According to its latest first-quarter results, Genuine Parts Company (NYSE: GPC), a distributor for automotive replacement parts, continues to grow at a nice steady pace. While the company won't be confused with a high-flying growth stock, its consistency should provide peace of mind to existing shareholders.
Revenues for the period increased 9% compared to the same quarter a year ago. In the earnings conference call, management indicated that it was pleased with performance from the company's industrial and electrical/electronic groups, which saw sales increases of 12% and 13%, respectively.
Its most profitable division, the office group, also did well, posting revenue gains of 13%. However, management did express concern that in the latest quarter, operating margins in this division slipped to 10.2% from 11.2% in the year-ago period. This will be an area of intense focus over the remainder of the year, and management believes that by year's end, this division will see full-year operating-margin improvements.
The automotive group is currently displaying the weakest growth, with revenue increasing by just 5%. However, this group's core NAPA business is actually outperforming the rest of the division with 7% sales growth. Management expects that by year's end, revenue from this division will be closer to the 7% level, helping the company meet its net sales growth target of 7% to 9% for 2006.
Despite significant challenges from pension and insurance expenses, management anticipates operating-margin improvements in all of its divisions. One reason for the optimism: the company's use of new forecasting logic programs, which has helped it keep tight controls over inventory. Thanks to expense control measures and inventory management, earnings growth is expected to slightly outpace top-line growth, with an 8% to 10% increase for the full year.
Given the health of the overall economy, management expects "strong and consistent results" to continue into the foreseeable future. With talk of peak oil prices coming in the summer months, it remains to be seen whether the economy can maintain its momentum. As long as Genuine Parts keeps performing, however, there's no compelling reason for current shareholders to jump ship.
Fool contributor Jeremy MacNealy does not own shares of any companies mentioned.
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