Good day everyone and welcome to the Genuine Parts Company Fourth Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. At this time, I would like to turn the conference over to Sid Jones, Vice President, Investor Relations. Please go ahead.

Good morning and thank you for joining us today for the Genuine Parts Company fourth quarter and full year 2016 conference call to discuss our earnings results and outlook for 2017. 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'll begin today with comments from our President and CEO, Paul Donahue. Paul?

Thank you, Sid, and let me add my welcome to all of you on the call this morning. We appreciate you taking the time to be with us. Earlier today, we released our fourth quarter and year end 2016 results. I'll make a few remarks on our overall performance, and then cover the highlights by business. Carol Yancey, our Executive Vice President and Chief Financial Officer, will provide an update on our financial results and our guidance for 2017. After that, we'll open the call to your questions. For some perspective on our performance, total sales in the fourth quarter were up 2.7% to $3.78 billion, while net income was $152.5 million and earnings per share was $1.02 compared to $1.07 in the fourth quarter of 2015. For the year, total sales were $15.34 billion, which is up slightly, with net income at $687 million and earnings per share at $4.59 compared to $4.63 in 2015. These results represent the total sales and earnings across our Automotive, Industrial, Office and Electrical operations, which we'll discuss in more detail throughout this call. We executed on many of our initiatives in 2016, and we believe we entered the new year as a stronger, more diversified global distributor. And while there is no question the U.S. sales environment was challenging throughout the year, our international operations in Canada, Mexico and Australasia, outperformed the stronger, more positive results. In addition, we continue to build on the revenue and cost benefits derived from the growing scale associated with our portfolio of distribution operations, and we remain committed to further optimizing our enhanced buying power for indirect and direct spend. Together with the shared talent, best practices, transportation, technology, systems and common distribution processes, we expect to derive improved efficiencies, productivity and lower overall cost structure,…

Thank you, Paul. We'll begin with a financial review of our fourth quarter income statement and the segment information. And then we'll review a few key balance sheet and other financial items, and finally I'll provide our outlook for 2017. As Paul mentioned, total sales in the fourth quarter of $3.78 billion were up 2.7%, including a 1% decrease in comparable revenues. For the full year, total revenues of $15.34 billion were up slightly and also include a 1% decrease in comparable sales. Gross margin for the fourth quarter was 29.9%, up 17 basis points from the fourth quarter in 2015. For the year, gross margin is 30%, up 16 basis points from 2015. This improvement was primarily driven by the combination of product mix shifts to higher margin categories and also the benefit of our higher margin acquisitions, which is partially offset by lower supplier incentives. Overall, we were encouraged by our gross margin expansion in 2016 and, as we look ahead to 2017, we remain focused on further enhancing our gross margin for the long-term. The pricing environment across our businesses remains relatively unchanged from the prior quarter, with deflation in the Automotive and Electrical segments, and just slight inflation in Industrial and Office. Our supplier price changes in 2016 were negative 0.7% in Automotive, positive 0.4% in Industrial, positive 0.3% in Office, and negative 1.2% in Electrical. Turning to our SG&A, our total expenses for the fourth quarter were $895 million, up 7% from last year and 23.7% of sales. For the year, total expenses of $3.5 billion were up 3% from 2015 and 23% of sales. The increase in operating expenses as a percent of sales primarily relates to the deleveraging of expenses across our businesses for most of the year. We also increased our spending…

Thank you, Carol. As we enter 2017, we remain committed to our global growth initiatives, which include the execution of fundamental initiatives to drive greater share of wallet with our existing customer base, an aggressive and disciplined acquisition strategy focused on both geographical as well as product line expansions, the building out of our digital capabilities across all four of our businesses, and the further expansion of our U.S. and international store footprint. We remain confident that our ongoing focus in these four key areas, along with our initiatives to drive significant cost savings, will positively impact our future results and produce the steady and consistent growth we look to achieve each year. So with that, we'll turn it back to Dana, and Carol and I will take your questions.

Thank you. And we'll go first to Chris Horvers with JPMorgan.

Thanks. Good morning.

Good morning.

Hey. Good morning, Chris.

So why don't you – a couple of questions. So you mentioned the cadence of sales are weighted to the back half. Thinking about NAPA and Motion in particular, do you think they build up relatively evenly from the fourth quarter of this year into the back half or do you expect some bumps along the road and specifically around NAPA? I mean, obviously, you talked about a good December. Weather hasn't been as great here in the first quarter, and then you've got the tax refunds that others have talked about. So trying to get some understanding on how to think about those two divisions.

