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 speakers' remarks, there will be a question and answer session.
Thank you. I would 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 3rd 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. And 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.
And 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 Q3 results and hopefully you've had an opportunity to review them. But for those who may not have seen the numbers as yet, a quick recap shows sales for the quarter were $3,685,000,000 and this was up 9% over the prior year. Net income was $173,700,000 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 Q3 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. And 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, but unfortunately we saw deceleration in demand patterns across each of these businesses as the quarter progressed and this weighed heavily both on our revenue and operating profit results.
The Industrial segment is our largest non automotive business and they had a 3% sales decrease in the quarter. After showing modest sequential improvement in Q2, we regressed somewhat over the past 3 months. And 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. But then customers in segments like equipment and machinery are finding it more challenging.
Equipment and machinery is our largest industry group and 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 Q4, which will somewhat reduce the headwinds that we've encountered over the past 12 months in these two specific sectors. And 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 percent below last year.
And 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. But then 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 $10,000,000 to $12,000,000 to our revenue over the final 2 months, all of which should enable the Electrical group to end the year with a more positive Q4 and position us for improved results in 2014.
Moving on to Office Products. This group ended the quarter down 3% and 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, but 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. And both the product category and customer segment results for the quarter follow a similar pattern on a year to date basis as well.
So it's been a challenging year thus far for our office products team and 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. So that's an overview of the nonautomotive 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 Carolyn to have an opportunity to provide you an update on the Q3 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 1. This business continues to perform as expected throughout Australia and New Zealand and 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 3rd quarter. Now let's move on to our North American automotive business. Our team delivered a 5.3% sales increase in the 3rd quarter, consisting of core growth of approximately 4.5%, which is in line with our 2nd 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 1 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 3rd quarter came in at plus 4.3%.
After a challenging Q1, 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 SENSE. 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 1st 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 naphtha 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 Q1 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 from this past quarter. So in summary, we are pleased to see both our North American and 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 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 4th 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 Q3. So that completes our overview of the automotive business.
And 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 3rd quarter 9 month income statements and the segment information, and then we will review a few key balance sheet and other financial items. Tom will come back and wrap it up, and then we'll open the call up to your questions. As we turn to the income statement, we want to reiterate that our September 30 Q3 and year to date consolidated results referenced in our commentary include GPC Asia Pacific acquired April 1. And with that said, total sales of a record high of $3,700,000,000 for the 3rd quarter, an increase of 9% from last year, as Tom mentioned.
And for the 9 months, our total sales of $10,600,000,000 up 7% from 2012. Before the impact of the GPC Asia Pacific acquisition, total sales are up 1 are up 1% for both the Q3 year to date, reflecting the difficult conditions in our non automotive businesses. Our gross profit for the Q3 was 29.9 percent of sales, up 100 basis points from 28.9% last year. And for the 9 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 percent of its stores.
This benefit was partially offset by a slight decrease in our core North American gross margins in the 3rd 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 $3,000,000 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 $18,000,000 adjustment was recorded in the Q2 for a total year to date impact of $21,000,000 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 0.2% in automotive, up 0.9% for industrial, up 0.5% for office products and up 0.8% for electrical. Turning to our SG and A.
Our total expenses were 8 $29,000,000 for the Q3, up 18 percent from 2012 and at 22.5 percent of sales. For the 9 months in 2013, our total SG and A expenses are $2,300,000,000 or up 10% and at 22.0 percent of sales. Our SG and A expenses as a percentage of sales are up 160 and 80 basis points for the quarter 9 months, respectively. And this primarily reflects the impact of higher SG and 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 nonautomotive businesses.
Year to date, our SG and A includes the positive onetime pretax adjustment of $54,000,000 net of expenses associated with the revaluation of our original 30% investment in GPC Asia Pacific that was required on April 1. Excluding this adjustment, our SG and A for the 9 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. Now turning to the segment results.
Our automotive revenue for the Q3 was $2,020,000,000 and represents 55 percent of sales and is up 22.1%. Our operating profit of $180,200,000 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 9 months, our automotive sales were 5.5 $7,000,000,000 representing 52 percent of total revenue and up 16.4%. Our operating profit of $487,600,000 is up 16.6 percent, So 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 this is 30% of our total revenue and a decrease of 2.5%. Our operating profit of $79,600,000 is down 15.9%, so we saw the industrial margin decrease to 7.2% from 8.3%. Through September, industrial sales of $3,340,000,000 which is 32% of our revenues, are down 1.6%. Our operating profit of $247,400,000 is down 9.7%, percent and their margin is down 70 basis points to 7.4% from 8.1% last year. We attribute the margin declines for the quarter 9 months to a decrease in volume incentives associated with lower purchasing volumes with our suppliers, general gross margin pressures and a weak demand environment and the loss of leverage on a lower sales volume.
