Good morning. My name is [indiscernible]. I'll be your conference operator today. At this time, I would like to welcome everyone to the Genuine Parts Company's Fourth Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session (Operator Instructions). I would now like to turn today’s conference call over to Sid Jones, Vice President and Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining us today for the Genuine Parts' fourth quarter and full year 2014 conference call to discuss our earnings results and outlook for the 2015. Before we begin this morning, please be advised that this call may involve forward-looking 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 comments from Tom Gallagher, our Chairman and CEO. Tom?

Thank you, Sid. And I would also like to add my welcome to each of you on the call today and to say that we appreciate you taking the time to be with us this morning. Paul Donahue, the President of Genuine Parts Company along with Carol Yancey, our Executive Vice President and Chief Financial Officer and I will each handle a portion of today’s call. And once we have completed our individual comments, we will look forward to addressing any specific questions that you may have. Earlier this morning we released our fourth quarter and year end results and hopefully you've all had an opportunity to review them. But for those who may not have seen the numbers as yet, a quick recap shows that sales for the quarter were $3.822 billion, which was up 9%, net income was $165.6 million, which was up 10% and earnings per share were $1.07 this year versus $0.97 last year, which was also up 10%. So we feel that our team came through the final quarter of the year in good shape. For the year sales were $15.342 billion which was up 9%. Net income was $711 million up 4% on a reported basis and up 9% on a comparative basis. You'll recall that in 2013 we had one time purchase accounting gains that were related to the GPC Asia-Pacific acquisition and that had a onetime favorable impact on the 2013 results. Earnings per share for the year were $4.61 and EPS was up 5% on a reported basis and 10% on a comparative basis. Sales net income and earnings per share, each reached record levels in 2014 which we're certainly pleased to report and we're also pleased that the sales in EPS results both came in a bit above our full…

Yes, thank you Tom. Good morning everyone. And let me add my welcome to our fourth quarter conference call. I’m pleased to join here today and to have an opportunity to provide you an update on the fourth quarter performance of our Automotive business. We’re pleased to report to our global Automotive business grew top line revenues by 4% in the fourth quarter. This 4% number consists of 6.5% core Automotive growth which includes slight benefit from acquisition offset by 2.5% of currency adjustment. The currency adjustment was a bigger headwind than we had anticipated for the quarter. Our team was able to overcome this challenge with stronger than expected core growth. When reviewing our quarterly performance, we continue to be encouraged by the solid results our teams are generating across our entire automotive business. During the fourth quarter we saw our U.S. team posted 7% sales increase, while our International businesses including Canada, Mexico, Australia and New Zealand grew mid-single digits. In the U.S. all regions of the country are positively contributing to our sales growth. The Atlantic, Western and Midwestern divisions led the way for our Company in the fourth quarter. Now let’s turn to our same store sales numbers. Our U.S. company owned store group grew comp same store sales in the fourth quarter by 7%. This 7% is on top of the 7% increase we generated in the fourth quarter of 2013, which gives us a two year stack of plus 14%. This solid performance continues the strong same-store sales run dating back to the fourth quarter of 2013. Our quarterly breakdown for 2014 is as follows. In the first quarter we generated an 8% same store sales increase and in Q2 we posted a 7% increase and in Q3 we’re plus 6%. Rolled up that…

Thank you Paul. We'll begin with a review of our fourth quarter and full year income statements and our segment information and then we'll review a few key balance sheet and other financial items. Tom will come back at the end of my remarks and then we'll open the call up to your questions. Our total revenues were $3.8 billion for the fourth quarter, an increase of 9% from last year. This consists of underlying sales growth of 8% and a 3% contribution from acquisitions. These items were offset by a currency headwind of approximately 2%. For the year our sales increase of 9% was 5% of core growth with another 5% from acquisitions offset by a 1% currency headwind. Our gross profit for the fourth quarter was 30% of sales and this compares to the 31% gross margin last year. For the 12 months, our gross margin of 29.9% compares to 30% reported last year or 30.1% excluding the onetime purchase accounting adjustment in 2013 that was previously disclosed and also referenced in today's press release. We're pleased that our fourth quarter gross margin was in line with our expectations. We also recognize the need for further progress on this line and as we've stated before, this area has our full attention. As we move forward in 2015, we will rely on well executed margin initiatives across all of our businesses to offset the ongoing customer and product mix shifts that are pressuring our gross margins today. Additionally, our initiatives are important in addressing the generally low inflationary environment, especially in the Automotive segment. Our supplier price increases for 2014 were flat for Automotive, up 1.5% for Industrial, up 1.4% for Office Products and up three tenths of 1% for Electrical. And currently we are planning for about the…

