Oct 19, 2008
Executives
Carol Yancey - Senior Vice President - Finance, Corporate Secretary Thomas C. Gallagher - Chairman of the Board, President, Chief Executive Officer Jerry W.
Nix - Vice Chairman of the Board, Chief Financial Officer, Executive Vice President - Finance
Analysts
Anthony Cristello - BB&T Capital Markets Michael Ward - Soleil-Ward Transportation Keith Hughes - SunTrust Robinson Humphrey Saul Rubin - Silverstone Capital Stephen Chick - Friedman Billings Ramsey Gregory Melich - Morgan Stanley
Operator
My name is Sylvia and I will be your conference operator today. At this time I would like to welcome everyone to the Genuine Parts Company third quarter 2008 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 the call over to Ms. Carol Yancey, Senior Vice President - Finance and Corporate Secretary.
Carol Yancey
Thank you for joining us today for the Genuine Parts third quarter conference call to discuss our earnings 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 of future economic performance, and assumptions underlying the statements regarding the company and its business.
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.
Thomas C. Gallagher
I would 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. 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 third quarter results and hopefully you’ve had an opportunity to see them, but for those who may not have yet seen the numbers a quick recap shows that sales for the quarter were $2,882,000 which was up 3%, net income was $131 million which was up 2%, and earnings per share were $0.81 this year compared to $0.76 in the third quarter of 2007 and the EPS increase was 7%. The 3% sales increase follows a 4% increase in the second quarter and a 3% increase in the first quarter, so revenue growth has been steady and consistent over the first nine months of the year.
Although the net increase in net income at +2% was not up as the revenue increase, our operating profit was up 3% in line with the sales increase with the difference between operating profit and net income being primarily attributable to the lower interest income in the quarter. Additionally we did expense $2.3 million in the quarter in costs associated with the continued restructuring of our remanufacturing operations.
Without these costs operating profit was up 4% in the quarter and net income was up 3%, indicating a reasonably good operating job on the 3% sales increase. 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 follows a 7% increase in the second quarter and a 6% improvement in the first quarter. A nice steady picture all year long for our industrial operations and we feel good about the progress being made in this segment.
Our strongest areas geographically remain the Western, Southwest and Canadian operations but we are pleased to see positive growth in all parts of the country. Looking at it by customer category, our best increases continue to come from customers in the iron and steel, pulp and paper, and food products industries and these increases are helping to offset softer results in automotive, lumber and wood products, and other housing related segments.
So a solid performance overall at +7% for the quarter and we feel that our long-standing strategy of diversifying our business across a broad base of manufacturing segments and product categories continues to serve us well, especially in times like these. We were pleased to complete the acquisition of Drago Supply as of September 1.
This is a $75 million business operating in Texas and Louisiana, and it’s a fine company that will be a nice addition to our industrial group. Ongoing acquisitions will be an important part of our overall growth strategy.
Wrapping up on this segment, we feel that our industrial operations have performed well through the first three quarters and we anticipate similar results from them over the remainder of the year. The electrical operations had another terrific quarter.
They were up 13% in revenue following their 11% increase in the second quarter and 7% increase in the first quarter, so they have seen a strengthening in their results as the year has progressed and they’re now up 10% year-to-date. Importantly, there increase is broad-based across both customer and product categories so they are showing a nice balance and diversification in their growth.
Our electrical management team has really done a nice job of positioning their company for a solid revenue performance and we feel optimistic about their near-term prospects. They should end the year in good shape.
Moving on to office products, this team continues to encounter a challenging environment but we were pleased to see them end the quarter even with the prior year. You may recall that the office products group was down 2% in the first quarter and then followed that with a flat second quarter and now even again in the third quarter.
Not where we want to be but from our perspective we feel that we’re holding steady in a very sluggish market place. Looking at our results in a bit more detail, we were pleased to see modest growth with our independently-owned office product resellers in the quarter.
This group was up 2% which follows a 1% increase in the second quarter and a 1% decrease in Q1, and we’re a bit encouraged by the gradually improving trend with this segment of our business. Our sales to the mega-channel continue to be challenging however.