Moving on to office products. We had revenues of $430,500,000 which is 11% of our total sales and down 3.1% for the quarter. Our operating profit of $28,100,000 is down 6.2 percent, so their margin is down 20 basis points to 6.5% from 6.7%. Year to date, office sales of $1,250,000,000 represent 12% of total revenue and are down 2.4%. Our operating profit of $91,100,000 is down 7.2% and net margin is 7.3% versus 7.6% last year or down 30 basis points.
For the quarter 9 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 $142,800,000 and that's 4% of total revenue and down 5.3%. Our operating profit of $12,600,000 is down 6.9%, so their margin came down to 8.8% from 9.0%, but that's still a very strong margin. For the year, electrical sales were $425,000,000 which represents 4% of our total revenue and down 5%. Our operating profit of $35,300,000 is down 8.2% and their margin is down 30 basis points to 8.3% from 8.6%.
And as with the Industrial and Office businesses, the decline in margin for Electrical for the quarter 9 months is primarily a function of the loss of leverage on the lower sales volumes for these periods. So our total operating profit was up 4% in the 3rd quarter, and our operating profit margin decreased 40 basis points to 8.2. For the 9 months, our total operating margin held steady with the 2nd quarter at 8.2, but it's down from the 8.4 for the same period in 2012. The decline in our operating margins thus far in 20 13 continues to reflect the impact of weak sales conditions in our non automotive businesses. And 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 $7,000,000 in the Q3, and year to date, our interest expense is 18,200,000 dollars Interest is up from 2012 due to an increase in the total debt and based on our current projections, we would expect net interest expense of approximately $25,000,000 to $26,000,000 for the full year. This is slightly improved from our prior guidance of $26,000,000 to $28,000,000 Our total amortization expense was $7,700,000 for the Q3 $20,500,000 for the 9 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 $29,000,000 range for the full year, which is down slightly from our previous projection.
The other line, which reflects corporate expense, was a $14,000,000 expense for both the Q3 9 months. This line also includes the net impact of the purchase accounting adjustments discussed earlier in association with gross profit and SG and A. In summary, this amounted to a $36,000,000 favorable adjustment in the 2nd quarter and a $3,000,000 expense in the 3rd quarter. We currently project this line to be approximately $30,000,000 in expense for the full year. For the quarter, our tax rate was approximately point 1 percent compared to 36.3 percent last year.
And for the 9 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 2nd quarter gain that was associated with the remeasurement of our Australasian investment. We expect our tax rate in the 4th quarter to approximate 36.0% to 36.5% for an annual rate of 34.5 percent to 35.0 percent for 20.13. Our net income for the quarter of $173,700,000 was up slightly and EPS at 1.12 dollars compared to $1.11 last year was up 1%.
For the year through September, our net income of $534,500,000 is up 10% and our EPS of $3.43 compared to $3.11 for 2012 was also up 10%. Now we'll move on to the balance sheet. Cash at September 30 was $321,000,000 which was down from the $400,000,000 at December 30 last year 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 $1,800,000,000 at September 30 increased 9.5% from the same period in 2012 on a 9% sales increase for the quarter.
Our goal is grow receivables at a rate less than revenue growth, so 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 $2,800,000,000 which is up 12% from September 30, 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 31. So 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 30 was $2,200,000,000 up 26% from September 30 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 $1,800,000,000 at September 30 is down approximately 26% from September of 2012, primarily due to the increase in current debt in 20 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 30, 2013. Our total debt of $834,000,000 at September 30 includes $2,250,000,000 term notes, which we've carried for some time now as well as another $334,000,000 in borrowings under our multi currency syndicated credit facility agreement. This adds to total debt to total capitalization of approximately 21% at September 30, which is down slightly from the 23% at June 30, while up from the 14% at September 30, the prior year.
We're comfortable with our capital structure at this time, and we currently expect total debt to approximate $850,000,000 at December 31, 2013. We should add here that as we mentioned in our last call, we plan to renew the $250,000,000 term note that's due November 30, 2013. Under this plan, we will extend this debt for 10 years at a 2.99% fixed interest rate, thus replacing the 4.6 7% fixed interest rate on the current note with more favorable terms. We expect the renewal to become effective on November 30, 2013. As we stated earlier, we continue to generate solid cash flows and expect another very strong year in 2013.