Yeah, so two things, Chris. One is our comments about the back half of the year were more specific to the earnings. So we were more commenting on the plus 2% to plus 5% in earnings, we would expect to see more of that in the back half of the year. Then the second thing is, you spoke to (32:34) sales, Q1 last year was our strongest quarter. So as you think about that, I would just take that into account, but then knowing that quarters two, three, and four were more similar. And then you specifically called out Industrial, and I would just mention with the Industrial, again, we saw great improvement in their sales in the fourth quarter. So the guidance that we gave you for them, those sales increases would be pretty even across the quarters in 2017, unless we see something outside of our control in the economy that we're not anticipating.

And, Chris, just staying on Industrial for a minute. If you look at all the macro numbers, as we look at them, whether it be the ISM number, rig counts, we're seeing significant improvement. We've been through these cycles in the downturns in Industrial before. And it does feel – and we see it in both Motion and our Electrical business, that these two businesses are now poised for much better growth in 2017.

Understood. And just to clarify that, that 1Q strongest quarter, that was a reference to NAPA, correct?

Yes.

Okay. So a segue to Motion. So as you've consolidated facilities, you've invested in technology, how should we think about the long-term margin potential of the business? After the crisis, you got back to an 8.1% operating margin. Before the crisis, the prior peak, I believe, was 8.4%. So how do you think about what's the potential earnings power sort of in a peak state, and then the time to get back to that?

Yeah. So a couple of things there is, you're right, they've closed over 50 branches and a couple of distribution centers. They've done a terrific job on the cost side. And as we have mentioned before, they had an impact of lower volume incentives as it related to this business. So as this business picks up, you do see the margins coming back and we've seen some nice improvement in their core gross profit, and then they've got some acquisitions coming in. So I would just mention, we always have a stated goal of improvement each year in operating margins. As far as the bounce back and the range, I mean, for all of our businesses, we still target the 8.5% to 9% for operating margin. I wouldn't necessarily expect that within 12 months, but I think you're going to see a nice bounce from them.

I guess asked another way, between the acquisitions and the costs that you've taken out of the business, did you create a structural potential that's higher than you've seen in prior peaks?

I wouldn't say higher than what we've seen in prior peaks. I mean, remember, they're just at 7.3% right now. So, I mean, we've got a ways to go. But 8.5% would be a really nice margin for them.

Yeah, very nice. Understood. Thanks very much.

Thanks, Chris.

Yeah. Thank you.

We'll go next to Matt Fassler with Goldman Sachs. Matthew J. Fassler - Goldman Sachs & Co.: Thanks a lot and good morning.

Good morning, Matt. Matthew J. Fassler - Goldman Sachs & Co.: I'd like to get a little more. I know you've probably covered this in kind of a fragmented way as to why you'd expect the earnings to be second half weighted more so than the sales, if sales are fairly even. Just talk about what it is moving the margins around that will work more to your benefit in the second half of the year?

Well, really, if you look at from the cost structure, I mean, we've said it takes a bit of time for us to get those costs out, and look, we're not happy with where we ended up the year in fourth quarter. We've got more work to do in SG&A. I mean, when we look at what we've done in terms of facility rationalization, when we look at our head count, when we look at our cost structure, freight, legal and professional, insurance, I mean, there is wage pressures. So we've just got to work hard at continuing to get those costs out, and that's not a quick thing that happens in just a quarter. So that's why we're giving a little bit of the earnings to say it will probably be more back half loaded. Matthew J. Fassler - Goldman Sachs & Co.: Great. And then the second question, obviously, tuck-in acquisitions and some bigger ones have been a pretty consistent part of the story over the past several years. Can you just clarify, other than the dividend, what kind of free cash flow deployment you have baked into the guide?

So, our – what we have assumed in our cash flow guidance that we gave was very similar to what we had this year. So we would have an amount set aside, if you will, for of course the dividend, the CapEx number we gave you, share repurchases of a similar amount, and then for acquisition. So you can count on the 1% to 2%-ish on acquisitions in terms of revenue, so that's modeled into our cash flow guidance.

Matt, we were very active in 2016 with 19 acquisitions and $600 million in annualized revenue, quite a bit more active than we were in prior years. It's difficult to say, this is generally a long process, when we look at businesses and partnering with businesses. So you just – it's hard to gauge, because you just never know when they're going to come along, when the right one is going to come along. But I will tell you that we will remain active, not only across all four of our businesses, but across all of our geographical regions as well. Matthew J. Fassler - Goldman Sachs & Co.: Just to be clear, does that $4.70 to $4.80 include any buyback or any acquisition that is new buyback or new acquisition in 2017?