We were down 10% with this customer group in the third quarter and we are now running 7% behind year-to-date. Looking at the results from a product standpoint we continue to be pleased with our growth in the cleaning and break room category as well as the positive results being generated in the core office supplies category.
These are being offset by mid-single-digit decreases in the tech products and furniture categories however. We did complete one acquisition in the quarter.
PPI, a $20 million Los Angeles based regional wholesaler became part of the S.P. Richards family on September 1.
Additionally we acquired a Michigan based regional wholesaler earlier this month with annual revenues of $50 million. Both of these companies will be nice additions to our office products group and they will help our results in the quarters ahead.
As we look forward we anticipate continued soft demand in the office products industry for several more quarters. Our expectations however are that S.P.
Richards is still in a position to end the year about even with last year. Finally, automotive.
Sales for this group were up 1% in the quarter. Our results in automotive continue to be affected by the sale of the last of the Johnson Industries locations in the first quarter of this year.
Our ongoing automotive operations were actually up 3% in the third quarter and they’re up 4% year-to-date, so a fairly consistent picture. Looking at our automotive results in a bit more detail, NAPA Auto Care our largest commercial segment was up 3% in the quarter and after being down 2% in each of the first two quarters we were pleased to see this nice improvement this past quarter from this key customer group.
Our major account business, another important part of our commercial efforts, was also up 3% in the quarter and we feel that in both of these segments, NAPA Auto Care and major accounts, our business is growing at a faster rate than the overall after market commercial business. And as a result we feel that we’re making decent progress in the commercial side of our business.
In the area of new distribution, our efforts stalled over the past three months. While we opened 57 new stores in the quarter we also closed or consolidated 64 for a net reduction of seven.
We now have a net increase of 41 net new stores year-to-date and we’ll get back on track in the fourth quarter by adding an additional 10 to 15 net new stores by year end. As most of you know, the automotive after market is encountering some significant headwinds right now and we continue to see a decline in miles driven as well as a deferral of both vehicle maintenance and discretionary spending across the aftermarket, all of which is creating a drag on revenue growth within the industry.
While our 3% increase in the quarter form our ongoing automotive operations is not up to our historical expectations, we do feel that our initiatives are yielding positive results and that we’re holding up reasonably well considering the current environment. We look for a similar performance from automotive in the fourth quarter.
That’s a quick recap of our sales results for the quarter and year-to-date, and I’ll now turn it over to Jerry to cover the financials.
Jerry W. Nix
We appreciate you joining us on the call today. We’ll first review the income statement and segment information related to our third quarter and year-to-date results and then touch on a few key balance sheet and other financial items.
In light of the concerns in the economy and credit markets right now, we want to be especially clear today in communicating the strength of our balance sheet, continued strong cash flows and dividend record which serve to support our ongoing growth initiatives and goals for maximizing shareholder value. We believe more than ever that the excellent financial condition of our company continues to distinguish Genuine Parts Company as a quality investment.
After this review, we’ll open the call up to your questions. A review of the income statement shows the following: Total sales for the third quarter were up 3% at $2.9 billion and our year-to-date sales $8.5 billion also up 3% from last year.
Third quarter revenue was in line with the first half of 2008 and represents another record level of sales for our company. Gross profit remains consistent with last year at 29.64% to sales for the quarter and 29.67% for the nine months.
We look to show progress on this line going forward and 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 September, accumulative pricing which represents the prior increases to us is up and I will tell you these are the largest increases we’ve seen in quite some time: 4.7% in automotive, 6.7% in industrial, 2.7% in office products and 7.2% in electrical.
Now let’s look at SG&A. For the third quarter SG&A as a percent to sales is 22.14% up less than 10 basis points from last year.
For the nine months in 2008 SG&A stands at 22.39% of sales up 17 basis points. We recognize the need for improvement in this area but find it challenging to improve our expense leverage at our current level of revenue.
We’re close but another percent or so of top line growth would make a meaningful difference for us. In the meantime we’re working hard on cost control measures that can also make a difference, and our goal remains to achieve a fifth consecutive year of improved SG&A costs as a percent to sales.