Thank you, Paul and Carol for your updates and thanks to both of you and your respective teams for the fine job being done and also for the important role that each of your plays in the overall success of Genuine Parts Company. So that concludes our prepared remarks on 2014, and in closing I would say that we're pleased with our overall results. As we look back there were a number of notable achievements. Sales and earnings rose to record levels in all four of our business segments and this enabled GPC to report a record year with sales going over the $15 billion mark for the first time. The 9% sales increase follows an 8% improvement in 2013, indicating a good two year progression. Operating profit improved by 30 basis points with three to four business units contributing nicely. We kept the balance sheet strong and flexible with debt to total capitalization being 18.8%. Cash generation, although down from last year's historic levels were still strong with cash from operations coming in at $790 million and free cash at $335 million. And working capital efficiency improved nicely again in 2014. We returned over $440 million to our shareholders through a combination of share repurchase and dividends and with the 7% dividend increase approved by our Board of Directors yesterday, we've now increase the dividend for the 59th consecutive year. So in summary we're proud of the achievements in 2014 and we're appreciative of the fine job that was done by the GPC associates throughout our organization. Now in looking ahead we remain confident in the underlying fundamentals for each of our business and all of the GPC businesses have well thought out growth strategies for 2015. We're a bit less certain however of the overall impact of the…

[Operator Instructions] Your first question comes from the line of Matthew Fassler from Goldman Sachs. Your line is open.

Just start by asking you briefly about Automotive margins. You alluded to the fact that they declined. I don't think you gave a lot of color as to why they were down as sharply as they were with very strong revenue growth. So any color you could give there would be terrific.

Yes, Matt, I'll speak to the fourth quarter margins and then kind of talk about it on a full year basis. So our gross margin was down a bit in the fourth quarter within Automotive and we talked about customer and product mix and we offset [ph] some of the foreign currency pressures and some of that flows through to the gross margins as well. And in addition our SG&A wasn't as favorable in the Automotive segment in the quarter. So what I'd point to is -- what we are really pleased to show is that for the full year our Automotive margins were up 10 basis points and I would tell you that, that primarily came from SG&A leverage.

I think all my follow-ups are probably going to relate to this question. First of all, if you think about FX and you think about translational impact versus transactional impact, it seems like you had some transactional friction in there. And if you could just tell us how big -- whether I'm right and how big a hit that was to you? In other words paying in dollars and selling in foreign currency?

Yes, we're not going to quantify what the transactional impact is, but just to say that it was somewhat of a headwind in our margins in Automotive in the fourth quarter. The currency was a little worse than what was anticipated and you certainly sell that on the top line. You sell that a bit and then margins as well.

This is Tom. I might also add -- perhaps this might be helpful to you and others on the call and that is that our core NAPA business, the operating margins were strong and improved more than our overall automotive margins. The biggest contributor in the quarter, and frankly even on a year-to-date was the currency exchange and if you recall back to my guidance comments a few moments earlier, we said that automotive was going to be impacted by our estimate, 4 points on the revenue side in 2015. So what's happening outside of U.S. with the strength of the dollar is causing us to see the impact in a pretty heavy way.

Totally understood. Just two more very quick ones that follow from that initial response. As we think about -- was incentive compensation part of the equation? You clearly had a very good year in Automotive from a revenue perspective. Was there any catch-up for bonuses in fourth quarter?

