On Nov 26, we downgraded
Genuine Parts Company
) to Underperform. The downgrade was based on the company's weak
third quarter results, rising competition and uncertainty in the
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Why the Downgrade?
On Oct 18, Genuine Parts' reported a 1% year over year increase
in earnings per share to $1.12 in the third quarter of 2013 from
$1.11 reported in the year-ago quarter. However, earnings missed
the Zacks Consensus Estimate by 8 cents. The third quarter was
very challenging for Genuine Parts owing to the poor performance
of the non-automotive businesses, which was partially offset by
better results from the Automotive Group.
Revenues in the quarter grew 9.2% to $3.68 billion, missing the
Zacks Consensus Estimate of $3.74 billion. The year-over-year
improvement was due to hike in revenues from the Automotive Parts
segment, partially offset by decline in demand in non-automotive
Following the release of the third quarter results, the Zacks
Consensus Estimate for 2013 decreased 5.3% to $4.14 per share.
The Zacks Consensus Estimate for 2014 dropped 4.1% to $4.63 per
share. Currently, Genuine Parts retains a Zacks Rank #5 (Strong
We are concerned about the sluggish demand in the Industrial,
Electrical, and Office Products segments. Weak demand led to low
revenues in these segments during the quarter. The company also
faced a challenging first quarter of 2013 due to weak sales in
Moreover, unfavorable economic conditions, including low economic
growth, high unemployment and higher energy costs, have adversely
affected the credit markets, consumer and business confidence,
and commodity prices. This uncertain economic situation is a
challenge for Genuine Parts.
In addition, rising competition from peers, including
), is highly challenging for the company. Price competition in
the competitive environment will mar the revenues and earnings of
Other Stocks to Consider
Motorcar Parts of America Inc.
Standard Motor Products Inc.
) with a Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy),
respectively, are performing well in the auto and truck industry.