For the quarter our tax rate was approximately 37.9% which compares to 38.0% for the third quarter in ’07. Our year-to-date tax rate was 37.3% compared to 38.0% last year with the decrease coming from the lower first quarter rate which was associated with the payable impact of the sale of Johnson Industries.
We expect that tax rate for the full year to be between 37.5% and 38.0% which is comparable to 2007. Net income for the quarter was $131.0 million up 2% and earnings per share of $0.81 compared to $0.76 last year, up 7%.
For the year net income was $387.6 million up 2% and EPS $2.36 compared to $2.23 in ’07 up 6%. As you can see our third quarter results were consistent with our performance in the first half of the year.
Now let’s discuss the results by segment. Automotive had revenue of $1,393.1 million representing 48% of our total and that was up 1%.
They had an operating profit of $111.7 million down 3% so we had margin degradation there from 8.3% to 8.0%. The industrial group had revenue of $907.0 million, 32% of the total, up 7%.
They had an operating profit of $77.2 million and that’s up 11% so a nice margin expansion there going from 8.2% to 8.5%. Office products’ revenue was $459.0 million representing 16% of the total.
They were flat in revenue with operating profit of $33.4 million, up 1%. Some margin expansion going from 7.2% to 7.3%.
The electrical group had revenue of $126.8 million. That’s 4% of our total and as Tom said earlier a terrific quarter, up 13% in revenue.
They had an operating profit of $10.3 million, up 34%. An excellent margin expansion going from 6.9% to 8.1% of revenue.
We’re not going to go through the review of the nine-month segment information. They’re included in the press release and we can address any questions or take any concerns you have during the Q&A.
In summary, our 3% sales increase in operating profit grew at the same rate as sales resulting in an operating margin of 8.1% for the total company, which is consistent with the third quarter of 2007. Through September our 8.1% operating margin is down 10 basis points from last year and this reflects continued progress in industrial and electrical, which is offset by the combination of one-time costs in automotive which represented a 10 basis point impact to margin and the deleveraging of expenses in automotive and office products due to their sales volume.
We continue to aim for more improvement in our margin in the fourth quarter, and as you can see our greatest opportunities are in automotive and office products. Net interest expense of $7.4 million for the quarter and for the nine months net interest is $21.9 million.
Although net interest is up this year, we should point out that our interest expense is consistent with the prior year. Interest income however is down due to lower rates and less invested cash because of our acquisitions and share repurchase activity.
We currently expect net interest to be approximately $30 million for the full year. The other category which includes corporate expense, amortization of intangibles and minority interest was $14.4 million in the third quarter and is $44.5 million through nine months.
These costs are slightly higher than in their respective periods in ’07 due mainly to the amortization of intangibles associated with the acquisitions. With one quarter to go in ’08 we believe this line will be in the $55 million to $60 million range for the full year.
Now let’s touch base on a few key balance sheet items. Cash at September 30 was $124 million down from $333 million at September 30 last year.
Through nine months in 2008 we spent nearly $230 million for share repurchases compared to $152 million in ’07. We spent approximately $111 million for acquisitions.
These investments account for the decrease in cash from last year. However our cash position remains strong due to increased income and improvements in working capital.
In fact we’d add here that our cash position remains more than sufficient for funding our operating requirements as well as our growth initiatives. And maybe most important right now, we’re not dependent upon any short-term borrowing arrangements that are not already available to us.
Accounts receivable increased 1% from last year on a 3% sales increase for the quarter. Before the impact of acquisitions, accounts receivable was down slightly.
We remain very pleased with our level of receivables and feel good about the quality of our receivables, something we are closely monitoring at the current time. Our goal at GPC remains to grow receivables at a rate less than sales growth which we’ve been able to do for at least seven consecutive quarters.
Inventory was up approximately 4% from September last year but down approximately 1% from December 31 of ’07. Excluding the acquisitions, inventory was up approximately 2% from September last year which is in line with our goal of growing inventory at a lower rate than sales growth.
We’re pleased with our progress in managing this asset and will continue to focus on our inventory management initiatives to show ongoing improvement on this line in the periods ahead. Accounts payable decreased 2% from last year but we believe that our ongoing negotiations for extended terms as well as other payables initiatives established with our vendors will help us turn this around and show further progress in payables in the fourth quarter.