No, it would just be the normal ranges that we've discussed. So we have not – the acquisitions that have already taken place in our numbers in 2016, and then roll into 2017 is what's contemplated in our guidance. But in the earnings guidance, it would just be a normal buyback. So that's usually around 1%, 1.5% of our shares. Matthew J. Fassler - Goldman Sachs & Co.: Great. Thank you so much, guys.

Thank you, Matt.

Thank you.

We'll go next to Greg Melich with Evercore ISI.

Thanks. I – two questions. First, I'd start with the business and particularly the inflation/deflation trends and, Carol, you give us a nice update for last year on each of the businesses. What are you thinking – or seeing this year when you plan your guidance for inflation or deflation by business?

Well, so we just finished our fifth year of deflation on the automotive business. And I can't say we're planning for anything much different than that. In the other businesses, this was definitely much lighter than normal year. So we're not really planning for much. But, look, there are so many unknowns out there in the economy right now and certainly with new legislation, some of the trade and tax issues that are being thrown about, we don't know what will come. But right now we're contemplating a similar number in 2017 for inflation, which would not be much.

Okay, great. And then second one is a little more big picture. If you just take your guidance this year, that sort of low to mid-single-digit EPS growth, I think now it's a couple of years where you've been at slower growth than the normal objective, which is high single digits. And I guess the question is, has something changed in the business or what – do you think this is cyclical or secular or how should we think about that?

Well, I think in the – one of the things that we've assumed for this year is core growth of 2% to 3%. So, as you know, in distribution business, core growth of 2% to 3% makes it very difficult for us to leverage or to have margin improvement. So that's why we're giving kind of an earnings number of plus 2% to plus 5%. But certainly know that we're not happy there and we've got a lot of work we're doing. So I don't think it's anything more than just probably a lower level of sales growth, but we would still expect – and again, our long-term objectives are still to have a much higher core growth, and more like a 4% to 6% going forward.

Got it. So if the top-line was mid-single-digit, you'd still see the earnings at the high single-digit?

Yes.

Right.

Yes, we would.

Yeah, we haven't – Greg, we haven't come off our long-term objectives on the number side. But based on what we see today, we believe that the guidance that we provided is achievable, but I can also tell you that our team is focused on not only reaching that guidance, but absolutely exceeding it this year.

Great. Good luck. Thanks.

Thank you, Greg.

Thank you, Greg.

We'll go next to Bret Jordan with Jefferies.

Hi. Good morning, guys.

Hey, Bret.

Good morning.

A question on the fourth quarter. I guess, if we look regionally, I mean, obviously, some of those northern markets that were soft got better. But could you talk maybe sort of southern, western and northern markets and maybe what the dispersion of results was, like what the spread between the strongest and the weakest markets were? And then maybe a little bit on product category strength, anything that was a particular outlier.

Yeah. Let me – I'll take the regional question first, Bret. First and foremost, I'm very pleased to tell you that every one of our regions we saw improved sales results in the fourth quarter and we also saw that gap narrow from what we had seen in Q3, and even a little bit into Q2 we saw that gap narrow by about 100 basis points. So we're still – our strong regions are still in the South, but I can tell you we see improved results in the Midwest and we saw improved results in the Central part of the country as well. So that December blast of cold definitely helped. This January warm temps are not helping us a whole lot, but that is what it is. Your second question, Bret, regarding product performance, our best performing categories, and probably not surprising, in Q4 were anything related to engine and electrical systems, so battery, starters, alternators, all performed well in Q4, filtration performed well. Some of the – where we saw a little bit of downturn within some of our T&E, tool and equipment, especially on some of the large equipment and some of our paint categories were off just a bit.

Okay. Great. Anything – I mean, I guess, as you think about the larger tool category, is that sort of a real shift in the consumer side there or any thoughts about that?

No, I don't think so. Bret, I think it's timing. We have a robust tool and equipment business, and I think it's more one of timing. I don't think there is anything that changed dramatically in Q4 that would have impacted those sales. I think we'll see that rebound in Q1 going forward.

Okay. And then one question on your 2017 outlook for Auto growth of 3% to 4%, how does that stack up U.S. versus international?

We would be stronger on the international side than the U.S. That assumes core growth of 3% to 4% as well. We've got a little bit of a currency headwind built-in and a little bit of acquisitions. But I think you're going to see similar, with a little stronger growth internationally, similar to what we had this year, little stronger internationally than the U.S. side.

Yeah, I would just reinforce Carol's comments, Bret. We continue to be very bullish on our international operations, and that's really all of them, Australia, New Zealand. We think we have expansion potential in those markets. Mexico, we will continue to expand our footprint there. In Canada, despite a challenging environment out West, our team up there had a good year. Where we need to turn it up is here in the U.S. and absolutely our team is focused on getting that done this year.