Absolutely. I'd point out again while we're pleased to see the great results in Automotive, the extent that we had on the top line, that flowed through on the incentives. So we had less of a favorable year if you will in the fourth quarter as it related to that incentive compensation. You're exactly right.

And then my final question relates to mix. So I know you spoke about customer mix and product mix really across the collective enterprise. If you think about Automotive, obviously the standout number was DIY or retail. Was that a part of the mix impact on margin? And if so, was that the innate mix -- the innate characteristic of that business, or what you had to do to capture that business?

I guess I would say on the quarterly margins again for automotive, when we talk about the customer and product mix, the examples that they would point to our major account business and the AutoCare business as those businesses continue to have the strong growth. And when we talk about that being in a lower margin, also Paul called out a couple of product categories, one of them being T&E, batteries, our heavy duty products, that's sort of the product and customer mix that we're talking about. Certainly you had something that was more favorable on the retail side that those are unfavorable on the other side, on the commercial side.

Your next question comes from the line of Scot Ciccarelli from RBC Capital Markets. Your line is open.

Tom, you were able to outline the expected EPS impact for 2015 of roughly $0.15. Do you guys have a number for the fourth quarter? Is there a reason you can’t give a little bit more detail on that?

I don’t think we have that number here, You can follow up with Sid and he might be able to give you a little more input on that, Scott.

Okay, all right. And then I guess a little bit follow up on Matt’s question. You had retail sales outpace commercial in the quarter. I know it’s on lower base but I guess -- why do you think you saw that shift? That’s little bit more pronounced than what you guys have typically seen given your commercial focus, number one. Number two, is that a trend that you’re expecting to continue for the next couple of quarters there?

Scott, this is Paul. Our retail business, we did have a good fourth quarter and we had a good year. Our overall retail business was high single digit year-over-year, and that scenario that we intend to continue to focus on. Now I do want to point out that we’re not going to forget where we came from and that’s our commercial wholesale business and that's still -- that’s our bread and butter. But if we can pick up some share on the retail side, and as I mentioned Scott, it’s with some of the very basic blocking tackling in relation some of the things our team is doing on the store hour side, staffing side, just compliance side with our planogram. So we’re very pleased with our retail business and honestly if we can continue to grow that mid to high single digit in ‘15, we’ll be pleased.

Got it. And how much would you attribute -- I know this always tricky to figure out. Historically we’ve seen a little bit bigger impact from changing gas prices on the retail side and the commercial side. A, do you think that’s an accurate statement, and B, is there any way to estimate that?

I’ll give a shot, Scott. I think -- listen, the consumer has got, I think I read recently about $70 more disposable income in their pocket. Does that help our retail business? I think absolutely it does and how it impacts the commercial business? Well, if you look at what’s happened with Miles Driven and the spike that we saw in late Q3, early Q4 in Miles Driven which are at some of the highest levels we’ve seen in a number of years, that’s going to drive -- obviously that drives our miles driven number up and that’s going to increase our parts business overall.

And Scott, I might add just one additional comment to Paul’s and that is if we look at some of the discretionary items, I think we saw a little bit of an uptick in the flow through of those, which perhaps is attributable to more discretionary income.

And that will be mostly on the retail side where you saw that tone?

Yes, it would be.

Your next question comes from the line of Mark Becks from JPMorgan. Your line is open.

Just a follow up on that. Was the decline in gas prices, if you look at the 7% comps in the fourth quarter, it was roughly 200 basis point improvement on the two year. Anyway to sort of get a sense of how much of that is gas versus weather versus some of the internal company initiatives that you guys have been delivering upon.

Mark, I don’t think we can get that granular. There are just so many variables, it’s really hard to try to pinpoint specifically which one is impacting it, we would just say that with the lower gas prices, it is positive and a significant positive for the automotive aftermarket in our opinion.

Okay. And then on the gross margin side, just trying to get an idea of the direction going forward in 4Q more specifically. Just curious; why was it so severe in the fourth quarter? Was it simply a compare issue, a LIFO? Was there any one-time things in there? And how do you feel about the ability for gross margin expansion in 2015?

