prior guidance of +1% to +3%.
Our current expectation is for the electrical and electronics segment to be down -2% to -3% for the full year, which is lower from our previous guidance of flat to +2%. Office products is currently projected to be down -2% to -3% for the year, lower from our prior guidance of -1% to +1%. This lower sales projection, combined with our third-quarter results, have impacted our earnings estimates for 2013 as well by approximately $0.20-$0.25. As a result, we currently expect our EPS for the full year to be in the $4.30-$4.35 range, which is down from our previous full year guidance of $4.50-$4.60. That will summarize our outlook at this point, and certainly, we're disappointed in the continued sluggishness in our non-automotive segments.
We are encouraged by the continued solid performance in automotive, however, we think that we are starting to see a few encouraging signs in industrial and electrical. The underlying fundamentals in each of these businesses remains generally favorable. Although we find ourselves in a soft period right now in these businesses, we've been through times like these in the past. Our folks know what needs to be done, and we look forward to giving you an update on our progress on the next call. At this point, we'd like to open the call up to your questions. We'll turn the call back over to Jennifer. Jennifer.
At this time, if you'd like to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from John Lovallo of Bank of America.
Hey, guys. Thanks for taking the call.
Morning, John.
Morning, John.
First question, Carol, would be on just how we should think about normalized incremental operating margins going forward. I understand what's the pressure on SG&A right now with the non-auto, but I'm just wondering, has the model changed given the consolidation of the auto APAC business?
No. On our automotive margins, the core business and GPC Asia Pacific really have similar margins. The Asia Pacific margins are not dragging us down the automotive sector. I think what we mentioned is we had some gross margin pressures in the North American operations and really just a lack of pricing and some other gross margin pressures. Our long-term outlook for margins is still to have 10-20 basis point improvement in each of our businesses with margins. Now, where we struggle with that is if we don't have some strong top-line growth. If you look at our year-to-date automotive margins, they're still up 10 basis points, and that's where we were through the six months. We really hope that we can hold there through the end of the year and look towards, in the future, having more improvement than that.
Okay, that's helpful. Tom, how are you guys thinking about the Advance Auto Parts recent acquisition of General Parts? How is that going to affect the competitive landscape in your view?
I think we'd start by saying, this is very recent news. It's only a few days old. As we think about it, in the past, we've had two really good competitors in Advance and in Carquest. I think we would compliment both management teams on arriving at this point. As we go forward, in those markets where we competed both against an Advance store and a Carquest store, it appears that we'll be competing against one competitor and not two, albeit one larger and one strong competitor. It's very early in the days in terms of how we think it's going to affect things. One thing that does appear evident is that we're going to have four players at the very top of the pyramid that are going to be significantly larger than those players positioned five and on down.
I don't know how that plays out over time, but it could lead to some additional consolidation as we go forward. Hopefully, we'll be able to participate in that as we see the opportunities arise.
Great. Thanks very much, guys.
Thank you.
Thank you.
Your next question comes from Matthew Fassler with Goldman Sachs.
Good morning to you.
Good morning, Matt.
Good morning, Matt.
The first question I'd like to ask relates to the government shutdown more broadly. Obviously, you saw your business trail off in a number of sectors late in September, there were some extraordinary circumstances presumably associated with that. At least for the moment, those drivers came to some resolution a day or two ago. It was interesting that you did not call out government-linked businesses as the central drivers of the slowdown. There are other industries that seem to be behind it. To what degree do you think this was a factor as you spoke to your customers? It's probably way too early to say, have you seen any kind of thaw, but how would you expect that to play out going forward?
Matt, we'll try to take the first part of it did impact some of the demand in the quarter. I think we saw some of that in our electrical business, for instance, where we deal with defense contractors, they continue to have some issues in terms of bills. Certainly, we saw it in the office products business indirectly where we sell to customers who sell into the governmental agencies. We saw that demand drop off somewhat. As far as what happens now that we have at least a temporary resolution, it is too early to tell, we'll just have to wait and see how it develops over the next couple of weeks.
Understood. Secondly, within automotive, your commercial sales numbers were quite strong, presumably, they would imply some market share gains. I guess I'd appreciate Paul's perspective on what you think your market share trends were in each of the commercial and DIY pieces of automotive.