For the 9 months through September, our cash from operations was approximately $837,000,000 And for the full year, we currently project cash from operations to approximate 900,000,000 dollars Likewise, we expect free cash flow, which deducts capital expenditures and dividends to be in the $450,000,000 to $500,000,000 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 20.13 represents a 9% increase from the 1.9 $8 per share paid in 2012 and it's approximately 52% of our 20.12 earnings per share, which is well within our goal of a 50% to 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 4 businesses, strategic acquisitions where appropriate and share repurchases. Our investment in capital expenditures was $33,300,000 for the 3rd quarter, up from $20,300,000 in 2012. For the 9 months, our capital spending totaled $84,100,000 an increase of 70 an increase from the $71,600,000 for the 9 months in 2012. We expect our capital expenditures for the full year to be in the range of $130,000,000 to $140,000,000 and that's an increase from the $102,000,000 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 $1,000,000 For the year, depreciation and amortization is $98,100,000 compared to the $73,300,000 for the same period in 2012. The increase on this line reflects the impact of GPC Asia Pacific as well as amortization expense related to Asia Pacific and Quaker City. We currently expect depreciation and amortization for the full year to be $130,000,000 to 140,000,000 dollars Strategic acquisitions continue to be an ongoing and important use of our cash for us, and they're integral to the growth plans for our company. We remain excited about the growth opportunities we see at GPC Asia Pacific, and we continue to seek new acquisitions across businesses to further enhance our prospects for future growth. In fact, our current pipeline of potential acquisitions is building somewhat today, and 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 $25,000,000 to $125,000,000 range. Finally, we have been active in the company's share repurchase program since 1990 4. And thus far in 2013, we've purchased approximately 900,000 shares and we have another 11,300,000 shares authorized and available for repurchase today. We have no set pattern for these purchases, but 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. So that is our financial update.
And 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. So that recaps our Q3 results. And as we said at the outset, it proved to be a challenging quarter for us in many ways, especially so for our nonautomotive 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 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 and our expectation is for another solid quarter from automotive in Q4. And 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 2 $50,000,000 to $300,000,000 from our July guidance, with the majority of this decrease coming from our nonautomotive businesses. In the July time frame, we remained hopeful for an economic recovery over the second half of the year and this simply has not happened in the nonautomotive segments. At least from our perspective, the industrial recovery has been pushed out into 2014.
So at this time, we are not expecting any help from the economy in the Q4 and we currently estimate a total GPC sales increase of 7% for the full year, which is down from our previous guidance of 9% to 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% to 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 down 2%, which is a reduction from our prior guidance of up 1% to up 3%. Our current expectation is for the Electrical Electronics segment to be down 2% to 3% for the full year, which is lowered from our previous guidance of flat to up 2% percent and office products is currently projected to be down 2% to 3 percent for the year, lowered from our prior guidance of down 1% to up 1%. This lower sales projection combined with our 3rd quarter results have impacted our earnings estimates for 2013 as well by approximately $0.20 to $0.25 As a result, we currently expect our EPS for the full year to be in the $4.30 to $4.35 range, which is down from our previous full year guidance of $4.50 to $4.60 So that will summarize our outlook at this point and certainly we're disappointed in continued sluggishness in our nonautomotive segments. We are encouraged by the continued solid performance in automotive however and we think that we are starting to see a few encouraging signs in Industrial and Electrical and the underlying fundamentals in each of these businesses remains generally favorable.
So although we find ourselves in a soft period right now in these businesses, we have been through times like these in the past and our folks know what needs to be done and we look forward to giving you an update on our progress in the next call. At this point, we'd like to open the call up to your questions, and we'll turn the call back over to Jennifer. Jennifer?
Your first question comes from John Lovallo of Bank of America.
Hey, guys. Thanks for taking the call.
Good morning, John. Good morning, John.
First question Carol would be on and just how we should think about normalized incremental operating margins going forward. I mean, I understand what's kind of what's the pressure on SG and 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, our margins the core business in GPC Asia Pacific really has similar margins. So 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 the lack of pricing and some other gross margin pressures. Our long term outlook for margins is still to have 10 to 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. And so 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 6 months. So 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. And Tom, how are you guys thinking about the Advanced Auto Parts recent acquisition of General Parts? I mean, how is that going to affect the competitive landscape in your view?
