Good morning, ladies and gentlemen. Welcome to the Genuine Parts Company Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] This call is being recorded on Tuesday, February 18, 2025. At this time, I would like to turn the conference over to Tim Walsh, Senior Director, Investor Relations. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to Genuine Parts Company's fourth quarter 2024 earnings call. Joining us on the call today are Will Stengel, President and Chief Executive Officer; and Bert Nappier, 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 management's views as of today, February 18, 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 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 Securities 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. Now I'll turn the call over to Will.

Thank you, Tim, and good morning. Welcome to our fourth quarter and full year 2024 earnings call. Before we get into the details of our results, I want to take a moment to express my gratitude to our over 63,000 GPC teammates around the world. Your hard work, dedication and unwavering commitment to serving our customers are the foundation of our success. Our people are at the heart of everything we do, and we have a culture of service, performance, integrity and teamwork. In 2024, we made meaningful strides in strengthening our teams by making focused investments in talent across the globe at all levels. These people investments are helping build a stronger organization. As evidence of the strength of our culture, we're proud to share that in our most recent Global Engagement Survey, a record 81% of our teammates reported being highly engaged with our company, up three points from the survey a couple of years ago. Reflecting on 2024, our end markets did not perform at the levels we planned at the start of the year, but I'm proud the team stayed focused on what we could control as we advanced our strategic initiatives to improve the business and effectively manage our operations against the backdrop of challenging macroeconomic conditions. Our strategic investments continue to enhance the customer experience, improve productivity and drive profitable growth as we leverage our global scale and teamwork to prioritize opportunities that make GPC smarter, faster and better. Technology and data underpin our investment priorities with an emphasis on talent, sales and supply chain. We're confident that our investments and actions continue to strengthen the business and create long-term value. We complement our core investments with disciplined bolt-on acquisitions. In 2024, we acquired over 100 companies that added talent, geographic coverage, new capabilities…

Thanks, Will, and thanks to everyone for joining the call. My remarks this morning will focus on two key areas: our fourth quarter performance, which was at the high end of our expectations and our outlook for 2025. Our fourth quarter results reflect revenue growth from the benefits of acquired businesses, which more than offset the negative impact of weak market conditions. As expected, despite the revenue growth and gross margin expansion we realized, earnings were down in the fourth quarter due to headwinds from planned investments in the business and cost inflation, although further cost actions and better results from our global restructuring allowed us to finish 2024 modestly ahead of our expectations when we began the quarter. Our discussion will focus primarily on adjusted results, which exclude the nonrecurring costs related to our global restructuring program, costs related to the acquisition of MPEC and Walker, and a charge to write down inventory related to a global rebranding and relaunch of a key product category. During the fourth quarter, these costs totaled $125 million of pretax adjustments, or $91 million after tax, with $62 million attributable to the inventory write-down. Starting with sales. Total GPC sales increased 3.3% in the fourth quarter, including a benefit from acquisitions of 320 basis points and the benefit of an additional selling day in the U.S. totaling 110 basis points. These items were partially offset by slightly negative comparable sales growth as weak market conditions and lower customer demand, particularly in industrial and Europe, impacted our sales performance. Looking at the quarterly sales by business unit. Starting with our Global Industrial segment, sales in the fourth quarter decreased approximately 1% compared to prior year, with comparable sales down 2%. During the quarter, we had one extra selling day compared to the fourth quarter…

Thank you. [Operator Instructions] Your first question comes from Scot Ciccarelli with Truist. Your line is now open.

Guys, thanks. You guys have made a lot of investments. Imagine changes on the auto side, but North American comp growth has slowed further, and it is lagging a bunch of the other industry leaders. Can you help us reconcile operational improvements, for some of this underperformance, and when would you expect to see your operational improvements start to show through, on relative sales or market share?

[technical difficulty] Great. Some of these are quick wins, some of these are longer efforts. And so in the aggregate, I think we feel good about the body of work, and as we're working with our independent owners more actively, to make sure that they're energized and motivated, to compete and sell in the market with us, making really good progress on our company-owned stores, and feel really good about the team that we've got on the field. So long winded way of saying, we're proud of the work that we're doing, pleased with the progress, but not satisfied and look forward to continuing to progress, as we move forward.