Well, Matt, specifically on the commercial side, you are referencing both our major account business and our NAPA Auto Care business, and we did have really good quarters with both businesses. I do not think their businesses overall are growing quite at the rates that we are, so one would have to assume we are taking a bit of share. We also picked up a new customer, a new major account, some new major account business in the quarter that we had not enjoyed before. That will add about 600 stores for us on a go-forward basis. We are very pleased with that win. On the DIY side, Matt, we were going along pretty good in July and August and really saw a slowdown in September.
Back to your question about the impact of the government shutdown, it is difficult to say directly that that had an impact, you got to believe consumers clammed up in those last couple of weeks in September because the fall off in the last week was fairly significant.
Was there any regionality to the slowdown that you saw in September? I know that this industry had gone through moments of real regional volatility in 2012. Any signs of that here in this most recent episode?
No, not really, Matt. As I think I mentioned in my comments, this year, unlike last year, we are seeing growth across every division of the country. I think I pointed out the northeastern part of the U.S., we are seeing stronger growth, across the U.S., we are seeing single-digit increases across every division.
The last quick question I have, you mentioned M&A, and it sounded like bolt-ons more than anything else. Of course, with the Advance Carquest deal, one wonders if you're kind of inspired to look at bigger deals. I don't know if there's much left in automotive Of size. Are you thinking now about perhaps a larger size transaction than you would have done in the U.S., or are we still talking primarily smaller deals?
I think that we'd have to wait to see what opportunities present themselves, but we're very much open to strategic acquisitions that benefit the GPC shareholders regardless of size. We'll look at any opportunity that may come forward.
Okay. Thank you, guys. I appreciate it.
Hey, Matt, one other point I'd want to make. Paul mentioned the major account win that we had, and just to be clear, that really had minimal impact in the quarter. That's something that we think will help us to have some incremental growth in Q4 and then on through next year. That's still very early in its evolution.
Understood. Thank you.
All right. Thank you.
Your next question comes from Gregory Melich with ISI Group.
I want to follow up on the auto margins, especially how they seem to inflect downward this quarter. Is the $3 million hit, that gets about 15 basis points, so that really the margins may have been flattish. As Thomas mentioned, pricing, is there an inability to pass through some price increases, or is it that competition has actually taken price down to hit margin?
Let me just clarify this. The $3 million inventory adjustment is in the other net line, consistent with how we did it second quarter. The purchase accounting adjustments have been pulled out of the automotive margins that you see. That's not in the 8.9. My reference really wasn't an inability to pass along price increases. There's just no pricing in the environment. It's just some downward pressure on gross margin. Again, we're kind of pointing back to the nine-month numbers and saying we're still in pretty good shape year to date. It's not anything specific. It's just a little bit of gross margin pressures. It's North America. It's a bit Canada as well as the U.S.
With DIY having sort of weakened sequentially, or is the do it for me side holding up, would mix have been a reasonable part of that?
Absolutely. Yes, absolutely.
Second, on the industrial business, Tom, thank you for the updates on the guidance and sort of how it played out differently than you thought. One thing we've noticed, it seems like a lot of the traditional metrics that lead your industrial business, like industrial production, have actually been better than the results have actually been. Do you think there's something going on? There seems to us at least be a disconnect. Do you see that, or do you think there's something wrong with the traditional metrics that just don't matter as much anymore for some reason?
Greg, I'm going to try to answer it in a couple of different ways. First of all, if we look at our industrial business, we've got segments that are performing fine and reacting as you would expect them historically to some of the leading indicators. I called out automotive, food processing, lumber and wood products as three examples. We have other segments that are not reacting as they might have historically, and there are more specific issues, whether it be in oil and gas or mining and resource. They're being impacted both by the slowdown in the U.S. as well as the global market. Any of those companies that might have been producing for export, their export business is under pressure because of what's happening globally. That would be one thing.
