Genuine Parts Company

Good day, ladies and gentlemen. Welcome to the Genuine Parts Company Second Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call has been recorded on Tuesday, July 22, 2025. At this time, I would like to turn the conference over to Tim Walsh, Vice President of Investor Relations. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to Genuine Parts Company Second Quarter 2025 Earnings Call. With me on the call today are Will Stengel, President and Chief Executive Officer, and Burton Apeyer, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, a supplemental slide presentation can be found on the Investors page of the Genuine Parts Company website. Today's call is being webcast and a replay will also be made available on the company's website after the call. Following our prepared remarks, the call will be open for questions, the responses to which will reflect managers' views as of today, July 22, 2025. If we're unable to get to your questions, please contact our Investor Relations Department. Please be advised this call may include certain non-GAAP financial measures to 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 press release. Today's call may also involve forward-looking statements regarding the company and its businesses as defined in the Private Security Litigation Reform Act of 1995. 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. With that, I'll turn it over to Will.

Thank you, Tim. Good morning, everyone, and thank you for joining our second quarter 2025 earnings call. As always, I want to start by thanking our over 63,000 Global GPC teammates. Our teammates are at the heart of everything we do, and our team's relentless dedication and commitment to serving our customers is the core of our success. Turning to our results for the second quarter, a few highlights include total GPC sales of $6.2 billion, up .4% versus the same period in the prior year, gross margin expansion of 110 basis points versus the same period last year, reflecting our strategic pricing and sourcing initiatives and the ongoing benefits from acquisitions, and continued progress with our global cost initiatives, which are helping to manage our SG&A profile in an inflationary environment. Our results for the quarter reflect the execution of our strategic initiatives and cost actions, partially offset by ongoing weakness in market conditions and persistent cost inflation. We're operating in an environment that has presented several challenges, including enacted tariffs in the U.S. and ongoing trade uncertainty, along with high interest rates and a cautious end consumer. Despite this, we faced the challenges head on, made prudent changes, and acted with purpose while continuing to progress our strategic priorities to enhance the business. Our diverse geographic mix, ongoing productivity and cost initiatives, along with disciplined investments we're making across the business, allowed us to close out the first half of 2025 with performance in line with our expectations. A key theme in 2025 has been the tariffs announced by the U.S. administration. Tariffs did not have a significant impact in our financial results through the end of the second quarter, but we expect to see an impact in the back half of the year if current tariffs remain in place. Burt will share more details about the scenarios we considered as we work to provide our latest forward outlook. There's a significant amount of ongoing internal activity associated with managing through the tariffs. I'm proud of the way in which the global teams have rallied together to leverage our global relationships and our OneGPC team approach to navigate the environment. We have a global cross-functional command center set up that meets multiple times a week to analyze and manage the changing data. Importantly, our focus in these times is to help support our customers. For example, I recently spent time in the field with Motion customers. We were with a customer showcasing a proprietary digital tariff calculator built by our technology teams that helps our customers understand their specific exposure to tariffs and the solutions we can offer to help them problem solve. This level of transparency and support has been very well received. Our capabilities at scale, access to global resources, and relationships with our strategic suppliers makes a difference for our customers in moments such as these. As we discussed during the April call when we offered various guidance scenarios, we'll update you today with our latest perspectives including how tariffs might impact us through the balance of the year. Our industry demand remains driven by break-fix customer needs, which results in an ability to pass through prices, and the competitive activity in our industries remains rational. The magnitude of where tariffs will ultimately land and how demand will be impacted remains fluid. That said, we remain cautiously optimistic on market improvement in the back half relative to last year, but likely with a slower pacing versus when we first gave our outlook back in February, which requires us to update the outlook. Despite that, the tone of recent customer discussions has been generally positive as many customers want to cautiously push forward despite the fluid environment. Customers are looking for value from their partners in this environment and we're well positioned to help with leading product assortment and service solutions. As we continue to operate in this dynamic environment, we'll stay