Genuine Parts Company

Good day, ladies and gentlemen. Welcome to the Genuine Parts Company second quarter 2021 earnings conference call. Today's call is being recorded and all lines have been placed on mute. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. At this time, I'd like to turn the conference over to Sid Jones, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning and thank you for joining us today for the Genuine Parts Company second quarter 2021 Earnings Conference Call. With me today are Paul Donahue, our Chairman and Chief Executive Officer, Will Stengel, our President, and Carol Yancey, our Executive Vice President and Chief Financial Officer. As a reminder, today's conference call and webcast include a slide presentation, which can be found on the Genuine Parts Company Investor Relations website. Please be advised this call may include certain non-GAAP financial measures which may be referred to during today's discussion of our results as reported under generally accepted accounting principles. The reconciliation of these measures is provided in the earnings release issued this morning, which is also posted in the investors section of our website. Today's 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, including this morning's press release. The company assumes no obligation to update any forward-looking statements made during this call. Now, I'll turn the call over to Paul for his remarks.

Thank you, Sid, and good morning. Welcome to our second quarter 2021 earnings conference call. We appreciate you joining us today. We are pleased to report terrific financial performance driven by the consistent execution of our strategic priorities and the ongoing recovery in the global markets. In summary, the quarter was highlighted by continued strong sales trends, which we believe led to market share gains, gross margin gains, and improved operational efficiencies that drove margin expansion and record quarterly earnings. and the effective deployment of capital for growth and productivity investments, bolt-on acquisitions, the dividend, and share repurchases. Taking a look at our second quarter financial results, total sales were $4.8 billion, up 25% from last year, and improved sequentially from plus 9% in the first quarter. For your additional perspective, our second quarter sales were 12% higher than in Q2 2019. Growth margin was also strong, representing our 15th consecutive quarterly increase, and we further improved our productivity with the ongoing execution of our expense initiatives. As a result, segment profit increased 35%, and our segment margin improved 65 basis points to 9.2%, which represents our strongest margin in two decades. Adjusted net income was $253 million, and adjusted diluted earnings per share were $1.74, up 32%. Total sales for global automotive were a record $3.2 billion, a 28% increase from 2020, and up 15% from the second quarter of 2019, and marks the first quarter in our 93-year history with auto sales exceeding the $3 billion mark. On a comp basis, sales were up 21%, and on a two-year stack, comp sales were up 8.5%. Our comp sales in the second quarter were driven by double-digit year-over-year comp sales in each of our automotive operations. Automotive segment profit margin improved to 9.1%, up 30 basis points from 2020, and an increase of 90 basis points from 2019. This expansion was supported by strong operating results across all of our operations. The automotive recovery reflects our focus on key growth initiatives as well as several market tailwinds, and these include the broad economic recovery and strengthening consumer demand, favorable weather trends, inflation and our ability to pass along price increases to our customers, Finally, solid industry fundamentals, which have been further accelerated by a surging used car market and improving miles driven. While these market tailwinds are encouraging, we also see continued headwinds, which we continue to closely monitor. These would include the spread of the Delta coronavirus variant and its potential impact on the global economy, global supply chain disruptions, ongoing labor shortages in our operations, and the impact of inflation on our costs, such as wages and freight. Turning next to our regional highlights, our GPC teammates in Europe built on their excellent start to the year, achieving the strongest sales growth amongst our operations, with top sales up 34%. Each country posted substantial sales growth, while our UK team continues to outperform. The positive momentum in Europe reflects improving market conditions and favorable weather trends, as well as our focus on key sales initiatives, inventory availability, and excellent customer service. In particular, we have seen exceptional results from our key account partners and the ongoing expansion and rollout of the NAPA brand. In our Asia-Pac business, sales were in line with the mid-to-high team comps we have had in this market now for four consecutive quarters. Commercial sales outperformed retail, although both customer segments posted strong growth. The Repco and Napa brands performed well and collectively are capturing market share. The Napa network continues to build, and we have now more than 50 Napa locations, operating across Australia and New Zealand, in addition to our 400-plus Repco stores. In North America, comp sales increased 20% in the