The other thing is in looking at the indices, at least three of the ones that we follow, there seems to be some inconsistency there as well. If you look at the ISM Purchasing Managers Index, it is fairly strong right now and certainly nicely up on where it was this time last year. If you look at industrial production and capacity utilization, you see a slightly different story in that if we compare industrial production for Q2 to industrial production Q2 last year, it's up 1%, much less than what the PMI is up quarter-over-quarter. If we look at capacity utilization Q2 this year to Q2 last year, while it's still at a historically reasonable level in Q2 this year, it's actually down about 1% over where it was this time last year. We see a lot of inconsistency within the numbers.
We haven't yet concluded that there's any structural change. We think that over time, all of this will start to even out a bit. We think that the fundamentals in the business are still favorable as we go forward, and we're optimistic that as we cycle through some of this, that we'll get to more historical type performance in these businesses. Maybe just to add a little color to what I mentioned earlier. If we look at the impact of what happened to us in those specific original equipment manufacturing sectors that I called out, that cost us 3% in year-to-date revenue growth. That's how impactful it was. The good news is that we've now anniversaried that, and while we don't see those segments snapping back quickly, we certainly don't see the same headwind that we faced over the past 4 quarters.
If we go over to the electrical business, if we look at what's happened there. Largely because of some slowdown in the defense contractor segment, that's cost us about 2% on a year-to-date basis. Again, we don't expect that to come back significantly in the near term, but at the same time, we don't expect it to erode the way that it had thus far this year. Those two things in particular have impacted those two businesses, if that helps with any color.
That helps a lot, Tom. If I could, lastly, just on Office, the fact that the sales are falling, but the margins are holding pretty steady, just down a little bit. What's the real strategy there, especially with consolidation also appearing to take hold in the office product space?
It's largely helping our customers grow their business, if we can help them enhance their share of wallet or their market share through different initiatives, then that, in turn, will benefit us. Then we need to continue down the path of some diversification, both on the product side as well as on the customer portfolio side. We're working pretty diligently in both of those areas, we made some progress in each case, but we still have a bit more to do in both areas. That's the strategy right now. Right now, this is the business that's most challenged, we don't think that there are as many early signs of encouragement for this business yet. At some point, it'll revert closer to the norm, even with the structural change from a product standpoint, with paper-based product in secular decline.
Eventually, this business is going to come back, in the meantime, it generates a lot of cash, gives us a good operating margin, gives us time to continue to rebalance the business a bit.
Great. Thanks a lot.
Thank you.
Thank you.
Your next question comes from David Guggina with Morgan Stanley.
Good morning, guys. Thanks for taking the question.
Hi, David.
Hi.
Just wanted to touch back on the Advance GPI acquisition, and more specifically on the independent stores at Carquest. I was wondering how you think about that base of stores and that base of owners as they're going through what's obviously going to be a big change. Would you be interested in expanding the store count by trying to attract some of those independents? I don't know if you've done any work in terms of store overlap or anything, but is that a base that might be attractive?
Well, as a general statement, David, part of our growth strategy is to increase the store count year-over-year 1%-2% at a minimum. We'll hit the low end of that this year, which we're proud of. If we have an opportunity to do it more rapidly because of whatever circumstance, certainly, we're interested in doing that. The one thing I would say is that it appears right now that NAPA may be the only national organization that still has a strong commitment to the independent ownership, and we'll continue to do everything we can to build on that base and to support the independent owner base as we go forward. I'd also say we've done enough acquisitions over time to have learned that in any acquisition, certainly there are some operating synergies that can be affected.
At least in our case, there have been very few, if any, acquisitions where we were able to retain all of the revenue. We've seen a number of reasons why at least a portion of your revenue may be prone to a little bit of slippage. If that happens in this particular case, then we hope we're in a position to perhaps pick up a little of that. It's way too early for us to say categorically we know how it's going to work out. We'll continue to follow it with a great deal of interest, and hopefully, there's some positive in it for us as well.
That's helpful. I just wanted to go back to the inflation issue again. It sounds like that has clearly decelerated this year. I think last quarter, you mentioned that what you were seeing is, broadly speaking, competition was kind of keeping a lid on inflation. Is that still the case, or is there anything else that's going on in terms of the inflation dynamics?
No, I think that's generally the case. I would also say that we don't see any evidence of predatory pricing or price wars going on. We've been through periods like that at times in the past, but that's not a situation today. Input costs have gone down for vendors in more recent times, that also has mitigated their need for some price increases.