If you look -- I might take a stab at it and then Carol will add more color. But if you look, first of all at Q4 last year, it was clearly the strongest gross margin quarter of the year and we were going up against a tough comparison there. As we think about gross margin across the enterprise in ‘15 all of our businesses have gross margin improvement initiatives and our expectation is that we will show some gross profit improvement over the course of 2015.

Yet another thing I would add, the prior year fourth quarter we had more of a one-time non-recurring adjustment that didn’t repeat in this year fourth quarter, which we knew all along because we've been staying around 30%. And the second thing I would say is, if you think about the volume incentives and our inventory was only up 3% for the year and our team has done a very good job of keeping that inventory down, certainly a good bit than the sales increase. So to the extent that we have volume incentives and those wouldn’t have been necessarily at the same level, that was some pressure on gross margins. And also the Office Products margins were down 10 basis points for the year and that was primarily attributed to gross margin. So we – again we were in line with where we were for the full year at 30% and I think that’s a reasonable assumption going forward.

Tom, you alluded to some gross margin initiative. To the extent on a call on a public forum you'd be willing to, can you share some of the specific margin improvement initiative that you guys are working on?

Not we wouldn’t want to get into the specifics. I would just say that we’re looking at both sides of the equation and you've got buy side and sell side initiatives and we're working on both of those.

And then one just quick follow up then lastly. On the guidance if you look at Automotive, you're expecting up 2% to 3% in the year, which is a little bit below what you delivered in fourth quarter. If we think about automotive margin profile in 2014, assuming you guys hit your sales guidance what does that suggest for automotive margins in 2015?

Well, I'd first respond to that by just reminding that we're looking for our core Automotive to be up 6% to 7% before the impact of exchange rates and we think that all of our businesses can and should show operating margin improvement over the course of 2015.

Your next comes from the line of John Lovallo from Bank of America Merrill Lynch. Your line is open.

Hello? Nicole, we might need to go on. We didn’t get anything come through on John Lovallo's call. We might need to go to the next caller.

Certainly. The next call is from Brian Sponheimer from Gabelli. Your line is open.

Hey it's Brian. Few things here. One within Motion, any impact from decline in price of oil in the quarter, particularly in some of those Western Canada markets you got into?

Yes Brian this is Tom. Certainly we're going to be impacted like anybody else that services the oil patch. I would say that for us it’s a low single digit percentage of our total volumes. So while it's significant in terms of gross dollars, it's not as big as it might be for some others.

Low single digit of motion.

Of motion. And the other thing I would say is that importantly we are going to see a near term decline in demand coming out of those areas. But the segment is not going to go away. It's going contract but it's still going to be there. And potentially an offset for Motion is the lower fuel prices that Paul referenced, that give the consumer a more discretionary income and as that money starts to get spent, it will flow through other segments of the economy, which could and should impact in a positive way some of the other manufacturing customers that Motion deals with. So near term we think it will be a bit of a headwind. Medium and longer term we think it will probably balance out.

Just thinking about the fourth shut down. Have you guys seen any impact on some of your vendors been able to get product to you?

We look at it a couple of ways; one, with what's happening with some of our vendors; and two, what's happening on some of the direct importing that we're doing. And what we've seen is I think most people are doing a pretty good job of working through the situation. I know in our own case we've had to divert shipments to other ports. So it has not had a significant impact on service levels but it has added to our lead times but it's something we're watching pretty carefully.

All right, and as I'm thinking about the guidance up 4%, that implies roughly speaking at the high end $15 billion revenue for 2015. What impact do you factor acquisitions for that? Is that the $390 million you referenced before?

No in that would be the acquisitions that were completed in 2014. But we have not factored in anything for any future acquisitions. We do have the Miller Bearing acquisition in there that we mentioned promotion $40 million on an annualized run rate. But anything that happens subsequent is not factored in there.