Well, I think we'd start by saying this is very recent news. It's only a few days old. But as we think about it in the past, we've had 2 really good competitors in Advance and in Carquest. And I think we would complement both management teams on arriving at this point. But 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 1 competitor and not 2, albeit 1 larger and 1 strong competitor.
So it's very early in the days in terms of how we think it's going to affect things. But one thing that does appear evident is that we're going to have 4 players at the very top of the pyramid that are going to be significantly larger than those players position 5 and on down. And I don't know how that plays out over time, but it could lead to some additional consolidation as we go forward. And 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.
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 and there were some extraordinary circumstances presumably associated with that. And at least for the moment those drivers came to some resolution a day or 2 ago. To what degree as you think about and 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? And 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. And it did in fact impact some of the demand in the quarter. I think we saw some of that where we in our electrical business for instance where we deal with defense contractors and they continue to have some issues in terms of payroll. Certainly, we saw it in the office products business indirectly where we sell to customers who sell into the governmental agencies. So 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 and 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 and presumably they would imply some market share gains. So 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're referencing our both our major account business and our NAPA Auto Care business. So we did have really good quarters with both businesses. I don't think their businesses overall are growing quite at the rates that we are. So you'd have to one would have to assume we're 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 hadn't enjoyed before.
That will add about 600 stores for us on a go forward basis. So we're very pleased with that win. On the DIY side, Matt, we were going along pretty good in June I'm sorry in July August and really saw a slowdown in September. And back to your question about the impact of the government shutdown, it's difficult to say directly that that had an impact. But 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
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, we're this year unlike last year, we're seeing growth across every division of the country. And I think I pointed out the Northeastern part of the U. S. We're seeing stronger growth.
But across the U. S. We're seeing single digit increases across every division.
The last quick question I have. You mentioned M and A and it sounded like bolt ons more than anything else. Of course, with the advanced 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, but 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. So we'll look at any opportunity that may come forward.
Okay. Thank you guys. 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 Greg Melch with IFI Group.
I want to follow-up on the auto margins, especially how they seem to inflect downward this quarter. Is the $3,000,000 hit was that I guess about 15 bps, so that really the margins may have been flattish. But as Dan mentioned, price is there an inability to pass through some price increases? Or is it that competition has actually taken price down to hit margin?
Well, let me just clarify this. The $3,000,000 inventory adjustment is in the other net line consistent with how we did at 2nd quarter. So the purchase accounting adjustments have been pulled out of the automotive margins that you see. So that's not in the $8,900,000 And 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. But again, we're kind of pointing back to the 9 month numbers and saying we're still in pretty good shape year to date. So it's not anything specific. It's just a little bit of gross margin pressures. And it's North America.
It's a bit Canada as well as the U. S.
Could the 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.
Okay. And then 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's like 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 more 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. So I called out automotive, food processing, lumber and wood products as three examples. But then 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. So any of those companies that might have been producing for export, their export business is under pressure because of what's happening globally. So that would be one thing.
The other thing is in looking at the indices, at least 3 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 in Q2 last year, it's up 1% much less than what the PMI is up quarter over quarter. And if we look at capacity utilization Q2 this year to Q2 last year, while it's still at a historically reasonable level in Q2 of this year, it's actually down about 1% over where it was this time last year. So 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. And 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.
And 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. And 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. And 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.
So those two things in particular have impacted those two businesses if that helps with any color.
That helps a lot Tom. And if I could lastly just on office. The fact that the sales are falling, but the margins are pulling 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. And if we can help them enhance their share of wallet or their market share through different initiatives then that in turn will benefit us. And then we need to continue down the path of some diversification both on the product side as well as on the customer portfolio side. And we're working pretty diligently in both of those areas. And we've made some progress in each case, but we still have a bit more to do in both areas.
But that's the strategy right now. And right now, this is the business that's most challenged and we don't think that there are as many early signs of encouragement for this business yet. But at some point, it will revert closer to the norm. Even with the structural change from a product standpoint with paper based product and secular decline, Eventually this business is going to come back. And in the meantime, it generates a lot of cash, gives us a good operating margin and gives us time to continue to rebalance the business a bit.
Your next question comes from David Gover with Morgan Stanley.
Just wanted to touch back on the Advanced 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? And I don't know if you've done any work in terms of store overlaps 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% to 2% at a minimum and 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. So 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.
