Good morning, my name is Matt and I will be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts company conference call. [Operator Instructions]. I would now like to introduce, Carol Yancey, Senior Vice President, Finance, Corporation Secretary. Thank you. Ms Yancey you may begin your conference.

Thank you. Good morning and thank you for joining us today for the Genuine Parts second quarter Earnings Call to discuss our results and the 2008 outlook. Before we begin this morning, please be advised that this call may involve forward-looking statements such as projections of revenue, earnings, capital structure and other financial items, statements on the plans and objectives of the company or its management, statements on future economic performance, and assumptions underlying the 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 will begin this morning with remarks from Tom Gallagher, our Chairman, President and CEO. Tom?

Thank you Carol. And I would like to add my welcome to each of you on the call today and to say that we appreciate your taking the time to be with us this morning. As we customarily do, Jerry Nix, our Vice Chairman and Chief Financial Officer and I will split the duties on this call. And once we have concluded our remarks, we will look forward to answering any questions that you may have. Earlier this morning, we released our second quarter results, and hopefully you have had an opportunity to see them, but for those who may not have as yet seen the numbers, a quick recap shows that sales for the quarter were $2 billion 873 million, which was up 4%. Net income was $133.1 million, which was up 2% and earnings per share were $0.81 this year compared to $0.76 in the second quarter of 2007, and the EPS increase was 7%. 4% sales increase was a slight improvement from the 3% increase in the first quarter of this year, which we're pleased to see. And while the increase in net income at plus 2% was not as much as a revenue increase, it also is an improvement over the first quarter results. Operating profit was up 4%, which is in line with the sales increase with the difference in operating profit and net income being attributable to lower interest income and a slightly higher tax rate in the quarter, and Jerry will comment on these in a moment. And then, on earnings per share, we were pleased to show a 7% increase for the quarter. Looking at the results by segment, our strongest revenue increases continue to be generated by the industrial and electrical operations. Industrial sales were up 7% for the quarter, which…

Thank you Tom. Good morning we appreciate you joining us on the call today. We will first review the income statement and segment information and we will touch on a few key balance sheet and other financial items. We will be brief and then we will open the call up to your questions. Review of the income statement shows the following --total sales for the second quarter were up 4% to $2.9 billion and our year-to-date sales of $5.6 billion, also were up 4% from last year. Second quarter revenue trend was slightly favorable to our growth rate over the last few quarters, and we are encouraged about the opportunities for more growth over the last half of 2008. Gross profit in the quarter, 29.66% to sales compared to 29.77% in the second quarter last year, a decrease of 11 basis points. For the year, gross profit is consistent with last year 29.78%, and we look to show more progress on this line going forward. We will continue to focus on the best product and customer mix as well as expanding global sourcing opportunities to drive this progress. For the year through June, cumulative pricing which represents supplier increases to us is up 1.7% in automotive, plus 3.4% in industrial, plus 1.4% in office products, and plus 4.6% in electrical. Now let's take a look at SG&A. For the second quarter, SG&A as a percent to sale at 22.15% was slightly favorable to the second quarter of '07. For the six months in 2008 SG&A stands at 22.52% of sales, up approximately 21 basis points from '07. As you may recall, the increase is probably the results of certain non-recurring cost recorded in the first quarter for the sale of Johnson Industries and the consolidation efforts in our remanufacturing operations.…

Thank you, Jerry. So that recaps our second quarter and first-half results, and despite the challenging external environment, we do feel that we came through the first six months in reasonably good shape and that we're in a position to report another good year for Genuine Parts Company. Back in February, we said that we expected full-year revenue increases of 2-5% for Automotive, and being up 3% year-to-date they are in the range. For industrial, we said 5% to 8%, they are currently running up 6%, so here again, within range. On the electrical side, we said 5% to 8% and a plus 9% year-to-date, they are slightly above. And for office products, we said 1% to 4% and being down 1% year-to-date we're just below. So, putting them all together we continue to feel that a full year overall GPC revenue expectation of 3% to 5% is reasonable at this time. On the earnings side, our prior guidance was 3.12 to 3.22, but anticipating the current external conditions to continue to last at least through the end of '08, we think that a more appropriate range will be 3.12 to 3.18, which will be up 5% to 7% for the year. So, that will conclude our remarks at time and we'd like to address any questions if you may have. Then we'll turn the call back over to Matt. Matt?

[Operator Instructions]. Your first question comes from the line of Michael Ward with Soleil

Good morning, everyone.

Good morning, Mike

Good morning, Mike

Jerry do you have, how much you spend or approximately what kind of impact there is from the fuel cost, whether it is from driving the trucks or distribution, whatever it is?