And what's the non-comp revenue number that you're implying with that $16 billion.

When you say non-comp?

Acquired business that you expect to flow through, is it upwards of 250 million?

We don’t have that here Brian. We can have Sid get back to you.

Your next question comes from the line of Seth Basham from Wedbush Securities. Your line is open.

My question is around NAPA. You mentioned that core NAPA operating margins were strong and improved overall auto margins in 4Q. Just to clarify, the NAPA U.S margins increased year over year in the fourth quarter and how did that compare to recent quarters trends?

The margins improved on a quarterly basis and for the full year. So the NAPA organization performed quite well for us this year again.

Got it. So the entire drag was really driven by business outside of the U.S.

That’s right.

And then….

And Seth, just one other thing. That was due to a currency exchange. As Paul referenced we had local currency growth and improvement in these other businesses but when we translated, we lost all of that.

Got it. Understood. Clearly you guys put up some good core numbers for NAPA U.S. Do you have a sense of where you might be taking share from?

Hey Seth, this is Paul. That's always difficult to tell, especially as you look at some of the good numbers our publically traded competitors put out, but I would have to think that if we're taking a bit of share, it may be from of the smaller regional players that are out there, that perhaps are not growing quite at the level that we are and perhaps some of our publically traded competitors.

Okay. And what about the independent side of the business in the U.S.? How did that perform, and are you acquiring more independents for that business?

Independent, the thing we liked about the performance honestly is how balanced it was. Both our Company store group and our independent group grew at comparable levels.

And to answer the second part of that question Seth, in terms of -- continue to expand our independent business and to our convert other independent owners out there, absolutely that's core to our business and something that our team is very focused on every year.

Your next question comes from the line of Robert Higginbotham from SunTrust. Your line is open.

Question about a recent transaction in the Automotive space. Uni-Select recently sold their US Automotive business to Icahn. And so I'm wondering if you have any thoughts about what the new owner of that business might do with that asset; how you view that as either an opportunity maybe to pick up jobber stores, or a threat competitively. And actually on that front, when you look at other wholesale, independent versus owned store business models, you guys have been a clear standout in terms of consistently executing that business, where others have struggled. What would you point to as kind of your secret sauce to success? And what is and would be difficult for others to replicate?

Hey Robert, this is Paul. I'll take the first part of that question and I know you're referring to Uni-Select U.S. and the acquisition by Carl Icahn. Very early on in the process and honestly we probably know about as much as you do at this point. It does not change the competitive landscape. So Uni-Select U.S., I think I read where they were ranked as the No. 5 player in the U.S. So that doesn't really change the competitive landscape at all for us at this point. It may open up some opportunities and I would say that in terms of other Icahn owned business, which of course is Federal-Mogul, they are a long time supplier to NAPA, they are a long time supplier to our industry and they are a good supplier. So for us at this point, until we learn a whole lot more Robert, it's essentially business as usual. The second part of your question then, as it relates to the secret sauce, I don’t know that we have any secret sauce. We have a good strategy each year. We tend to stick to our core. We have a very good group of independent entrepreneurial owners in the marketplace who are very good at what they do and we provide them what we think is best in class training and programs to enable them to compete everyday out there on the street. And so if there is any secret sauce, that may be the takeaway.

Okay. And switching gears to Office Products, how should we think about the potential impact of the pending Staples/Office Depot merger? Could you help us at least maybe size what you see the opportunity -- and risk on the flip side of that of being to maybe gaining some first call volumes; and again on the flipside maybe potentially losing some first call volumes. And then how to think about just overall margin trends, as presumably that bigger entity will push you on price.

Robert, I'll take a stab at that and I start by saying that these are both good companies and this transaction seems to make good strategic sense for each of them. As you probably know they're both fine customers to S.P. Richards who are first call with Office Depot; and we've got a significant second call position with Staples. From the published reports, and that's all we can go on but from the published reports that we've seen, the transaction is probably going to be consummated toward the later part of the year. So between now and then it's business as usual and we're going to continue to provide the best service that we can provide, and the best support that we can provide to both entities, and certainly post transaction will hope to be the first call -- a wholesale provider to the new entity. As far as trying to size it, we wouldn’t want to get into that here. But we’re optimistic about what’s going to happen in the future. We think there is a lot of upside there potentially.