Working capital. $2.4 billion at September is down approximately 12% from September 30 last year and we’re pleased with our continued progress in managing working capital.
Most of the 12% decrease reflects the reclassification of $250 million in debt to current liabilities in December of ’07, although excluding the reclass working capital is still down over 2% from 9/30/07. We’ve improved our working capital as a percentage of sales of at least 1% in each of the last four years and expect to continue this positive trend again this year.
As we mentioned earlier, this improvement has had a positive impact on the strength of our balance sheet. We also commented earlier on our consistent and strong cash flows, and we’re pleased that our strong cash position provides the company many opportunities.
This could not be emphasized enough in today’s environment. For 2008 we expect to generate cash flows in line or a slight improvement to 2007 which was already an especially strong year for us.
We currently project cash from operations to be approximately $700 million and after deducting capital expenditures and dividends, free cash flow should improve to approximately $300 million. Looking ahead our priorities for cash remain consistent with our previous comments.
First, the dividend which we’ve increased for 52 consecutive years. We are proud of this record of consistent growth and dependability in above-average dividend yield which is currently at greater than 4%.
We understand that increasing the dividend is important to our shareholders and at our February Board meeting we intend to recommend another increase for 2009. Other priorities include the ongoing reinvestment in each of the businesses, share repurchases and where appropriate strategic types of acquisitions in each of our business segments.
Opportunistic share repurchases have also been a priority for us for a long time. As part of our repurchase program, we purchased approximately 5.6 million shares of our company’s stock through nine months ending in September and we have purchased another 1.1 million shares in October for a total of 6.7 million shares thus far in 2008.
Today we have an additional 3.7 million shares authorized for repurchase and when needed we would expect our Board to approve another additional shares for repurchase as they’ve done in the past. We have no set pattern for these repurchases but remain active in the program as we continue to believe that an investment in GPC stock along with the dividend provides the best return to our shareholders.
As we mentioned, strategic acquisitions continue to be an important use of our cash and are integral to our growth plans for the company. After closing two acquisitions in the first quarter and another three in the second quarter, we closed four additional acquisitions this quarter with two of those being effective in the fourth quarter.
We’re pleased with the acquisition opportunities that have presented themselves this year although we remain disciplined in our approach to acquisitions. We believe we’ve added quality companies to our operations which we expect to be accretive to our returns.
Through the nine months in ’08 acquisitions have accounted for approximately 1% of total sales growth so you can see that these businesses are important to us and we look forward to more success with this element of our growth strategy. Looking forward we continue to plan for a similar pattern for strategic acquisitions in our various segments.
Capital expenditures were $15.8 million in the third quarter compared to $31.0 million in the third quarter last year. Through September cap ex was $60.1 million compared to $83.8 million in ’07.
For the full year our cap ex investment will be in the range of $100 million to $110 million. We’re pleased with the level of reinvestment in our businesses.
Depreciation and amortization was $21.8 million in the quarter and $66.5 million for the nine months. This is slightly higher than our expense on this line last year and we would expect to continue this trend with depreciation and amortization in the range of $90 million to $95 million for the full year.
We feel good about our priorities for cash as we move forward. We continue to believe the use of cash in these areas serves to maximize the total return to shareholders.
Finally our total debt remains unchanged at $500 million with the first $250 million credit facility maturing in November this year. We have in place a new signed agreement that will extend this debt another five years at a 4.67% interest rate.
The second $250 million is due in November of 2011 and any prepayment of this debt is cost prohibitive due to the make whole provisions included in the debt agreements. Total debt to total capitalization at September 30, 2008 was 15.8% and we remain comfortable with that capital structure at this time.
Despite the distraction of elevated economic concerns over the past few weeks, the third quarter for us felt much like the first half of the year and we expect the fourth quarter to continue that trend. We’re fortunate to be in four industries where we sell expendable replacement type items and not items that require our customers to seek financing.
