Genuine Parts Company

Good day, ladies and gentlemen. Welcome to the Genuine Parts Company third quarter 2021 earnings conference call. Today's call is being recorded. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. At this time, I would like to turn the conference over to Sid Jones, Senior Vice President, Investor Relations. Please go ahead, sir.

Good morning and thank you for joining us today for the Genuine Parts Company third 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 that 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. A 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 also 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 it over to Paul for his remarks.

Thank you, Sid, and good morning. Welcome to our third quarter 2021 earnings conference call. We are pleased to report strong financial results again this quarter. which reflect the consistent execution of our strategic priorities as the global markets continue to recover. As we size up the business climate and how we are managing through the recovery, we can report the GPC team is generating positive momentum in both our sales and operating results, and we are well positioned for both near and long-term growth. Despite inflationary pressures, our margins reflect the success of our category management initiatives and cost control efforts which have offset these increases. And finally, our strategic efforts with our global supplier partners have prevented significant shortfalls in our overall inventory levels, allowing us to deliver quality customer service. Taking a look at our third quarter financial results, total sales were 4.8 billion, up 10% from last year, and up 11% from Q3 of 2019. We also produced our 16th consecutive quarter of gross margin expansion, and we further improved our productivity and customer service capabilities with the ongoing execution of our operational initiatives. As a result, segment profit increased 14%, and our segment margin improved 30 basis points to 9.3%. This represents our strongest margin in two decades and confirms our key initiatives are driving meaningful improvements. Net income was $229 million, or $1.59 for diluted share, and adjusted net income was $270 million, or $1.88 per share. This is a 15% increase from 2020 and establishes a new record for GPC's quarterly earnings. So just an outstanding job by the GPC team. Total sales for Global Automotive also set a new record at $3.2 billion for the quarter. This represents an 8% increase from Q3 2020 and a 15% increase from Q3 of 2019. On a comp basis, sales were up 5% from last year and up 7% on a two-year stack, with our strongest year-over-year automotive comps coming from the U.S. business. In addition, from a cadence perspective, sales held up well through the quarter with the strongest average daily sales volume in each of our geographies coming in September. The broad strength in our global automotive sales reflects a number of factors. First, we are proud of our team's efforts to shore up our supply chain amidst the difficult backdrop of product delays and logistics challenges. Supply chain disruptions have been more substantial for U.S. automotive than in our international or industrial operations, and we continue to work closely with our global suppliers to manage through these issues and ensure we have the right inventory available for our customers. We are confident in the effectiveness of our global sourcing team and believe we are well positioned in the industry. We also continue to benefit from our key growth initiatives and market tailwinds. Among our growth initiatives, our emphasis on innovative sales programs and Salesforce effectiveness are positively impacting commercial sales. As examples, We recently finalized an exclusive partnership in the education space for technician recruitment with over 10,000 active tech students in the process of earning their credentials. We are also excited that NAPA and AAA have executed an agreement for NAPA to be the exclusive auto parts supplier for the new AAA branded premium battery. This battery will be available to all consumers with a focus on the over 62 million AAA cardholders, and 5,400 approved auto repair centers. We are also equipping our sales team with incremental resources, training and development, which have led to more productive customer-facing calls. In addition, our omni-channel investments continue to drive strong B2B and B2C digital sales. And finally, the international rollout of the NAPA brand is driving significant growth in both our European and Asia PAC operations. So now turning to the market tailwinds, these macro drivers include the following. The ongoing reopening of the economy and improving miles driven, which generate the need for more repairs and more maintenance. A robust used car market that is keeping more cars on the road longer. And improving aftermarket fundamentals, such as the growing and aging vehicle fleet, which will continue to benefit the industry over the long term. Looking next at our automotive highlights by region, total U.S. sales were up 9%. Comp sales increased 8% from last year and are up 5% on a two-year stack. In Canada, total sales were up 1%, with comp sales essentially flat both year over year and on a two-year stack. as lockdowns and major markets have slowed the recovery. It's been encouraging to see these restrictions easing of late, which should lead to stronger demand through the final three months of 2021. Our U.S. sales were driven by strong demand for product categories such as exhaust, ride control, brakes, tools and equipment, which all outperformed. In addition, both retail and commercial ticket and traffic counts were positive for the third consecutive quarter. By customer segment, sales to both commercial and retail customers held strong, with DIFM sales outperforming DIY for the second straight quarter. We do remain pleased, however, with the continued strength of our DIY business and believe we can drive additional growth with ongoing initiatives such as B2C digital investments. These include new search features, improving catalog functionality, and enhanced payment options such as