Okay. I'm sorry, I might have missed the very beginning of that. Can you just help reconcile kind of the underperformance versus some of the others? Obviously you've made a lot of improvements internally. I think the operator might have lost us for a second.

Yes, Scot, I think what I described is, we're proud of the progress that we're making. We're putting the right work into the business. We're seeing strength in parts of our commercial business as a result of our targeted work. And as we described, we're realizing some of the softness in some of the discretionary business. But pleased with the non-discretionary and doing the right work, to advance us moving forward. So each and every month we're getting better, and we're excited about the progress as we look forward.

Got it. I'll take the rest offline. Thanks guys.

Thanks, Scot.

Your next question comes from Christopher Horvers with JPMorgan. Your line is now open.

Thanks. Good morning guys. My first question is, can you give us some guidance on how you think about the progression of the comps over the year? You gave good discussion around the earnings forecast, but how are you expecting the ramping comps in Motion in the U.S. NAPA business in particular? And related to that and Scot's question, the U.S. business didn't really get any benefit from what turned out, to be a pretty good winter in the month of December. So can you talk about what happened there as well?

Hi Chris, it's Bert. I'll give you a little bit more color on the cadence of 2025. I think at the highest level, just think about our sales outlook in terms of, we exited the year with pretty weak conditions across the board. And as I think we've talked about, really one of the first times in GPC history, where all five of our business units are feeling the downward cycle in the same way. We're going to start the year in that position. So we have expectations that this weak environment, will persist through the first half. We don't really get into giving individual sales guidance, by business unit. But I will say that we're looking for the second half to be better, to improve and we're looking for sequential improvement across the year. As I kind of outlined in my prepared remarks, with the cadence of earnings and with that backdrop. Obviously, we would have the expectation that sales and comp sales would progress, through the course of the year, to support that improvement in earnings. So I think we'll be looking to the second half. There are a lot of moving pieces out there right now in, which I think the market is reacting to some pretty muted conditions. Whether it's high interest rates, inflation, foreign currency, the emerging potential for tariff impacts, which we obviously did not include in our guide. There's some things to be very optimistic about, but cautiously optimistic and being prudent about sequential improvement in PMI and IP, which we've seen over the last three months. So that would be a benefit for Motion that, has a lag to it, about a two to three months' lag. And so if those things continue, then that would put us right in the middle of the year in, which we might see some improvement. And that would come alongside hopefully, some improvement in the customer side of the house, on the automotive business. But look, there's still things to watch. We're watching that industrial business, and we're watching Europe to a certain degree as well.

Thanks. I guess on the - two questions, one follow-up on the weather benefit in U.S. NAPA, but were you surprised not to see any improvement there? And second, on the Motion side of the business, obviously the elections behind us, you saw the PMI pick up, but tariffs have gotten full front and center in the news. What are you hearing from your customers? Do you think the tariff is something that could remain an overhang, until it fully goes away, such that that pushes out that Motion recovery in the PMI recovery?

Hi Chris, I'll take the weather point and just say, look, don't forget the fourth quarter started with some pretty significant disruption from the hurricanes. So as we started October, we were still feeling the impact in both segments of the hurricane that persisted really through the month of October, and perhaps into the first week of November, where we got back on our feet. You top and tail that with some better weather in December, from an automotive perspective in terms of winter weather, and driving sales. And I would say that weather, which is why we really didn't call it out for the quarter, was a push. When you take those two factors together. And I'll let Will give you some color on the tariff question, around industrial.

Yes look, I think it's a wait and see, Chris. Honestly, I would say that the tone of the discussions are biased, more positive as we've started the year, but I think everybody is cautious and staying agile. Obviously, as we think about the implications for Motion associated with a stronger North American manufacturing base, that's a huge tailwind. If you think about our tariff exposure at Genuine Parts Company. I would tell you that it's definitely a fluid situation, but we've been prepared for this moment. Our merchandising teams around the world have done really good work, to make sure that we've got a diversified global supply chain. And in fact, even in the course of the fourth quarter, we analyzed the country of origin across 800,000 SKUs, to make sure that we were exceptionally precise about, how to manage the business. And if you look at the key takeaways from that analysis, for GPC overall as a global company, our tariff exposure as a percent of purchases, is about 7% in China, and less than 5% in Mexico and Canada. Motion has almost 90% to 95% of its exposure in the U.S. the area of the business that has exposure to China, Mexico, Canada as a percentage of total GPC is NAPA. Where roughly 20% of purchases are China, 15% are Mexico and less than 5% in Canada. So we've got a good handle on the facts. The discussions with the vendors right now, I would describe similarly to the way that I describe customers, which is everybody's trying to make sense of, which way the wind's blowing. And the good news, is the team's prepared to react accordingly, as we did a couple of years ago, where we operate in rational markets that are structured where we have the ability, to deliver service to the customer, but also pass through price.