Okay, great. And then one last question. On Motion, you called out oil and gas as having double-digit improvement in the fourth quarter. Are we seeing some structural change you think in that space or just the bar got low enough that we had a good quarter? Are we calling a turn in oil and gas?

I'm sorry?

Are we calling a turn in the oil and gas?

Well, I'm not sure I'm ready to go there. All I know is, where we were a year ago in the depth, Bret, where – we're double the price of a barrel of oil today than we were a year ago. Rigs are coming back online and we're seeing a lift in that Southwest – we do a big business down in the Southwest and we're seeing a nice lift across that part of the country really in all of our businesses.

Okay, great. Thank you.

All right. Thank you, Bret.

Thanks, Bret.

We'll go next to Chris Bottiglieri with Wolfe Research.

Hi. Thanks for taking my question. Just one – first clerical one and a clarification. Do you have any currency movements and M&A activity for the non-Office segments? I don't think you gave it out this quarter. And then two, just wanted to confirm what your definition of a comp is for your non-Automotive. Are you measuring it by branch, like maybe just talk high level what your comp number means for your business?

Well, I'll take comp first, and then let Carol address your first question. So as we're identifying and defining comps, Chris, we're excluding new stores, new branches, or new stores, branches closed over the past 12 months, and we're also excluding acquisitions.

Got you. Okay.

And you specifically asked about FX in the quarter for the non-Automotive?

Well, I mean, like I say, if you have – I think in the past you've given out the FX impacts and you've given out...

Yeah, there...

...the M&A impacts for each segment.

Yeah, there was virtually no FX impact in the quarter. It was just negligible. And the acquisition impact in the quarter, it was around 2% for Automotive, and it was around 4% for Industrial, and it was around 11% for Office, and then Electrical was 1%, so in total we were about 4%.

Okay, very helpful. And then just quick high-level question. Given the improving – I mean, you were extremely acquisitive in 2016, which was nice to see. How do you think about the backlog right now that industrial sentiment's improving and probably just global sentiment around the markets right now, are you having a harder time kind of building the acquisition pipeline? Have you seen any changes in your conversations, anything to think that your pace of M&A might slow near term? Thank you.

Yeah. It's a great question, Chris. I will tell you that we have a robust acquisition pipeline in really across all four of our businesses and, as I think I've mentioned earlier, in all of our geographical regions. I think what we're seeing is that in some parts of our business, when we do an acquisition, and I'd point out one that we did in Industrial with the acquisition of Braas in Q3 of last year, what that brings us is additional players in that space. When they see that GPC is, one, that we're acquisitive, and two, that we're a good partner, we have more and more some of these folks coming to us as opposed to us tracking them down. So we feel good about our prospects for 2017. I mentioned earlier, we did 19 acquisitions last year. I don't know that we'll be at that level of activity, but we certainly expect to be active again in 2017.

Okay, great. That's very helpful. Thanks for your time.

You're welcome. Thank you.

Thanks, Chris.

And we'll take our final question from Brian Sponheimer with Gabelli.

Hi, everyone. Thanks for fitting me in here.

You bet, Brian.

Good morning, Brian.

Just a question on NAPA. You're not the only one today who reported some margin degradation there and you're not getting the comp leverage, but I'm just curious about the pricing environment relative from a competitive standpoint and then also any pressure or pushback from the manufacturers themselves.

No, what we're seeing has been fairly typical of recent years, Brian. The pricing across the marketplace is rational and we're not seeing – and our supplier partners are partnering with us as they always have. We're not seeing any significant shifts there either.

Okay. All right. Terrific. Just conversations with suppliers, if we were to have a situation where there is some sort of border adjustment tax that was really draconian for the industry by nature, any talks with them about potential onshoring or areas that you could speak to?

Well, I would say it's probably premature. We have – it's early to have discussions with suppliers about what changes they are going to be making, what changes we're going to making. I think we're all taking a bit of wait and see to see what ultimately happens. I think, as we think about this, what amount is going to be borne by the supplier, what amount is borne by us, what amount passes onto the customer, I think in theory, a lot of this is probably going to end up being passed onto the consumer and in terms of inflation and what we see in the cost of products. But we have not started. Again, it's early to be having discussion with what changes may happen in the supply chain. But know that we will work with our suppliers and hopefully come up with the best solution that we can.

All right, terrific. Much appreciate it and good luck in 2017

Thank you, Brian.

Thank you, Brian. I appreciate it.

And that does conclude today's question-and-answer session. I'd now like to turn the conference back over for any additional or closing remarks.

We want to thank you for your participation in the call today. As always, we thank you for your support of Genuine Parts Company and we look forward to reporting to you in Q1. Thank you.

Again, that does conclude today's presentation. We thank you for your participation.