Our proven plan of action is the continued focus on the proper execution of our short- and long-term growth plans, and that’s how our management teams are spending their time and energy. In our over 80 years of operating we’ve experienced the up and down cycles of the economy more than once.
We are confident that the fundamentals of our businesses will prevail again and provide for continued growth as long as we remain focused on those areas that we can control. As always, we want to thank and express our appreciation to the entire GPC team for their efforts under difficult circumstances.
Looking to the final quarter of 2008, our challenge remains to show continued improvement on growing sales, controlling costs and improving our operating margins. As we’ve said, we certainly expect to show progress in each of these areas but as you know the degree of improvement is more difficult to forecast in these times of uncertain economic conditions.
Still, we know that underneath the existing turmoil are the same growth opportunities we’ve been working towards for quite some time, and our strategies to achieve these goals have not changed. We don’t believe this is the time for quick changes in direction nor do we feel t hat they’re needed.
We will support our growth efforts with a strong and healthy balance sheet and continued strong cash flows further maximizing our return to shareholders. We absolutely remain positive about our businesses, their strategic plans and their prospects for long-term growth.
Tom, I’ll turn it back to you.
Thomas C. Gallagher
I think that your closing comments summed it up quite well. These are uncertain times and the current economic issues make it difficult to have a clear view of the quarters ahead.
However, one thing that we do have a level of confidence in is that each of our businesses has sound strategies and that the proper execution of these strategies should enable them to not just grow in line with the respective market place growth over the next several quarters, but perhaps to gain a little bit of market share as well. At the same time we maintain a level of confidence in our ability to keep our balance sheet and cash flows strong.
Now we don’t underestimate the challenges that we will encounter in the quarter ahead by any means. GPC like all companies will be affected by these external factors but we do feel positive about our relative positioning and about our long-term prospects in each of our four business segments.
As far as 2008 is concerned, on the revenue side our prior guidance assumed full-year increases of 2% to 5% in automotive and on a year-to-date basis we’re up 2%. For industrial we said 5% to 8% and year-to-date we’re up 6.5%.
In electrical we also said 5% to 8% and we’re up 10% to date. For office products we said 1% to 4% and we’re down a bit at roughly 1%.
So we’re in line in the automotive and industrial, above in electrical and off just a bit in office products, but in total about where we said we would be. We anticipate that the revenue for the final quarter will be in line with our year-to-date performance and that would put us up around 3% for the year.
On the earnings side our expectations remain about the same as we expressed in our last call and we see no reason to change our prior EPS guidance of $3.12 to $3.18 for the year at this time, but with all the current uncertainty in the market place our bias would be toward the lower end of the range. So that’s how we see it currently, and now we’d like to open up the call to your questions.
Operator
(Operator Instructions) Our first question comes from Anthony Cristello - BB&T Capital Markets.
Anthony Cristello - BB&T Capital Markets
You talked a little bit about price and the price increases you’ve seen year-to-date. If I look back at the second quarter, I think you talked about automotive pricing up 17% and I think you noted industrial up 34%, and now we get to the third quarter and you talked about auto up 47% year-to-date and industrial up 67%.
Does that imply that you’ve seen sort of a 9% price increase during the quarter that gave you that bump of three points over the last three quarters?
Jerry W. Nix
No, I don’t view it that way. These are cumulative price increases to us from the beginning of the year.
What we actually saw in the third quarter, for instance in automotive, we saw 3%.
Anthony Cristello - BB&T Capital Markets
If I then look at the 3% in auto, can I assume then that the industrial also was up about 3%?
Jerry W. Nix
That’d be correct.
Anthony Cristello - BB&T Capital Markets
How confident are you that you’re going to continue to be able to see price increases go into effect with what has happened on the commodity side of late?
Jerry W. Nix
We don’t control price increases. Again, keep in mind these are price increases coming to us from our suppliers and who knows what the impact of China and other raw material costs, oil and petroleum based products, is going to do.
Our challenge is to pass these price increases through which in automotive situation I think that’s a lot easier than industrial. In industrial we have some national contracts where we’re not able to pass them all through, certainly not at the time that we receive them.
Our suppliers sometimes are willing to work with us and hold those but we don’t have any control over those price increases and when they’re going to come.