Thank you.

Your next question comes from Greg Melich with Evercore ISI. Your line is now open.

Hi. Thanks. I wanted to double click on two things. One, is that sales progression you talked about. Obviously we exited last year week. It sounds like we started this year, below the sales growth range that you're expecting for the year. Is that fair to say that it's below maybe, perhaps positive, but below the 2% to 4% range?

Yes, Greg, that's fair. I mean, we're looking at 2% to 4% for the full year, with some fat cap weighting to that as I described in my prepared remarks, particularly when you think about the shape of the earnings. So we would start in a little lower position, and end in a little higher position. And that'll get you to the math of the 2% to 4%.

Got it. And then maybe Will double click on tariffs. Remind us your business proposition around tariffs. And if you look to protect gross margin dollars, or protect gross margin rate, depending on how tariffs play out by country and product line?

Yes, Greg, I would say it depends. Honestly, we talk a lot about category management, and managing the assortment and the category at a pretty granular level. So there might be situations, where you're thinking about gross margin dollars, or profit dollars and there might be situations, where you're talking gross profit rate. So it's a balancing act. Obviously, gross margin rate is important to the financial expression of our business. And so all else equal, that's something that we consider.

Got it. And if I could, I just want to make sure on interest expense, a housekeeping item still $150 million this year. Does that include basically the lack of the pension income since that being divested?

No, Greg, not in the interest expense number we gave you. Pension income is a headwind, as I described in our prepared remarks. It's down from the year-over-year $0.28 estimated headwind for the year. But that's not a part of the interest expense book that in…

That's totally separate from that. And that'll show up as soon as it's actually divested, or before that?

Yes, it's actually before that. We had to reallocate and rebalance the portfolio of assets in connection with the transfer, which is why we have the headwind. The actual settlement is subject to numerous regulatory and approval steps, which is why the timing we expect to be in the fourth quarter, could slip into the first quarter of next year. We wanted to be clear about when that timing might occur, because we go through that regulatory process. But to prepare the plan assets for the transition, we rebalance the portfolio much less equity weighted. And so in that respect, the income will be down significantly year-over-year. And you can think about that $0.20, $0.28 sorry. Pretty radically across the year.

Perfect. Thank you and good luck.

Yes. Thanks, Greg.

Your next question comes from Michael Lasser with UBS. Your line is now open.

Good morning. Thank you so much for taking my question. One of the key debates on the Genuine Parts investment case, is this idea of market share, and why has the company's North American business, not only in the automotive business, but also seemingly on the industrial side, been losing market share? Is it service, is it availability, or some other factors? So A, could you give us some more detail on how the investments, are going to close, some of these factors that may be driving underperformance. And B, is the expectation that you will see a progression over the course of the year, predicated on an acceleration in market share, or the industry accelerating? Thank you very much. And I have a follow-up.

Michael, let me take that one and make a few points. First of all, you referenced North America automotive. And for us, our Canadian operations continue to perform very well and in line with the market. So that's a great business up there. It's got a leadership position, and continues to extend its lead. I would respectfully disagree with your observation about Motion North America, not competing effectively or losing market share. Our closest competitor has a slightly different mix of business. Regardless of that, I think if you look at our performance relative to anybody in the market is as good or better, and we're excited to continue to prove that quarter-after-quarter throughout '25 and well beyond. On the U.S. automotive side of our business, I think we've been pretty clear about the areas where we're investing, to take care of our customers and win market share. It starts with inventory. It starts with supply chain. It starts with talent. It starts with sales intensity running great stores. As we have a different operating model. So 35% of our stores, our company-owned, which is up 10 percentage points versus not that long ago. So we're evolving our mix. We can control those operations and compete effectively in the market. W partner on the balance of our stores, with our independent owners. And as everybody knows, it's been a challenging couple of years in a higher interest rate environment. And we partner with those independent owners as small businesses, to make sure they've got the right inventory, make sure they have the right resources and make sure that they're attacking the market effectively. And so, whether you look at our MPEC and Walker acquisition to change the mix. Whether you look at some of the investments we're putting in supply chain technology, we're doing all the right work, and there's no team more motivated than our NAPA U.S. team to compete effectively, and win market share. Overlay with what we hope will be an improving fundamental market backdrop as we move through 2025. So to answer the last part of your question, it's both earning our fair share by taking care of our customers. And then enjoying the fundamentals that we hope improve, as we move forward through 2025.

