GENUINE PARTS CO. $97(New York symbol GPC; Income-Growth Payer Portfolio, Manufacturing & Indus try sector; Shares outstanding: 146.8 million; Market cap: $14.2 billion; Dividend yield: 3.0%; Dividend Sustainability Rating: Above Average; www.genpt.com) sells replacement auto parts through 1,100 outlets under the NAPA banner; and the company’s distribution business serves 4,900 independent stores in North America, Australia and New Zealand. Genuine also distributes industrial parts, office products and electrical equipment.
With the April 2018 payment, Genuine raised its quarterly dividend by 6.7%, to $0.72 a share from $0.675. The new annual rate of $2.88 yields 3.0%.
In April 2018, the company announced that it would spin off its S.P. Richards business. As a separate company, S.P. Richards will then merge with Essendant Inc. (Nasdaq symbol ESND). The new Essendant should have annual sales of $7.3 billion and be a leading distributor of furniture, and janitorial and office products.
Genuine shareholders will hold 51% of the combined company, with investors in the old Essendant owning 49%.
However, Sycamore Partners, the private equity owner of office supply chain Staples, made a competing offer to buy Essendant for $11.50 per share in cash. Sycamore Partners already owns 11% of Essendant.
In response to the Sycamore offer, Genuine sweetened its original bid with an additional cash payment worth up to $4 a share.
Meantime, Genuine’s sales in the second quarter of 2018 rose 17.6%, to $4.8 billion from $4.1 billion a year earlier. That’s largely due to its November 2017 purchase of France’s Alliance Automotive Group. That firm distributes automotive parts to 30,000 garages and car repair shops. Genuine paid $2 billion for that business.
Excluding costs related to the Alliance purchase and other unusual items, earnings in the quarter jumped 22.9%, to $233.6 million from $190.0 million. Earnings per share rose 23.3%, to $1.59 from $1.29, on fewer shares outstanding.
The stock trades at a reasonable 17.2 times its projected 2018 earnings of $5.65 a share.
Genuine Parts is a buy.
SNAP-ON INC. $168(New York symbol SNA; Conservative-Growth Dividend Payer Portfolio, Manufacturing & Industry sector; Shares outstanding: 57.6 million; Market cap: $9.7 billion; Dividend yield: 2.0%; Dividend Sustainability Rating: Above Average; www.snapon.com) makes tools for auto mechanics and sells them through a fleet of franchised vans that visit garages. It also makes specialized tools for industrial customers.
Snap-On raised its quarterly dividend by 15.5% with the December 2017 payment, to $0.82 a share from $0.71. The new annual rate of $3.28 yields 2.0%.
In the quarter ended June 30, 2018, revenue rose 3.6%, to $954.6 million from $921.4 million a year earlier. Earnings per share jumped 19.6%, to $3.11 from $2.60, due to cost cuts and a lower tax rate.
New U.S. tariffs on imports of steel and aluminum could push up Snap-On’s input costs. However, the company tends to make its products in the markets where it sells them, so the tariffs are less likely to hurt profits.
Also, Snap-On stands to gain from several long-term trends. For example, new automotive technologies should spur demand for diagnostic systems.
Even so, the stock is down 4% since the start of 2018. That’s mainly because rising interest rates could increase credit losses for the company’s financing unit. It mainly lends to auto repair shops and supplies 23% of total earnings. The stock now trades at 14.2 times the $11.82 a share the company will likely earn for 2018.
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