Genuine Parts Company

Good day, ladies and gentlemen. Welcome to the Genuine Parts Company first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. At this time, I would like to turn the conference over to Sid Jones, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining us today for the Genuine Parts Company first quarter 2022 earnings conference call. With me today are Paul Donahue, our Chairman and Chief Executive Officer, Will Stengel, our President, Carol Yancey, our EVP and Chief Financial Officer, and Bert Napier, our EVP and CFO-elect. As a reminder, today's conference call and webcast includes 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 investor 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 filing, 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 first quarter 2022 earnings conference call. As Sid mentioned, we're happy to have Bert Napier on the call with us today. Bert joined us on February 28th as CFO-elect and has been working side by side with Carol to ensure a smooth transition in this key role. Turning to the first quarter, we are pleased with the continued strength in our results to start the year. and we're proud of the great work by all of our 52,000 GPC teammates who are at the core of our success. A few highlights in the quarter include new quarterly sales records for GPC and our automotive and industrial segments, segment margin expansion of 50 basis points, strong double-digit EPS growth, and a strengthened balance sheet and strong cash flow. The GPC team is focused on key strategic priorities to sustain accelerated sales growth, improve growth margins, and enhance operational efficiencies in the face of ongoing supply chain challenges and inflationary pressures at levels we haven't seen in 40-plus years. We also executed on our acquisition strategy, and our industrial team made excellent progress on the integration of command distribution group. And with the addition of Lausanne, which we announced last week, we've expanded our automotive footprint in Europe with the entry into key markets in Spain and Portugal, Europe's fifth largest market. For the first quarter, total sales were 5.3 billion, a 19% increase from last year. We delivered our 18th consecutive quarter of gross margin expansion, and our teams drove cost initiatives to enhance productivity and offset inflationary pressures. All in, adjusted earnings per share were up 24%, representing our seventh straight quarter of double-digit EPS growth. Total sales for Global Automotive were $3.3 billion for the quarter, an 11% increase from 2021, and representing 62% of total company sales. On a comp basis, sales were up 10%, driven by low double-digit comps in the US and Canada and high single-digit sales comps in Europe and Australasia. The sales cadence through the quarter was relatively steady, with our strongest performance coming in the month of March, with our teams posting a 30-plus percent increase on a two-year stack. Our pricing actions have contributed positively to sales, and we have maintained our gross margins despite mid-single-digit inflation for the quarter. As we look ahead, we believe the sales environment continues to support our pricing actions, and we expect current levels of inflation to continue through at least the second quarter. As mentioned earlier, our strongest Q1 comps were in North America. In Canada, the continued reopening of the economy drove strong demand and a 14% increase in total sales, with comp sales up 13%. In the U.S., total sales were up 14.5%, with comp sales up 12% from last year. These results reflect strengthening trends in our two-year stacks for both markets. In the U.S., sales to both commercial and retail customers were positive, with double-digit commercial sales growth outperforming DIY. In addition, ticket and traffic counts were both positive for the fifth consecutive quarter. Sales were strong across a number of product categories, such as brakes, heating and cooling, and chassis. DIY sales continue to trend well above historical growth rates, with enhanced in-store merchandising, improved product assortments, and our digital initiatives all driving solid growth. Napa Online continues to be our fastest-growing sales channel, up nearly 50% from last year. In addition, our Afterpay payment service, which offers existing and new customers buy now, pay later options, has been well received by consumers and is driving higher basket sizes. We have launched Afterpay in other global markets, and we're excited to see the growth generated from this new service, both online and in-store. The strength in commercial sales was driven by double-digit growth across the majority of our customer segments. Sales to our major account partners, Napa Auto Care Centers, fleet, government, and other wholesale customers were all strong, driven by the continued strength and demand for commercial repairs and maintenance. Our sales teams were also effective in attracting new business with national and regional accounts, fleets, and auto care accounts. So an outstanding job by our teams and strong results across all our commercial accounts. Furthering our commitment to the commercial segment, we are excited to return to the classroom with in-person training for our auto technicians across the industry. Napa Auto Tech provides industry-leading virtual, online, and classroom training programs as a value-add service for over 50,000 technicians each year. We are particularly proud to have more than 2,000 new techs in our accredited training programs. Our European operations also had a strong start to the year, with total sales up 14% and comp sales up 7% from last year. These results reflect solid growth across each of our seven European markets and are especially impressive given the headwinds of a mild winter across Europe. Our AAG team continues to drive share gains through key account expansion and the continued rollout of NAPA-branded products. As announced last week, we expanded our presence into key markets in Spain and Portugal with the addition of Lassonde. Lassonde is a leading distributor of automotive aftermarket parts based in Bilbao, Spain, with a nationwide footprint, including one national distribution center and nine regional DCs servicing over 14,000 customer partners and key accounts. With our entree into Spain and Portugal, both highly fragmented markets, we expect to further strengthen Lausanne's market-leading position by capitalizing on our European scale and purchasing expertise, as well as leveraging our Napa brand. We welcome the Lausanne team to the GPC family, and we're excited to work together to maximize the growth opportunities in our European business. In our Asia-Pac business, total sales were up 10% from 2021, with comp sales up 8%. and the strongest two-year sales tax across our automotive operations. This represents a terrific start to 2022, despite the headwinds posed by the COVID outbreak and severe flooding during the quarter. Both commercial and retail sales continue to perform well, with growth for the Repco and Napa brands driven by the increased demand and share gains from accelerated digital strategies and store expansions. With 2022 representing Repco's 100th anniversary, it's only fitting the AsiaPAC team would have a standout year. So now let's discuss the global industrial segment. Total sales for this group were $2 billion for the quarter, a 34% increase from last year, and representing 38% of total GPC sales. On a comp basis, which excludes KDG, sales were up 16%, representing our fourth consecutive quarter of double-digit comps, driven primarily by the strong growth in our North American business. The sales cadence strengthened throughout the quarter, with March being the strongest of the three months. The strong sales momentum in our industrial business reflects the benefits of our many growth initiatives and continued strength of the industrial economy, as evidenced by the PMI and industrial production indices. PMI has consistently held at expansionary levels of 57 or above every month since October of 2020, and industrial production was up 8% in the first quarter, its strongest year-over-year growth since the fourth quarter of 2020. Our industrial team is executing on its sales programs to accelerate organic growth and delivered positive sales growth across every major product category an industry serves. with most up double digits. As mentioned earlier, our industrial team made excellent progress on the integration of KDG. While Will is going to go into greater detail in a few moments, I would summarize by saying that we are on plan and generating expected synergies. Wrapping up our industrial review, our strong first quarter results gives us confidence in our growth plans and pricing actions, and we enter the second quarter with strong momentum. We expect continued healthy activity levels across the vast majority of our products and industries. Finally, it's important to add that we have been busy in 2022 building on our commitment to responsible ESG business practices. Our focus areas in 2022 include formalizing our carbon emission reduction strategy and establishing reduction targets, as well as driving continued progress in DE&I. We will provide additional details and report on our progress in these areas in our 2022 sustainability report later this year.