No, Mike, we do not. We know it is a significant expense for us. We’ve inbound freight and we share with some of our suppliers and we’ve the outbound freight each night going to the NAPA stores, as well as the office products dealers within the S.P. Richards Group. We’ve a local delivery expense out of the company owned stores, so that is in a lot of different categories, but it is a major expense for us and we’ve got a new initiative in place to minimize the cost of that in each of the cases, but no, we do not have the number in total, what it is at this point.

How you have been able to offset it? Because if it had an impact on your cost, and it does not seem like it had a significant impact on margins, it seems that you have done a pretty good job of offsetting it?

Mike I will try to address that the, we are seeing increases obviously like everyone is, but among the things we’ve done is that we reconfigured the fleet to try to use more energy efficient vehicles. We are using some fairly sophisticated delivery management software to try to reduce the miles that we are driving. We’ve got other programs where we reduce idle time, and we are just trying to pull all the levers that we know to try to keep the cost --.

Okay. On the automotive side, your sales are still holding up despite the fall off in vehicle miles driven?

They are, we were up on an ongoing business was up 3.4, as I mentioned and we are up 3.6 year-to-date.

Great, it sounds like, I mean, this second quarter looks like vehicle miles driven are going to end up being down somewhere around 3% or 4%, which is a huge drop, but that is been reflected yet in weakening in demand or you are just picking up share?

Well, we see evidence of reduced miles driven and things like the deferral of maintenance, which is partly attributable to reduce miles and also the cost of fuel. We see people looking to migrate toward the lower price product in order to try to control the cost. However, I think our folks have done a pretty good job in some key areas. I mentioned, our major account business was up 6% in the quarter and was up 6% year-to-date. I think, there we would be perhaps outperforming the overall market growth. Our AutoCare business, even in the quarter we were pleased with that frankly. Puts us down 1% for the year, but we are looking for that to turn positive for us as we work away through the course of the year. So, I think our folks are just trying to execute as best as they can in a challenging environment.

Thank you very much.

Thank you Mike

Your next question comes from the line of Matthew Fassler with Goldman Sachs.

Thanks a lot and Good morning. Couple of questions, first of all, it was a nice surprise to see the office products business stabilize given that the total business there seems to have deteriorated properly speaking. Can you give us some insight as to why you think your business recovered in the second quarter?

Matt I think a couple of things. One, we did not have the best of years last years. So the comps are not as challenging as they are in some of the other businesses, but with that said I think our folks are here again are doing a mighty good job of executing on their internal initiatives, and we were pleased to see the growth and the independent reseller business that are referenced earlier. The size of the decrease that we’ve with the mega’s was less in the quarter than what it was in the second quarter. So, I just think again, maybe it is some internal initiatives and some good execution from our folks.

My second question relates to pricing in automotive. It looks like you are up 1.7% in the first half. Jerry, I believe that is the number you gave. That exceeds where you up last year, equalled were you up all of '04, that way you were up all of ‘06. I realized that there is a little more inflation evident in a number of your businesses, but here it seems to be meaningful relative to the growth rate. Can you talk about where that comes from and what the success has been passing through raw materials increases?

Matt I will try to answer that. It is across broad product categories, anything that is steel based. Obviously we are seeing, significant price increases. Things like brake-rotters would be an example there, bearings would be another example. Then anything, that is petroleum based, we are also seeing a sizeable increase. Anything that is been sourced out of Asia, we’ve seen significant increases there for specific reasons having to do with China sourcing. As far as our ability to pass them along, I think we’ve said in the past and it continues to be true today and that is that, we do not take a price increase in our automotive business, unless we can pass it along, and remain competitive in the marketplace. So when, a vendor needs a price increase, we will work with them because we know they need it as well. We will review the competitive landscape, and then hopefully we are in agreement that we can take the price increase, and pass it along at the appropriate time.

Understood. My last question relates to margins in the automotive business. There is been some distortion over the past. Numbers of quarters depending on both the performance of Johnson Industries and then dispositions and charges related to that. Can you talk to us about what kind of impact, if any Johnson Industries or any other strenuous factors had on the margins in Q2 of this year, and just remind us with the comparable figures were for 2Q of last year?

We did not really have any significant impact from Johnson or from the restructuring in our remanufacturing business in the second quarter. So, I think the comparisons are pretty clean. We are at 8.1, as Jerry said down 10 basis points, and part of that is that we just could not get enough leverage on the sales increase and also some of the product mix that we saw in the quarter, but we think that we will show margin improvement as we work our way through the course of the year.

Truly the last question. You talked in the first quarter about some of the volatility in the automotive business through that quarter. Was the trend steady one through the second quarter?

Well, no not really. What we saw, which we thought was interesting, is we saw the April and May results on a per day basis were pretty consistent and pretty encouraging, and then we saw moderation in June. Now, we’ve seen through mid-month in July that the average daily sales have gone back to the levels of April and May, but we did see some moderation in the final month of the quarter.