focused on controlling what we can control, staying agile to serve our customers while focusing on the basics, investing with discipline, and executing initiatives at pace to enhance our operations and drive long-term value for our stakeholders. Turning to our results by business segment. During the second quarter, total sales for global industrial were $2.3 billion, an approximately 1% increase versus the same period in the prior year, with comparable sales essentially flat. The second quarter represented the first quarter of sales growth for the industrial segment in the last 12 months. Looking at the performance across our end markets, we saw growth in five of our 14 end markets, which is up from three in the first quarter, and with strength in pulp and paper, aggregate and cement, and food products. This growth was offset by softer demand in markets with heavy exposure to global commodities like iron and steel, automotive, and oil and gas. Our core MRO and maintenance business, which accounts for approximately 80% of motion sales, was up low single digits during the quarter, with continued strength with our national account customers. The remaining 20% of motion sales, which originates from more capital-intensive projects, including our value-added service offerings like fluid power and automation, was down low single digits during the quarter as customers continued to selectively defer orders. However, our current value-added solutions backlog has improved versus last year and has been showing positive momentum year to date. As it relates to other general market data, we were encouraged at the start of the year as industrial activity metrics like industrial production and PMI were trending in the right direction. Unfortunately, as the trade and tariff uncertainty picked up in March through the second quarter, we saw the PMI sentiment metric revert below 50 and stay there for the last four months. As we've shared before, we remain bullish on the outlook for motion once the industrial economy returns, as history shows that the industrial economy experiences sustained periods of growth following a contraction cycle. Despite the sluggish market, new industrial opportunities continue to arise as trade policies evolve, including, for example, data centers, semiconductors, power generation, and mining. We're also pleased to see continued progress with returns from our digital investments as we work to create a seamless, embedded, and personalized digital experience for our diverse customer base. E-commerce, which mostly represents our customer digital integrations as well as Motion.com, continues to deliver outsized growth driven by specific data and product enhancements that leverage GEN.AI. Today, e-commerce sales at Motion are 40% of sales, up over 10% versus the start of 2024. Switching to industrial profit, during the second quarter, segment EBITDA was approximately 288 million and .8% of sales, representing a 10 basis point increase from the same period last year. The Motion team continues to execute pricing and sourcing initiatives, as well as proactively managing costs with impressive discipline in this low growth environment. Turning to global automotive segment, sales in the second quarter increased 5.0%, with comparable sales growth up approximately half a percent. Global automotive segment EBITDA in the second quarter was 338 million, which was .6% of sales, representing a 110 basis point decrease from the same period last year. Our second quarter results for the global automotive segment reflect inflationary pressures from higher costs in salaries and wages, rent and freight in each of our geographies. Before we turn to our results by geography in our automotive business, we wanted to touch on an important leadership transition we announced during the quarter in our North America automotive business. On behalf of the entire GPC team, we'd like to congratulate Randy Brough on his well-deserved planned retirement. Randy has been a key leader at GPC for 14 years and played a vital role in growing and improving our industrial business before coming over to lead our U.S. automotive business in June of 2023 as part of an expanded role. We sincerely thank Randy for his outstanding contributions and leadership during his tenure at GPC. With Randy's retirement, we also want to congratulate Elaine Moss on his promotion from president of our Canadian automotive business to the newly created role of president, North America Automotive, effective August 1st. Elaine brings over 14 years of progressive leadership experience within GPC and a deep understanding of the automotive aftermarket and Napa operating model. His proven leadership and success in driving performance, combined with his relevant industry experience and established relationships, will help build on the momentum in our North America automotive business. Now let's turn to our automotive business performance by geography. Starting in the U.S., total sales for the second quarter were up 4%, with comparable sales essentially flat. Comparable sales for our company-owned stores were up approximately 2%, while independent purchases were down low single digits. Sentiment with independent owners is showing signs of improvement, but still reflects ongoing pressure many small businesses are feeling from high interest rates and an uncertain macro environment. Sales out at both company-owned and independently-owned stores improved sequentially versus the first quarter. By customer type, total sales to