Thank you very much for that. My follow-up question is, if the industry doesn't accelerate to the degree that you're expecting, or some of the market share trends become more challenging, how should we model or think about the sensitivity of the earnings, for GPC to the top line? Are there other elements of the P&L that you could manage in the event that sales falls short through the course of the year? Thank you.

Thanks, Michael. Look, I mean, I think one of the things that we've been very thoughtful about, is the expansion of our cost actions and restructuring in light of what we see as soft conditions starting the year. We've given a good estimate of what we think we'll do this year on the expansion of restructuring, and additional cost actions. And we're doing that, because we believe it's prudent to balance the long-term and the short-term right now. We do have an ability to lean further into those should we need to. Some of the things we're being very mindful of right now, as we think about restructuring and cost actions, is continuing to protect customer-facing roles, protect customer service and protect the customer experience. And so, we've got an ability to lean in a little bit further, if we want, particularly if we see things not changing. One of our key learnings from 2024 has been around this sense of urgency, and moving faster. And so, we're going to be much tighter on watching how things develop. Being transparent with all of you, on how we see things developing. And if we need to accelerate more restructuring, we will. We do feel like we've found a sweet spot for 2025 as we bring in the rollover of 2024 actions. Which give us a little bit more incremental benefit in '25, and then the new actions really spilt between things you would expect, us to do on restructuring, a little heavier lift now, though, some more facility actions and leaning into streamlining our back office. We're also doing that with some cost actions. Where we're simplifying our operations, and giving us the ability to be a little bit more nimble. So it's all about smarter, better, faster. And to the extent we need to, we can expand those activities, and react to the market accordingly.

Thank you very much and good luck.

Thanks, Michael.

Thanks, Mike.

Your next question comes from Kate McShane with Goldman Sachs. Your line is now open.

Hi, good morning. Thanks for taking our question. Just with regards to the automotive comments about same-store sales. What is driving EBITDA margins flat to up? Is it the cost savings? And our second question is, is there a target in cadence of buying back independent's in 2025? And what kind of lift have you seen in same-store sales comp, as you've taken those businesses over?

Kate, I'll take the margin question, and then I'll let Will give you some color on the independent owners. But when we think about flat to up 10 bps on automotive for the guide for the year, we kind of think about that through the prism of several things. One, we are going to see continued expansion in gross margin. So that will be a lift for sure. I think it sales backdrop will be a bit better. Giving us a little bit better ability, to navigate the entirety of the P&L and make some better choices with that respect. And then also, these cost actions and restructuring, we'll see those benefit both segments. So it's not just unique to automotive, both sides of the house are being disciplined and tightening the belt. And so when we take all that collectively. A better sales environment, gross margin expansion, a normalized level of inflation in SG&A, we think we're returning to in 2025 and the cost actions. We believe that's the right backdrop, to expand margin on the automotive side. And I'll let Will give you a little bit of color, on the independent owner and cadence there.

Yes, Kate, it's a good question. So just as a reminder, the MPEC and Walker those two transactions in 2024 were, at the time, our largest two independent owner groups. If you look at the Pareto of our independent owners at this moment in time, of which there's roughly 2,000, our largest owner is somewhere in the 50 to 60 store range. We have a handful of folks in the 30 to 40 range. And then the vast majority of our owners operate five, or fewer stores. And so, as we look forward from an M&A standpoint in U.S. automotive, there will be less of a material impact to our financial statements associated with that activity. What we've seen in the performance post close, is what we would have expected to see, which is it gives us an opportunity to influence sales in the local market. It gives us the opportunity to harmonize and optimize cost and everything in between. So it's the right operational strategy. It's the right financial strategy, it's hard work. It takes time. You noticed in my comments, where 55% of stores are integrated. You have to put the systems into the independent owner stores, so that we can operate them effectively. And those activities are not technically in our comp sales growth yet given the recent nature of the acquisitions.