Gotcha. Thank you.
Thank you.
Your next question comes from Scot Ciccarelli with RBC Capital Markets.
Hey, guys. Scot Ciccarelli.
Morning, Scot.
I know maybe it's difficult to answer because it's hard to know what competitors might do. Tom, you just talked about you really haven't seen anything on the irrational front in terms of pricing, et cetera. Do you think Advance buying Carquest/Worldpac changes that dynamic at all going forward?
I don't have any reason to think that today. We'll have to wait and see. The nice thing about the larger competitors is that we're all publicly traded, and we've all got the need to report our numbers, and I think that leads to some rationalism, or at least a degree of rationalism, among each of these companies. I don't know that we'll see that. If we do, we'll just have to respond accordingly. We're not going to donate share after working so hard to gain share. We'll continue to work our strategies and our initiatives, both sell side and buy side.
Understood. Can I just clarify, you've talked about some of the things that should ease in the fourth quarter. Obviously, the government shutdown, hopefully at least a temporary reprieve there. Also, the 3% that you referenced in terms of now anniversarying some of the declines that we'd seen previously. You also talked about trends decelerating through the third quarter on the non-auto side. I'm just wondering, is there something else that makes you feel a little bit better about the fourth quarter, or is it really just those two factors?
Well, there are those two factors for sure. I mentioned that we had a small acquisition that we're going to do at month end for the electrical group. We have one or two others that we hope to add into the industrial/electrical segments between now and year end, which I think will help a little bit and set us up for a little improvement as we go into next year. Don't forget, our comps get easier in Q4. We had some difficult comps last year. The comps in and of themselves are a little bit easier as we work our way toward year end.
Got it. No real change in pace of business, easier comparisons, throw a couple of acquisitions in there as well as the other things.
I think that's right, Scot.
Okay. Got it. All right. Thanks, guys.
Thank you.
Our next question comes from Bret Jordan with BB&T Capital Markets.
Good morning.
Morning, Bret.
A couple of quick questions, and one of them, I guess the North American pricing looks pretty stagnant. How's Exego pricing looking? Could maybe give us a little bit more color on how we look on the Australian business and maybe you didn't own all of it a year ago, but sort of what the growth trends have looked like down there.
Well, we don't break out the segment data for those businesses. I will tell you, excuse me, I will comment this way. As you probably know, the economy in Australia and New Zealand is pretty sluggish because of what's happened in the mining and resource sector down there, and that has had a ripple effect through the economy. It's slowed down a good bit. With that said, however, our team continues to do a very good job in executing their strategies, and their results would be outpacing the industry results down there, and their results would be comparable to what we're doing here in terms of organic growth. We're very pleased with what we see, and frankly, we're a bit optimistic as they continue to roll out some of the strategies down there. From a pricing standpoint, pretty much the same picture as what we see here.
A question on AP to inventory. You've gotten that up pretty nicely. How much runway is left? Is the automotive portion of your inventory pretty well levered on the payables model, you need to bring the industrial folks into the fold, or is there room to move aggregate AP inventory much higher?
I think the latter comment is where we find it. There is room to move the aggregate higher. We were pleased with the progress that we've made through the nine months. We see more progress that will be made over the upcoming three months, we continue to work this as an important part of our overall strategy.
Sorry for that. One regional performance question. I think you used the word exceptional to describe the East. Does it feeling like there's pent-up demand that's coming back to the market, or is it just such an easy comparison off of a tough 2012 we're seeing this growth? I guess if you looked over a cycle, does it feel like we're growing better than you would be just with the easy comparison that you saw?
I think it's a little bit of both, Bret, I would also tell you that our team has done a good job of capturing some new business up in that market as well. It's a little bit of both, plus it's some new biz.
Okay, great. One housekeeping. Your full year guidance does or does not include the second quarter $0.22 benefit?
It includes it.
Okay. Thank you.
Wish it didn't, Bret, but it does.
Okay. Thanks a lot.
Thank you.
Thank you.
Your next question comes from Seth Basham with Wedbush.
Good morning.
Morning, Seth.
Morning.