Your next question comes from the line of Bret Jordan from BB&T. Your line is open.

Most have been hit, but could we talk a little bit about the Mexico initiative? I think you were ramping that up in the fall of 2014; and maybe some early signs on success there?

Yes, absolutely, Bret, we did launch our NAPA Mexico initiative back in October. We opened our distribution center and a number of company owned stores in the marketplace. It’s very early on. We’re pleased with the progress that we’re making and it’s going to be a long initiative for us for sure. But in the early days we’re pleased with the progress that our team is making down there.

Okay. And then one follow-up question on an earlier topic and you're picking up independent distributors and clearly there's been some transition out there on the Carquest side. Could you give us any color? Have you added -- and the numbers that you have added to Carquest, ex-Carquest distributors?

This is Tom, Bret. I think the way we’d like to answer that is that we’re pleased with the progress we’ve made to-date. We continue to see opportunities and we think we’ll continue to make progress but we would not want to disclose the absolute numbers.

Your last question comes from the line of Greg Melich from Evercore ISI. Your line is open.

I had one follow-up on the margin progression on the guidance, and then a little more mechanical question for Carol. First, it sounds like although margins were down only because of FX in the fourth quarter, and so when you look at your guidance for this year, when you say that you expect the margins to be up, is that in core in Auto? Or do you think that once you bring in the FX, they could actually be down a bit at least for the first few quarters?

I guess our gross margin guidance that we would be giving would be in total, since we don’t really get into it by segment. And I think our around 30% guidance assumes probably flattish in all of our businesses. I think the operating margin improvement that we’ve talked about in each of our segments and we’ve talked about the 10 to 20 basis point improvement and coming off of this year and have 30 basis points, we’ve been really pleased to see that, that we’ve got certainly some headwinds going into 2015. That's primarily going to probably more come through the SG&A line more so than the growth margin line.

And then, Carol, on working capital, given the nice improvement that you saw, if I’m not mistaken the cash from ops actually came in a little bit lower than the guidance you had earlier in the year. I think it was 900 million and ended up being about 100 million less than that. What was driving that? Was that the receivable growth that you talked about? And could you help explain a little bit what your business has been and how that will normalize? Thanks.

Yes. So, you’re right. We were a little bit short what we had anticipated from our cash from activities and I would tell you the two primary areas for accounts receivable that you mentioned and that's primarily in the Automotive and Office Sector and again with the stronger revenue growth in what we had, on some of that is we have additional terms. I would tell that our day sales outstanding, we look at it over the course of the couple years. In the past four years that’s been flat. So we’ve been pleased to see that. The second factor in working capital was accounts payable which you mentioned and it goes to a little bit earlier when I mentioned our team really did a good job in the inventory area. So we had in a couple of the segments and it was certainly Industrial and Electrical that slowed down their purchases if you will. So you didn’t see as much on the accounts payable side. And then the other thing is on automotive, which is certainly where we see a lot of the improved terms, we have anniversaried some of those. And it was largely a timing thing that we didn’t have as much coming into the quarter. So we’re looking for improvement on those lines. And again, it was a strong number but not quite where we thought it would be.

Would it be fair to sum up that last year’s earlier goal, the $900 million, included a bigger working capital benefit? Instead now you’re going to see that benefit over a few years, and that’s why now we’re using $800 million to $850 million. Is that a fair summary?

I think that’s a fair summary, yes. And I think that and we don’t talk about it as much is our [indiscernible] to inventory was 84% this year and 77% last year. So it’s improvement each year but I think it spread out over little longer period.

I would now like to turn the call back over to management for closing remarks.

We want to thank you for your participation today and your support of Genuine Parts Company and we look forward to reporting back to you in April after our first quarter numbers. Thank you.