Thank you.

Your next question comes from Seth Basham with Wedbush Securities. Your line is now open.

Thanks a lot and good morning. Will, in response to Michael Lasser's question, you noted the challenges for independent NAPA customers. But in your prepared remarks, you noted that the company-owned stores and independent stores, aren't relatively in line. Can you just give us a little bit more color on whether, or not you think that the company-owned stores are facing any additional challenges that, might be leading to less strong performance than peers?

No, Seth, I don't think there's anything uniquely different about our company-owned stores that disadvantage us relative the market. Again as I said, we've been very focused on executing the basics, and working with our independent owners to that regard, meaning having the right inventory, having the right talent in the stores, having the right operational processes. And if you look at our company-owned stores, we're highly energized, because we've got a great number of stores that operate very effectively. And the opportunity set available to us, is to quartile up the performance of the bottom quartile of our stores. So it's a very tangible body of work. There's nothing wrong with our company-owned stores. We've got some independent owners that have excellent stores in many instances, better stores than us. And so, we're constantly learning from each other, and we can see the opportunities in front of us and each and every day, we've got to go to work. And make sure that we're running great field operations and taking care of our customers, and that's what we're focused on.

Got it. And then my follow-up question, is with one large competitor exiting the West Coast, do you see any opportunity to gain market share out there?

We do, Seth. Any time I think you have changes in the competitive landscape, it presents opportunities. The thing that we can focus on, as I've said a few times today is making sure that we're running a good business, to capture those opportunities. So the fundamental execution, is really important to seize the moments. We do have a big national account business. We are a national scaled partner. And so that presents opportunities to us. We obviously have a dedicated network of AutoCare facilities and repair shops, which creates opportunities for us, and we also have independent owners. And so, if you look at all the opportunities that are available, when we execute well locally in the markets, we're excited about what it could be.

Great. Thank you.

And our last question comes from Bret Jordan with Jefferies. Your line is now open.

Hi, good morning, guys.

Hi, Bret.

In the prepared remarks, you talked about internal metrics that you were working on the DCs that, had picked up 800 basis points. Could you talk about what were those and on what basis were you having fill rate issues that you were dealing with? Or I guess, sort of what's happening at the DC level?

Yes, the DCs are performing as well as they ever have been, as we've talked about over the last couple of years. We've made changes to the way in, which we've organized our operations teams, and made it more of a centralized function that's enabled us, to put more consistent processes into the network. And I think, what you're seeing in the recent quarters, is the result of basically really, really good, disciplined hard work from our supply chain, and operations teams around the country. We've got a great leader in that part of our business, and we have opportunities, to continue to get better. So we're excited.

That 800 basis point increase is not off of a low base. It sort of seems like a dramatic step up, and it was in the prepared remarks. So I was, wondering if there was something that needed fixing?

It really wasn't. It wasn't, Bret. I think, quite frankly, some of these metrics that we put into in a more standardized way, are new to the buildings. Not every building was using the same metrics. And so, one of the nice things about having consistent processes, as you can level up everybody across the network. So nothing really to read into the improvement.

Okay. Great. And then I think also in the prepared remarks, you talked about a tool offering. Is there any more color we could get on that? Is that a new category for '25?

It's not a new category. It's a super important category. So if you look at the tools and equipment industry, we estimate it to be 10 plus billion market opportunity. We played in that market space forever. And as we looked at and listen to the feedback from our customers, we took that input to reimagine a more effective assortment strategy. And so, we've got a brand today. We're making it better. It's targeting particularly the professional repair shop - so as the commercial leader, it's important to have this offering. It's about a 8% category T&E for us as part of our NAPA business. And this specific offering is a much smaller portion of that, but we think it's critically important to take care of that professional repair technician.

You're not adding SKUs, you're just emphasizing more of what you already have?

We're simplifying and streamlining the assortment from think of it as a good, better, best to a more focused two-tier brand strategy.

Okay. Thank you.

Thanks, Bret.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.