Most of my question's been answered. I have a couple others. If you wouldn't mind parsing out the margins on the auto business a little bit further. If I understand it correctly, gross margin was down slightly and SG&A margin was down slightly. As you look forward, do you expect that trend to persist if you maintain the same level of sales growth?
Seth, one is, we don't specifically call out gross margins or SG&A by each of our segments. In our commentary and what we did mention, on the automotive side, their operating margin decrease was solely attributed to the gross margin impact. Their SG&A was actually slightly improved. They're doing a very good job on the cost side. Again, if we can work through these gross margin pressures, and we're working very hard on that, and we look to the year-to-date number, again, being up 10 basis points. Again, we're doing a pretty good job in the SG&A area, that wasn't an issue there. Our long-term margin outlook for all of our businesses is 8%-8.5%. We're really pleased to see automotive where they are right now.
Gotcha. Okay, that's helpful. On the DIY side in the auto segment, with the slowdown at the end of the quarter and now the government shutdown over, would you expect a rebound? Is there any pent-up demand that'll come back, or are those sales lost for good?
I think those sales are probably gone. If you look at the history of the DIY business across the industry, it's been under pressure for a number of quarters. I think that's partly attributable to the fact that the do it for me is going to grow at a faster rate for quite some time than the do it yourself will be. Paul mentioned we were a little bit encouraged, actually, by what we saw in July and August, and felt that maybe we were going to have a bit better quarter than the way it turned out. We did in fact see a drop off in September, and most of that drop off happened late in the month.
If there's any encouraging information in there, it's that the basket size was actually up a little bit, but it was the ticket count that was off with the traffic in the stores. We'll have to see if it reverts back to the more normal pattern. We did see improved ticket count in July and August, but we gave it all back in September.
Got you. Can you give any more color on the initiatives you're undertaking within the auto segment to grow the commercial business beyond major accounts and NAPA Auto Care?
No, they would be the two. We would not want to go any further than that on the call.
Fair enough. Last question on the industrial side, looking at the trends you're seeing in the OEM manufacturer customer base, are those trends sort of stabilizing at a low level so that we'll see no impact on a year-over-year basis going forward? Do you expect incremental headwinds on a year-over-year basis still going forward?
They do appear to be stabilizing, albeit at a lower level. Whether or not we see some growth off of the current levels over the next quarter or two, I don't have a feel for, but just because of the magnitude of the drop off that we've experienced, we don't see that being the headwind that it has been for the last four quarters.
Got you. Understood. Thank you very much.
All right. Thank you.
Our final question comes from Brent Rakers with Wunderlich Securities.
Yes, good morning. Tom, I was hoping to follow up on the comments you made within industrial about the difference in OEM and MRO performance being about 300 basis points this quarter. Could you maybe take us back to the last two or three quarters as well and maybe talk to what the disconnect in performance was in these previous quarters as well?
It's actually 3% on a year-to-date basis, not one quarter specific. That's what the impact has been over the nine months.
Okay. Tom, I am reading that correctly. That is not specific to the specific verticals, but it actually relates to the entirety of your OEM portion of that business.
No, it relates to the decreases we've seen with customers in the oil and gas and mining and resource sectors.
Great. Okay. Then just one last point of clarification. I think in maybe your opening comments or maybe in response to one of the other questions, you talked about encouraging signs in industrial and electrical. Is there anything beyond, I think the earlier question was asked about an acquisition that's on the electrical side and in the comps. Are there other signs that are encouraging to you besides those?
Well, give you one other data point, we track what we call our project work in the industrial business. We were encouraged in that the amount of project work that we've got has held steady from Q2 to Q3, which we think is a little bit of a positive. Part of the offset to that, though, is while we haven't seen any decline in the pending project work, we have seen some of these projects be pushed out. Our expectation is that they will start to flow through, some in Q4, some in Q1. Until we actually get the order and get the release, we can't be absolutely certain. We are somewhat encouraged by the fact that we didn't see any drop off. These are projects that are going to be used to expand capacity within plants or improve productivity within plants.
They're somewhat of an indicator, we think, of the plant's willingness to make some capital expenditures and to continue to invest back into their businesses for future growth.
Great. Thank you, Tom.
Thank you.
Thank you.