U.S. and were up 12% in Canada, where lockdowns in key markets such as Quebec and Ontario have been headwinds for several quarters now. Sales in the U.S. were driven by strong growth in both the commercial and retail segments, with DIFM sales outperforming DIY for the first time since before the pandemic began to take hold in Q1 of 2020. The strengthening commercial sales environment is significant for us as it accounts for 80% of our total US automotive revenue. The strong recovery in the commercial sector contributed to record average daily sales volume in our US automotive business in June. Our sales drivers by product category include brakes, tools and equipment, and undercar, which all outperformed. In addition, both retail and commercial ticket and traffic counts were strong for the second consecutive quarter, so another really positive trend. By customer segment, retail sales remained strong throughout the quarter, with low double-digit sales growth on top of a healthy sales increase in the second quarter of last year. While the DIY market is pulling back from the highs of 2020, we are optimistic our ongoing investments will create sustainable retail growth. For commercial sales, each of our customer segments posted double-digit growth, which we attribute to the broad automotive recovery and investments in our sales team, our sales programs, and our supply chain, amongst other initiatives. This quarter, our strongest growth was with our major account partners and Napa Auto Care Centers. We were also pleased with the growth in sales to our fleet and government accounts. This was the first quarter of positive year-over-year sales growth for this group since before the pandemic, as they lagged the overall automotive recovery in the U.S. We view this improvement as a meaningful indicator for further growth in the quarters ahead. As the automotive recovery continues, we expect our commercial sales opportunities to outpace retail, consistent with the long-term growth outlook of the aftermarket industry. We are confident in our growth strategy and our initiative to deliver customer value and sell more parts for more cars across our global automotive operations. We also remain focused on enhancing our inventory availability, strengthening our supply chain, and investing in our omni-channel capabilities while expanding our global store footprint to further strengthen our competitive positioning. So now, let's discuss the global industrial parts group. Total sales for this group were $1.6 billion, a 20% increase from last year and up 7% from 2019. Comp sales rose 16%, and reflect the fourth consecutive quarter of improving sales trends. A strong sales environment combined with the execution of our operational initiatives drove a 9.5% segment margin, which is up 130 basis points from both 2020 and 2019. The ongoing market recovery over the last 12 months is in line with the strengthening industrial economy and the overall increase in activity we have seen across much of our customer base. The Purchasing Managers Index measured 60.6 in June, reflecting healthy levels of industrial expansion and mirroring trends we have seen throughout the majority of this year. Likewise, industrial production increased by 5.5% in the second quarter, representing the fourth consecutive quarter of expansion. Diving deeper into our Q2 sales, we experienced strong sales trends across each of our industries served and our product categories, other than safety supplies, which had extraordinary sales in 2020 due to the pandemic. Several industry sectors stood out as their sales increased by 30% or more over last year, including equipment and machinery, automotive, aggregate and cement, equipment rental, and oil and gas. In addition, our newly added fulfillment and logistics industry sector experienced tremendous growth. In the past several years of expanding this segment, we have found our broad offering of products and services fits well with the needs of these customers. To drive this growth, we remain focused on several strategic initiatives, which include the build-out of our industrial omni-channel capabilities with solid growth and digital sales via motion.com. Our new inside sales center, which was established in 2019, is generating incremental sales from new motion customers, and we see room for further growth. The expansion of our services and value-add solutions businesses in areas such as equipment repair, conveyance, and automations, Over the last few years, we have made several bolt-on acquisitions to build scale and continue to target additional M&A opportunities to further enhance our capabilities in these key areas. Enhanced pricing and product category management strategies to maximize profitable growth. The further optimization and automation of our supply chain network to improve operational productivity while delivering exceptional customer service. We are encouraged by industrial's strong financial performance in the second quarter and the positive momentum we see in the overall industrial market. We believe the motion team is well positioned to capitalize on this momentum and enhance our market leadership position. So in summary, each of our businesses did an exceptional job of operating through the quarter, and we couldn't be more proud and grateful for their strong Q2 performance. So now I'll turn the call over to Will. Will?