buy now and pay later. Napa Online B2C sales continue to grow at a rapid pace, up over 40% from the third quarter and up 2x from 2019. The strength in commercial sales in the quarter was driven by several of the initiatives mentioned earlier, as well as the ongoing economic recovery in the U.S. Sales to our major account partners were strongest with mid-teen growth, followed by sales to our NAPA Auto Care customers, which were up low double digits. We would add that our NAPA Auto Care membership has surged with the reopening of markets and includes nearly 400 shop upgrades thus far in 2021. So really terrific momentum for our premier independent garage program. Rounding out our commercial segments, fleet and government and other wholesale customers also posted high single-digit growth for the quarter, so really strong results across all of our commercial accounts. These are encouraging trends, and as we look ahead, we remain confident in our growth strategy and our key priorities to deliver customer value and ultimately sell more parts for more cars. Our AAG team in Europe continue to perform well with total Q3 sales up 8%, or up a strong 23% on a two-year stack. Comp sales increased 2.5% from last year, and we're up 14% on a two-year stack. While the UK and Benelux continue to stand out with really strong results, we were pleased with the solid results in each of our seven European markets, a reflection of stable market conditions, and execution of our key sales initiatives. These include the continued rollout of the NAPA brand and ongoing emphasis on key account development, which are driving market share gains. Now looking at our Asia-Pac business, total sales were up 2% from 2020 and up 18% on a two-year stack. Comp sales were up slightly from last year and up 15% on a two-year stack. with both commercial and retail sales up double digits, driven by positive growth with both the Repco and Napa brands. We are really pleased with these results, given the severe lockdowns in the major markets of Sydney, Melbourne, and Auckland during much of the quarter. We are energized to see the reopening of these markets is finally getting underway, and we expect a surge in demand in the coming months. So now let's discuss the global industrial segment. Total sales for this segment were $1.6 billion, a strong 15% increase from last year and a 5% increase from 2019. Comp sales were up 13% and up 4% on a two-year stack. Through the quarter, average daily sales in July and August were in line with the second quarter, while our strongest results were in the month of September. This quarter's positive momentum in industrial exceeded our expectations, which is a reflection of the great work by our motion team and the strengthening of the industrial economy. Both the PMI and industrial production were positive for the quarter, and these indicators correlate closely to the overall healthy state of the industrial sales climate. For the second consecutive quarter, we had positive sales growth across each of our industries served. The industry sectors that stood out with double-digit growth include our largest customer segment, equipment and machinery, as well as iron and steel, automotive, aggregate and cement, lumber and wood, fabricated metals, equipment rental, and oil and gas. In addition, our newly added fulfillment and logistics industry experienced tremendous growth. So as you can see, the current growth in our industrial business is quite broad across the markets we serve. As we have conveyed in our prior calls and in our industrial deep dive event on September 15th, our motion business is a market leader in the industrial distribution space in North America and Australasia. The MI team strive to be the preferred industrial solutions provider in the industries we serve. We partner with the best manufacturers in the industry to provide Tier 1 brands our customers demand. In addition, we are constantly broadening our product offering as well as our service capabilities to maximize our sales potential and drive market share gains in a very large and fragmented market. With these fundamentals of our business in mind, our focus on continued profitable growth in this segment remain grounded in five key initiatives. an omni-channel build-out to accelerate e-commerce growth and drive sales with new customers. As examples, Motion.com and our inside sales center, which has grown from 15 to now 35 reps in just six months, continue to drive incremental sales from new Motion customers. The expansion of our industrial services and value-add solutions in areas such as equipment repair, conveyance, and automation. Strategic M&A to generate significant growth in new markets and new products and services as an industry consolidator. Enhanced strategy to create a dynamic pricing environment that provides us a competitive advantage in the marketplace. And lastly, network optimization and automation to further improve our operating efficiencies and productivity. We are pleased with the progress from these initiatives thus far, and we're excited for the opportunities ahead. Another third quarter highlight is the publication of our 2021 sustainability report update. Our initiatives and activities over the past year have led to continued progress toward our goal of promoting diversity, equity, and inclusion. We've also taken steps to reduce the environmental footprint of our operations by reducing energy and emissions while increasing recycling opportunities across the globe. 2020 tested all of us and accentuated the importance of supporting our people and our communities. We are really proud of our GPC teammates around the world for their resilience and contributions to furthering our sustainability goals. We invite you to learn more about these initiatives and our full report, which you can find on the GPC website. So in summary, We made great progress in several important areas during the third quarter, and we are very pleased with the strong results in our automotive and industrial businesses and the continued improvement in our sales and operations. We could not be more proud of the GPC team. Now I'll turn the call over to Will.