Anthony Cristello - BB&T Capital Markets
So there will be some fluctuation here in the fourth quarter and probably certainly into the first half of next year?
Thomas C. Gallagher
Based upon what we’ve seen, what’s been announced for the first of the year, we see a little bit more in the pipeline currently but beyond that we really don’t have any visibility.
Anthony Cristello - BB&T Capital Markets
Moving to automotive a little bit Tom, you discussed the success you’re seeing in the NAPA Auto Care side and with some major account segments. Could you provide a little bit more detail on why you think that is outperforming some of your core commercial?
And then also maybe I missed it. Did you give the breakout between cash and commercial growth in the quarter as well?
Thomas C. Gallagher
Taking the last part of your question first, no but on a year-to-date basis our commercial business is up about 6% and our cash business is flat. As far as the reason for relatively good quarters with Auto Care and major accounts, these are just key initiatives and critical components of our overall growth strategy and I think our teams have done a good job in just executing on these strategies.
Anthony Cristello - BB&T Capital Markets
Johnson had some impact this quarter. When is the last quarter we should see that sort of disconnect between what the total NAPA revenue will look like in automotive versus what the impact of Johnson?
Is this the last quarter coming up or will we still have some of that feed into 2009?
Thomas C. Gallagher
We have a little bit that goes into the first quarter of 2009 but the significant impact will really moderate after the fourth quarter.
Anthony Cristello - BB&T Capital Markets
Tom, you’ve been with the company for a long time and sort of the macro has certainly created some significant headwinds for all businesses, not just Genuine Parts. The diversification of your business does provide some offset.
I was just wondering, if you look back at the last couple of recessionary environments that we’ve had, how would you say your business is different today and what have you done to prepare in case of a further economic slowdown that maybe you feel more confident in what your ability was in the last couple recessions?
Thomas C. Gallagher
First I’d say that if you look back over an extended period, Genuine Parts Company has performed comparatively well through all of the economic cycles. One of the things that positions us perhaps a little bit better as we’re going into the cycle we’re in right now are some of the decisions that have been made over the past several years that I think strengthen our platform.
Number one, you may remember that we had a very cyclical component within EIS and that affected our EIS results in the ’01 to ’03 timeframe. But that component of EIS is no longer with us.
Our management team did a good job of selling that piece and they’re less dependent upon that than what they were. We just talked about Johnson Industries.
Johnson Industries is no longer a part of GPC and I think that positions us a little bit better. Within our industrial group we’ve got a broader footprint on the product side which gives us an opportunity to sell more products to existing customers than what we might have been able to do in the past, and that business is a bit more diversified than what it was in the last cycle.
Somewhat the same can be said for our automotive business. With the recent inclusion of Altrom, our import parts company, and our heavy duty initiative I think we’re positioned across a broader product platform than what we have been in prior times.
So I think our company, while not immune to this cycle, we’re in a better position to weather the cycle than we might have been at times in the past.
Operator
Our next question comes from Michael Ward - Soleil-Ward Transportation.
Michael Ward - Soleil-Ward Transportation
Jerry, I missed the maturity date you extended the $250 million out to.
Jerry W. Nix
We have a shelf offering there and the date of that is December 1 of this year.
Michael Ward - Soleil-Ward Transportation
And you said you have a new agreement that extends till what year?
Jerry W. Nix
Another four or five years.
Michael Ward - Soleil-Ward Transportation
How much spending for acquisitions was included in the third quarter?
Jerry W. Nix
About $98 million.
Michael Ward - Soleil-Ward Transportation
Of revenue, but in the third quarter alone, how much cash did you put out for acquisitions?
Jerry W. Nix
I think it was right at $25 million to $30 million.
Thomas C. Gallagher
I think it’s $111 million for the year. And then we did have the S.P.
Richards acquisition as well.
Michael Ward - Soleil-Ward Transportation
You talked about operating cash in 2009 at $700 million. What are the primary drivers of that?
It seems like it’s very strong.
Jerry W. Nix
It really is coming from the working capital improvements. Our receivables are growing less than our revenues.