But 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. And if that happens in this particular case, then we hope we're in a position to perhaps pick up a little of that. But it's way too early for us to say categorically we know how it's going to work out. But 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. And I just wanted to go back to the inflation issue again. It sounds like that has clearly decelerated this year. And 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. But 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. It's input costs have gone down for vendors in more recent times and that also has mitigated their need for some price increases.
Got you. Thank you.
Thank you.
Your next question comes from Scot Ciccarelli with RBC Capital Markets.
Hey, guys. Scot Ciccarelli.
Good morning, Scot.
I know this would be maybe it's difficult to answer because it's hard to know what competitors might do. But Tom, you just talked about you really haven't seen anything on the irrational front in terms of pricing etcetera. Do you think advanced 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. So I don't know that we'll see that.
And if we do, we'll just have to respond accordingly. We're not going to donate share after working so hard to gain share. So we'll continue to work our strategies and our initiatives both sell side and buy
side. Understood. And then can I just clarify, I mean, you've talked about some of the things that should ease in the Q4? 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've seen previously.
But you also talked about trends decelerating through the Q3 on the non auto side. So I'm just wondering, is there something else that we it makes you feel a little bit better about the Q4? Or is it really just those two factors?
Well, there are those two factors for sure. And then I mentioned that we had a small acquisition that we're going to do at month end for the electrical group. We have 1 or 2 others that we hope to add into the industrialelectrical segments between now year end, which I think will help a little bit and set us up for a little improvement as we go into next year. And then don't forget our comps get easier in Q4. We had some difficult comps last year.
So the comps in and of themselves are a little bit easier as we work our way toward year end.
Got it. So no real change in pace of business, but easier comparisons for a couple of acquisitions in there as well as the other things?
I think that's right, Scott.
Okay. Got it.
All right.
Thanks, guys. Thank you.
Our next question comes from Bret Jordan with BB and T Capital Markets.
Good morning. Good morning, Bret.
A couple of quick questions. And one of
them I guess the North American pricing looks pretty stagnant. How is Exego pricing looking? Could you 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. So it 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. So 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.
Okay. And then a question on AP to inventory. You've gotten that up pretty nicely. How much runway is left? I mean 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 9 months. We see more progress that will be made over the upcoming 3 months and we continue to work this as an important part of our overall strategy.
Okay. And then sorry for that. One regional performance question. I think you used the word exceptional to describe the East. Is that does the 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? Is it 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, Brett. But I would also tell you that our team has done a good job of capturing some new business up in that market as well. So it's a little bit of both plus it's some new biz.
Okay, great. And one housekeeping. Your full year guidance does or does not include the Q2 $0.22 benefit?
It includes it.
Okay. Thank you. Wish it
didn't, Brett, but it does.
Okay. Thanks a lot.
Thank you.
Thank you.
Your next question comes from Seth Basham with Wedbush.
Good morning.
Good morning, Seth.
Good morning.
Most of my questions have been answered, but 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 and 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 and A by each of our segments. But 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 and A was actually slightly improved. So they're doing a very good job on the cost side. So again, if we can work through these gross margin pressures and we're working very hard on that, we look to the year to date number again being at 10 basis points.
Again, we're doing a pretty good job in the SG and A area. So that wasn't an issue there. Our long term margin outlook for all of our businesses is 8% to 8.5%. So we're really pleased to see automotive where they are right now.
Got you. Okay. That's helpful. And 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 will come back?
Are those sales lost pretty 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. And 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. But as Paul mentioned, we were a little bit encouraged actually by what we saw in July August and felt that maybe we were going to have a bit better quarter than the way it turned out. But 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 of 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 August, but we gave it all back in September.
Got you. And 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 2 and 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? Or do you expect incremental headwinds on a year over year basis still going forward?
They have 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 2, 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 Wonderland 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 2 or 3 quarters as well and maybe talk to the what the disconnect in performance was in these previous quarters as well?
It's actually 3% on a year to date basis, not 1 quarter specific. That's what the impact has been over the 9 months.
Okay. And 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. And 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 then the comps.
Are there other signs that are encouraging to you besides those?
Well, I'll give you one other data point and we track what we call our project work in the industrial business. And we were encouraged in that the amount of project work that we've got is 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. But until we actually get the order and get the release, we can't be absolutely certain.
But we are somewhat encouraged by the fact that we didn't see any drop off. And these are projects that are going to be used to expand capacity within plants or improve productivity within plants. So there's somewhat of an indicator we think of the plants' willingness to make some capital expenditures and to continue to invest back into their businesses for future growth. Okay.
Thank you, Tom. Thank you.
Thank you.