Why Genuine Parts Stock Investors Saw Red This Week

Genuine Parts (NYSE: GPC) shares fell hard this week after the global automotive and industrial parts giant reported some discouraging news about its short-term operating trends. The stock fell 20% through early Thursday trading, according to S&P Global Market Intelligence, compared to a modest decline for the S&P 500 index.

That performance gap was due to Genuine Parts' Q3 earnings update, which showed surprisingly weak sales and profit trends.

Tough selling conditions

Executives said in an Oct. 22 press release that sales landed at $6 billion for the selling period that ran through late September. That result was good enough for a 2.5% increase, year over year. However, backing out the impact of recent acquisitions and an additional selling day in the period compared to last year, and sales in fact fell in both its industrial and automotive parts divisions.

Management blamed weaker demand for the shortfall. "Our results were below our expectations," CEO Will Stengel said.

Genuine Parts is facing two main demand challenges. The biggest is that industrial production activity is lagging in the core U.S. market, more than offsetting rising demand in outside markets. Second, sales fell slightly for replacement automotive parts.

Profit margin declined in both selling segments, with earnings falling to $1.62 per share from $2.49 per share a year ago. Zooming out, profit slipped to $771 million through the first three quarters of the year, compared to $1 billion in the year-ago period.

Weaker results ahead

Those results suggest that Genuine Parts will struggle to achieve any growth in 2024. In fact, management lowered their fiscal year target to call for gains of between 1% and 2%, compared to the prior range of 1% to 3%. The earnings outlook fell harder, suggesting increasing pricing challenge in the industrial division.

Executives maintained that their strategy should still deliver market share growth and higher profitability over time. However, with Genuine Parts' core markets shrinking today, investors can't expect to see much evidence of those earnings gains until 2025 at the earliest.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.