We’ve got several of the business units doing a good job in our inventory and taking excess inventory out. Also the payables extended turns that we put in place last year, we need to push those out a little further this year as well.
Again, coming from just the general operating results. And Mike if you’ll notice, our cap ex numbers are also down.
Some of the business units have held that spending down. We were at $60 million versus $83 million at this point last year.
Michael Ward - Soleil-Ward Transportation
So as you go into ’09 some of those things will continue so we could actually see from a working capital standpoint that could be a positive contribution?
Jerry W. Nix
We would hope so.
Michael Ward - Soleil-Ward Transportation
On the stores, do you have the separation of the store count between company-owned and independent?
Thomas C. Gallagher
In terms of the 41 year-to-date?
Michael Ward - Soleil-Ward Transportation
Yes.
Thomas C. Gallagher
It’s about 50/50. About half company-owned and half independent.
Michael Ward - Soleil-Ward Transportation
The third quarter reduction, was that largely independent?
Thomas C. Gallagher
No, it was a combination. There were a lot of consolidations that were done to strengthen existing operations.
Operator
Our next question comes from Keith Hughes - SunTrust Robinson Humphrey.
Keith Hughes - SunTrust Robinson Humphrey
Given where consumer credit is, it looks like the average age of cars on the road is about to go up maybe dramatically over the next couple years. That’s historically been a positive for your business.
How long does that take to come into the revenues in the automotive segment?
Thomas C. Gallagher
We should see some impact from that in 2009. You’re right about the aging of the vehicles, and they’re going to continue to age next year.
You probably know that the average age of a vehicle on the road today is 9.8 years and I wouldn’t be surprised to see it get to 10 or thereabouts in the not-too-distant future. That is a positive for us as we look ahead with the age of the vehicles.
Keith Hughes - SunTrust Robinson Humphrey
You had broken out your commercial and your cash business in that segment in terms of the growth. What’s the rough mix right now in the segment?
Thomas C. Gallagher
Across the NAPA system it’s about 75% commercial and 25% cash.
Operator
Our next question comes from Saul Rubin - Silverstone Capital.
Saul Rubin - Silverstone Capital
You’ve continued quite consistently to buy back shares and obviously you’ve indicated you’re going to continue that, but I just wonder what consideration you’ve given to potentially strengthening the balance sheet even further and possibly using the coming year or two to remain very opportunistic? If you strengthen the balance sheet further, you could make potentially quite a very material acquisition.
So I just wondered how you think about that as a possibility?
Jerry W. Nix
We just view that as a balancing act. If you just look at the numbers, our dividend yield today is 4.5% and when we buy these shares and we’re discontinuing that dividend into perpetuity.
We’re earning today pre-tax about 2% on our cash so the numbers just make sense right now to do it. But I will tell you that if we saw an acquisition that made sense, we wouldn’t back away from it.
I don’t know that we’re going to make a material acquisition. Of course the economy’s going to change; it has changed; just look at what’s happened in the last couple of months; and we just try to stay flexible as we move forward.
If we saw something like that, we’d pull back on the share repurchase. But right now we think that’s the best acquisition we can make is Genuine Parts Company.
Saul Rubin - Silverstone Capital
You’re adding net stores this year. Do you expect to continue to add stores on a net basis next year?
Thomas C. Gallagher
Yes we would Saul. About in line with what we’ll do this year; 50 to 60.
Operator
Our next question comes from Ann McCormick - Friedman Billings Ramsey.
Stephen Chick - Friedman Billings Ramsey
It’s actually Stephen Chick. Just to clarify Jerry, the cap ex guidance for the year I think is $100 million to $110 million I believe if I caught that right.
Given your year-to-date spend I think it reflects something in the area of $40 million for the fourth quarter. Did I take that down correctly?
Jerry W. Nix
Yes, that’s correct. We may be closer to $100 million than $110 million.
Some of that is because we have some IT projects that are in process right now that those will get set up in the cap ex numbers in the fourth quarter as they get rolled out and we start to utilize them.
Stephen Chick - Friedman Billings Ramsey
As we kind of look into ’09, and I don’t recall if you actually addressed this, but is that a normalized level of spend that we should expect?
