Genuine Parts Co.'s sales rose as the company's CEO said he sees shrinking demand for nonessential auto parts amid high gas prices and weakening consumer sentiment.
"On the retail side, you can see the slowdown in the discretionary items," Genuine Parts chairman, president and CEO Thomas C. Gallagher said in a conference call Friday. "The consumer is getting the absolute needed repairs, but they're trying to defer as much as they can."
The company saw record sales in the second quarter, but Gallagher said his expectations for the second half of the year are "tempered" by continued high unemployment and the "general fragility of the economic recovery." Genuine Parts still anticipates increasing its revenue between 9 and 11 percent for the year.
The company, in addition to selling auto parts, has industrial, office product and electrical businesses. Sales were $3.2 billion across all four categories, up 12 percent over last year's figures. Genuine Parts made $151.8 million for the quarter, up 22 percent from last year, and also a record.
Bill Selesky, a senior analyst for Argus Research, said the results were "fairly positive." He said as more people defer new-car purchases and continue to service their aging vehicles, Genuine Parts will benefit. He added, though, that high gas prices mean people drive less.
While that did affect the company's results this quarter -- its automotive segment growth remained fairly flat from the first quarter -- Selesky said the potential difficulties are not roadblocks.
Keith Hughes, an analyst with SunTrust Robinson Humphrey, said in a research note that while the quarter was strong, he agrees with Genuine Parts’ “more cautious outlook” for the rest of the year considering the uncertainty of the recovery.
Prices on parts will likely rise as the year goes on, Gallagher said, as vendors request increases to deal with inflation.
"We're fine with that, provided we don't lose competitive positioning," he said.
The company's industrial business continues to perform well across various regions, Gallagher said. Jerry W. Nix, Genuine Parts' vice chairman and CFO, said the company remains in the market for acquisitions and intends to repurchase stock.
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