Genuine Parts,  Genuine Profits

Genuine Parts (GPC) reported strong first quarter results with sales up 9% to $4.5 billion and net income and EPS both motoring 78% ahead to $217.7 million and $1.50, respectively. The firm produced its 14th consecutive quarter of gross margin expansion while managing operating costs closely, leading to a substantial increase in earnings with the positive momentum expected to continue throughout the year. Free cash flow jumped to $253 million during the quarter, driven by the higher earnings and working capital improvement with the company paying $114 million in dividends. The 2021 dividend was increased by 3%, marking the 65th consecutive year of increased dividends.

While the company did not repurchase any shares in the first quarter, it has 14.5 million shares authorized for future share repurchases which management expects to immediately resume. The company's balance sheet remains in excellent condition with a solid cash position exceeding $1 billion and ample financial strength to pursue strategic growth opportunities through its disciplined capital allocation strategy.

With positive sales momentum, improving margins and the likelihood it will continue benefitting from the strong economic recovery, management raised its financial outlook for the full year. Total sales growth is expected to increase 5% to 7% in 2021 with EPS expected in the range of $5.85 to $6.05 with cash flow from operations in the range of $1 billion to $1.2 billion.

With the stock appearing fully valued after driving 24% higher during the past three months, we are trimming back our position. Genuine Parts has provided us with genuine profits as the stock has motored ahead more than sixfold over the last 21 years while paying us steadily growing dividends.

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With the profits from Genuine Parts and cash held, we plan to buy Roche Holding ADR  and NVR, Inc..