Got you. That is very helpful. Thanks so much.

Thank you Matt.

Your next question comes from Keith Hughes with Suntrust Robinson Humphrey.

You had talked in prepared comments on the acquisition and some other initiatives in office products for the second half of the year helping revenues. Would those help margins as well, or do you expect to see margin pressure for the rest of the year?

Specifically, we think these will be accretive, not dilutive, but as far as pressures in the channel, we do not expect them to abate any, and I would to say that that is true for all of the businesses. We just have to find ways to offset those pressures.

Specifically in the offices, the pressure just primarily discounting, or a desire for discounting of customers, or is it mixed or both?

It is a combination.

All right, thank you.

Thank you Keith.

Your next question comes from the line of Josh Pector with Cacti.

Hi. Just two quick thoughts. The first is, maybe you can update us a little on how the Mexican market looks? No one ever seems to talk about it. Second conceptually and it might be my inexperience with the industry, but I am always confused that in distribution related business in a highly inflationary environment, I always believe that that should produce outside the operating margins and as long as you are raising your prices more that your cost, this would be the moment in which we would see Genuine Parts come up with a 12%, maybe 13% operating margin. I wondered, why not now, and if not now when could an environment produce that kind of results from your businesses?

Josh, I will try to answer them in the order you posed them. As far as the Mexican operations, we are pleased with the progress we make. There were, we’ve presence there in our automotive, our industrial and our electrical businesses, small components of the total in each case, but in all cases making nice progress. So we continue to feel good about our presence there. As far as the inflationary impact, I think what you are seeing in the case of industrial and electrical, you are seeing some of what you have described in your question. We are showing nice margin improvement in both of those businesses, and we are getting the benefit of the larger price increases in each of those businesses. We are not quite there yet in automotive or in office products, but I think in general we would agree with your statement that as inflation becomes more of a factor, it should in fact have a beneficial impact on our operating margins.

Josh, well I would agree with what Tom just told you. Your last comment there about getting margin back up to 12% or so in automotive, I do not want anybody to think that is going to happen.

Now you, come on Jerry

It is certainly not going to, but we can see some improvement.

Well we do not write, so we will not put anything in print, but looking at your businesses and running some of the numbers over the decades that we have data, why we could not see 200 or 300 basis points overtime, especially given how ramping the place is, as long as you are pushing prices up, faster than cost or fuel service charges, we should see good operating margin, right. If it is not now, Jerry, when would it come? This is it right?

Keep in mind that there our inflation number 1.7 is still not even up to the cost of living index numbers. So, we have not passed that point yet and your theoretical situation there if we would have price increases 6% to 7%, the other cost go up 3 then. The answer to your question will be yes, but I am not sure that those days are coming back. However, anyway Josh, we appreciate the comment, and we understand what you are saying, but that is just not realistic to think we are going back to anything double-digit margin. We think 9 to 9.5 over the next three or four years would be realistic in the automotive.

Carry on Jerry. Thanks so much.

All right, thanks. Operator [Operator Instructions]. Your next question comes from line of Walter Schenker with Titan Capital Walter Schenker - Titan Capital Thank you. Hello Tom, hi Jerry.

Good morning Walter. Walter Schenker - Titan Capital Two questions, one I know you have looked to do some direct sourcing in the automotive business in China for some items. With the change in the dollar and the inflationary pressures there, has that become somewhat less attractive to you?

Not less attractive, but we are finding that some products that right have been a candidate to be sourced in a country like China, now we look at other countries and see equally attractive opportunities up to and including some of this product now coming back to Mexico and [inaudible] and sourcing some of the product there. Walter Schenker - Titan Capital Okay. Second question, you indicated that there is some, it appears to be some deferral in the automotive side. I know, going way back when there were fuel issues, there was fairly decent variance among product lines which would help further identify that that was going on among auto parts which are deferrable versus none. Are you seeing material differences across product lines more than you would normally see?

We are, what we see is anything that affects drivability. Our results are really pretty good, and examples would be categories like batteries, brakes, and chassis. If we look at other things that maybe more discretionary, things like tools and equipment for instance, sales there are not as strong as they are in the other product categories that I mentioned. So, what we are seeing is more, anything that is discretionary, we are finding that demand is not as strong as it is for those critical items. Walter Schenker - Titan Capital There are something which is a big ticket item, which might be discretionary would also, I am thinking of air conditioned compressors or something like that, that would probably be little weaker?