our commercial customers were up low single digits, while sales to our retail customers decreased mid single digits. Within commercial, all four of our customer segments were positive, with notable strength and sequential improvement in auto care and major accounts. Looking at our product categories at a high level, we've generally seen consistent performance over the last four quarters, with non-discretionary repair categories being the strongest and up low to mid single digits. Maintenance and service categories flat to slightly up in the second quarter. This quarter, discretionary categories were flat, improved from last quarter, driven by specific category initiatives in our tool and equipment offering. The U.S. automotive team is actively managing tariffs. Our total purchases exposure to China is approximately 20% at U.S. Automotive, which we believe is in line with or slightly below our competitors of scale. Our proactive efforts to strategically diversify our supply chain following the pandemic has served us well. Today, we continue to have active engagement with suppliers, but the number of inbound conversations to discuss tariffs has reduced versus April and May levels, and the magnitude of the cost increases has also moderated. Our scale and analytics positions us well versus smaller competitors to react to and negotiate with a global manufacturing base. In fact, we recently hosted a supplier conference in China with all GPC automotive businesses to showcase the diversity and strength of our footprint. Additionally, during the second quarter, we acquired 32 stores from independent owners and competitors in the U.S. These stores, along with the 44 stores acquired in the first quarter, strengthen our footprint in strategic priority markets. We continue to make great progress with the integration of the stores we acquired last year, including the acquisitions of MPEC and Walker. In May, we hit the one-year anniversary of the MPEC acquisition, and our integration and synergy capture are on track. We've now onboarded 100% of the stores to our systems and are focused on driving growth and operational improvements. MPEC is fully rolled into our comparable sales figure beginning in May, and Walker will fully roll into the comparable sales figure in August. Our progress with Walker is also on track, operationally and financially. Turning to Canada, total sales increased approximately 5% in local currency versus the same period last year, with comparable sales increasing approximately 4%. Both our automotive and heavy-duty businesses are performing well, with heavy-duty outperforming in the quarter. In addition, several of our investments in Canada, including the new distribution center in Mississauga and the Micro-Market Prioritization Initiative, are driving results ahead of our expectations. We've seen differentiated growth in the local markets as a result of these targeted investments. Our Canada team is continuing to outperform the market despite an ongoing soft macro environment. In Europe, total sales were flat in local currency, with comparable sales down approximately 1%. The team in Europe is working aggressively to navigate a muted market, payroll and rent pressures, and a fluid geopolitical backdrop. Despite this, the expansion of the Napa brand and wins with key accounts continues to perform well and deliver performance in line or better than market. Priority areas of focus in Europe continue to be profitable growth, pricing and sourcing initiatives, cost reduction programs, and the delivery of strategic projects. Rounding out automotive, our team in Asia Pac continues to take market share and delivered another quarter of double-digit growth in local currency, driven by both organic initiatives and contributions from recent acquisitions. Total sales increased approximately 13%, with comparable sales growth of approximately 5%. Both our trade and retail businesses put up strong numbers during the quarter, with retail continuing a strong run of standout performance. Retail sales were again up high single digits in the quarter and showing strength relative to the competition in all other local retail segments. Our in-flight initiatives are working well and the local team is energized to build on the strong momentum. In summary, our first half results were in line with our expectations despite a dynamic environment. As we start the second half of the year, we're focused on controlling what we can control while proactively navigating the external environment. We're cautiously hopeful given multiple green shoots of encouraging data points but are appropriately updating our near-term outlook given the uncertainty. If we take a step back for a moment, we operate in two highly fragmented markets, attractive industries that are break-fix in nature. Our diversified geographic presence and balanced business portfolio provide meaningful differentiation. Our scale and strong global partnerships continue to offer advantages relative to many smaller competitors as we can offer customers differentiated solutions. The near and long-term fundamentals of our markets are attractive and we remain intensely focused on executing our global strategic priorities to create shareholder value. In closing, I want to thank our shareholders, customers, and business partners for their trust and ongoing support and importantly, I extend my appreciation again to our GPC teammates for your hard work and dedication to our customers. I'll now turn the call over to Bert. Thanks,