Auto parts distributor Genuine Parts (NYSE:GPC) releases its Q4 and full-year 2006 earnings bright and early Tuesday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Ten analysts try to piece together Genuine Parts. Four of them rate it a buy, and six a hold.
  • Revenues. On average, they're looking for quarterly sales to rise 6% to $2.56 billion.
  • Earnings. Profits are predicted to rise 11% to $0.70 per share.

What management says:
In this Fool's opinion, understanding the big news at Genuine Parts this quarter requires some reading between the lines, and a bit of imagination. The news I refer to came out in the form of a Nov. 22 8-K filing, the text of which appears to be setting GP up for a buyout.

First, the firm packed a set of golden parachutes for its top five executives -- the CEO, the CFO, the president of its U.S. automotive parts group, an executive VP, and the senior VP for human resources. In the event GP gets taken out, and the named execs are terminated (or even leave of their own volition) soon thereafter, they will receive at a minimum two years' salary and bonuses -- plus a gross-up payment to cover U.S. taxes. Heck, the agreement even comes right out and calls the severance packages "parachute payments." The same 8-K also describes the elimination of the need for "supermajority" votes on the board, which tend to make taking over a company more difficult. Taken as a whole, it seems to me the filing is laying the groundwork for a deal.

What management does:
Yet business hasn't been so bad at GP that you'd expect the company to "explore strategic alternatives." As you can see above, analysts expect sales to keep growing. And as you can see below, both operating and net margins are holding fairly steady on a rolling basis.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

30.7%

30.5%

32.7%

31.5%

31.0%

30.8%

Operating

7.6%

7.4%

7.6%

7.5%

7.7%

7.7%

Net

4.5%

4.3%

4.5%

4.5%

4.5%

4.5%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Reviewing the firm's last couple of income statements to see what's creating these margin trends, we can see that the stability derives from two components: cost of goods rising a bit slower than the 6.5% pace of sales gains, and selling, general, and administrative costs rising a bit faster.

The balance sheet looks even better. Accounts receivable have been growing a bit less quickly than sales, and GP's inventories are rising much more slowly -- up less than 2% year over year for the last two quarters, or just a fraction of the rate of sales growth. Based on these numbers, this Fool really doesn't see any need for GP to sell itself out. All I can guess is that management thinks something is in the works, and finds the prospect attractive enough to begin laying the groundwork for a deal.

Competitors:

  • Advance Auto Parts (NYSE:AAP)
  • AutoZone (NYSE:AZO)
  • CSK Auto (NYSE:CAO)
  • Magnetek (NYSE:MAG)
  • O'Reilly Automotive (NASDAQ:ORLY)
  • Wal-Mart (NYSE:WMT)

Past Parts performance parsed in:

Wal-Mart and AutoZone are Motley Fool Inside Value picks. Discover more of the market's best bargains with a free 30-day trial subscription.

Fool contributor Rich Smith does not own shares of any company named above.