Well air-conditioning Walter Schenker - Titan Capital I know, hotting where you are, I guess--

Yes, air conditioning compressors in the South right now would not be considered discretionary, I do not think, people are replacing those. However, if one has a choice, and if they do not have to make the repair than we are seeing, people question whether not they will make the repair. Just further, another thing we are seeing is that folks are asking whether or not there is a lower price to alternative and we do sell, two different levels of product, one more higher priced and one a little lower priced, and we are seeing unit sales of the lower priced products exceed, the unit sales of the higher priced products. Walter Schenker - Titan Capital Your gross margin across the multiple lines, tend to be the same. I realize there is different gross balance, but the margins are pretty much the same?

No, not across the product category. We’ve got quite a variance among the different product categories. Walter Schenker - Titan Capital I am sorry. I meant, among the same products, different lines?

Same product, different lines, yes. Walter Schenker - Titan Capital Okay. Thanks a lot.

Thank you.

Thank you Walter.

Your next question comes from the line of Tony Cristello with BB&T Capital Markets.

Thanks, good morning. Gentleman.

Good morning, Tony.

Good morning, Tony.

A couple of questions. One, for the auto segment, I am just wondering, when you look at your company owned businesses versus some of the independence that you are providing parts for? Is there a difference, on how the stores are performing?

Well, across a store base of 5900, almost 6000 stores, yes certainly there is difference. Across our company store base, we see a difference within the 1000 or so company owned stores that we have. I would say if we are trying to group them and say what is the performance of the independent, as it compares to the company store group, they are about comparable right now.

Okay. So not to material, do you have any thought on the sequential improvement you have seen in the DIY business? It was pretty weak in the first quarter and then you saw a nice pickup in the second and obviously price is some of that. However, it has got to be a more conscious effort on the consumers. Is that related to perhaps new car sales being down so much, or is there something else you are seeing either in traffic or spending that might be a reason for that?

We do not have anything that we can point to specifically. It may be what you just said, and that is that with people keeping their cars longer, they may be willing to put a little money into them. However, we do not have anything that we would say is absolutely categorical.

Was your business impacted with weather? I know, there was a lot of flooding in the Midwest and certain regions there, and can you speak on any geographic strength or weaknesses that might not have been consistent with what we’ve seen in the past?

Geographically, it is pretty much the same. We were impacted as everybody was with the Midwest weather situation, but our business overall in the Midwest, the Southwest, the Mountain States, up East, our business remains pretty good. Our toughest areas continue to be in the Southeast and then out West in the States of California and Arizona primarily. That is where we find the biggest challenges and that is consistent across all four of our businesses.

Okay. I mean, maybe this is a big picture question here for you Tom, but there is obviously emphasis on smaller cars and fuel economy and those types of things. How do you look at, or how do you view your operations in the industry, what might change in over the next two or three or four years with that emphasis and that focus and thinking about trucks becoming less of a option, or diminished in terms of how the consumer is viewing those on a purchase basis?

Well, a couple of things. One, any change that happens, whether it be in size of vehicle or the power plant in a vehicle, it is going to be a gradual change, because as you know, there are 249 million vehicles on the road today, and every year we sell, we use to sell 16 million to 17 million. We are going to adjust that to 14 million to 16 million based upon current times. However, any change is going to happen over a multiple year period. As far as the implications of smaller vehicles or alternate power plants, certainly they will have an impact. There are some positive, and some potentially negative, but we view most of them in a positive sense. One thing that will happen is there will be more parts proliferation, because of the introduction of these vehicles, and we think that plays to one of our core capabilities. We think that we do have fairly sophisticated inventory management forecasting models and inventory management systems. We’ve got the balance sheet and the distribution network to support that. So we think that that might play an advantage for us. Second thing, we think that vehicles regardless of size are going to become even more complex, which probably says that the DIY business or the DIFM business, the professionally installed business is going to continue to grow in terms of the overall, which we think again plays to an area of relative strength for us. So, we do think that we are going to go through a period of change. It will be gradual. I think, we are reasonably well positioned to handle that and hopefully with our strategies we will be in a position to be beneficiaries of the changes.

Okay, that is great. One last question on just the acquisitions. Do you feel like this environment, you are getting better pricing on what you are having to pay for things and are they more available out there given what the current status of the macro is?

Well, the answer to that is yes and no. We are seeing a number of opportunities. We are seeing a number of opportunities at reasonable pricing. Pricing that we think makes sense and occasionally we see some that appear to be reasonably good opportunities, but the pricing has not yet come down into a range that we would think make sense for Genuine Parts Company and our shareholders. However, on balance, we think the answer would be more yes than no.

Okay, great. Thank you.

Thank you.

There are no further questions at this time. I would now like to turn the call back over to Ashton Partners leadership.

Matthew, I will take the call. We want to thank those of you for joining us today. We appreciate your continued interest in and support of Genuine Parts Company, and we look forward to talking to you on future calls.

This concludes today's Ashton Partners conference call. You may now disconnect.