Jerry W. Nix
Yes. You can expect us to be at normal maintenance cap ex particularly in the IT productivity enhancement projects and our delivery equipment; you can expect us to be $100 million to $120 million each year.
Stephen Chick - Friedman Billings Ramsey
You gave us the company store group; auto, retail, commercial sales and the cash; what the percentages were year-to-date. Do you have those percentages for the quarter?
Thomas C. Gallagher
I don’t have them with me for the quarter. We can get that and get back to you.
Stephen Chick - Friedman Billings Ramsey
That would be great.
Thomas C. Gallagher
What I would say though is our results have been pretty consistent all year long and my guess is that they’re going to be about in line with the year-to-date performance.
Stephen Chick - Friedman Billings Ramsey
So the 3% ongoing automotive sales that you reported for Q3, it sounds like that’s the type of number we should think about for the fourth quarter as well?
Thomas C. Gallagher
Yes, that’s right.
Operator
Our next question comes from Gregory Melich - Morgan Stanley.
Gregory Melich - Morgan Stanley
I apologize; I jumped on a little late, so if you mentioned this, please just cut me off. I’d love some color on how the quarter progressed because clearly September was a different kind of month from July and August?
Do you have any color you can provide there?
Thomas C. Gallagher
We do. September was the weakest month of the quarter and we saw a similar pattern in the second quarter with June being the weakest month of the quarter.
Things came back in July and August, and then we had a weaker month in September. I would say through the most recent report for October we’re seeing the development of a similar pattern with October looking like it’s going to be a little bit better than what September was.
Gregory Melich - Morgan Stanley
What do you think accounts for that? Was it people staring at their TV screens the last weeks of September?
Thomas C. Gallagher
That may be part of it, and you know we’ve all been bombarded with how bad things are and I think after a while people acquiesce and say they must be pretty bad. But we don’t have a factual reason for it other than the trends that we see right now.
Gregory Melich - Morgan Stanley
But the fact that you think the fourth quarter could look more like the whole third quarter, and you just confirmed basically that October was looking a little better?
Thomas C. Gallagher
That’s right.
Gregory Melich - Morgan Stanley
If you were to look at September, was it the hurricane and weather impacted areas where it was weak or was it more general?
Thomas C. Gallagher
That had an impact on all of our businesses for sure, and they’re still not back at full tilt in certain parts of the affected areas. That probably explains a little bit of the September weakness and some of the bounce-back in October.
Gregory Melich - Morgan Stanley
You would say September had something in addition to just weather? I know weather’s always a funny thing to talk about.
Thomas C. Gallagher
I don’t know again that I can give you a factual reason why September softened. We’re just pleased that we see October starting to revert back to more normal levels.
Operator
Our next question comes from Stephen Chick - Friedman Billings Ramsey.
Stephen Chick - Friedman Billings Ramsey
Within automotive obviously you have a large competitor that’s going through a relatively large acquisition. I’m just wondering two things: If you’re changing anything to compete with that and secondly, if you happen to be seeing any change in trend in the markets where you compete against that company?
Thomas C. Gallagher
What we are doing is just reminding all of the store operators what it takes to be successful in a very competitive market place, and that’s an ongoing initiative that we have. As far as seeing any trend changes, we don’t detect any at this point.
Jerry W. Nix
I would also say there’s always somebody making an acquisition in some of our businesses and we just have to continue to execute the plans that we have.
Operator
I’m showing no further questions at this time. You may proceed with any closing remarks.
Thomas C. Gallagher
We want to express our appreciation to you again for joining us on the call today and remind you of what we said earlier. We’re still great believers in the four businesses we have at Genuine Parts Company.
We have confidence in them. We’re in the right industries and we’ve got the right marketing initiatives in place to continue to show progress.
It may not be as good as it would have been if the economy was better than it is, but nevertheless we believe Genuine Parts Company’s going to be fine. We appreciate your continued interest in and support of GPC.
Have a good day.
Operator
Ladies and gentlemen, this concludes the Genuine Parts Company third quarter 2008 earnings conference call. You may now disconnect.