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 is being 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's second quarter 2025 earnings call. Joining me 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 Investor 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, July 22, 2025. If we are 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. 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 3.4% 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 execution of our strategic initiatives and cost actions, partially offset by ongoing weakness in market conditions and persistent cost inflation. We are operating in an environment that has presented several challenges, including enacted tariffs in the U.S., ongoing trade uncertainty, 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 are 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 US administration. Tariffs did not have a significant impact on 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. Bert…

Thanks, Will, and thanks to everyone for joining the call. Our second-quarter performance was in line with our expectations as we offset continued weakness in market conditions and tariff uncertainty with execution of our strategic initiatives and cost actions. Our discussion of our second-quarter performance and outlook will focus primarily on adjusted results, which exclude the non-recurring costs related to our global restructuring program and costs related to the acquisition of Emtek and Walker. During the second quarter, these costs totaled $46 million of pre-tax adjustments or $37 million after tax. As expected, earnings were down in the second quarter as our profitability was negatively impacted by lower pension income and higher depreciation and interest expense, which cumulatively totaled a $0.29 negative EPS impact. As we shared in April, we expected these factors to drive second-quarter earnings down by 15% to 20%, and we finished the quarter with an adjusted EPS of $2.10, down 14% to prior year. Our results for the quarter include an immaterial benefit from the impacts of the newly enacted tariffs. I'll provide some additional comments around tariffs in connection with our outlook. Now let's turn to the details of the quarter. Starting with sales, total GPC sales increased 3.4% in the second quarter, which included a benefit from acquisitions of 260 basis points, a 20 basis point improvement in comparable sales, and a foreign currency tailwind of 40 basis points. Inflation and pricing were a little more than 1%, including the impact from tariffs. Notably, while PMI remained in contractionary territory throughout the quarter, industrial segment sales increased approximately 1% year over year. Our gross margin was 37.7% in the second quarter, an increase of 110 basis points from last year. The improvement in our gross margin was driven by the ongoing execution of our…

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We request that our callers limit their questions to one question and one follow-up. Your first question comes from Bret Jordan with Jefferies. Your line is now open.

Hey. Good morning, guys. Could you talk about sort of what you're seeing on fill rates in the independent NAPA stores? Like you said, selling was down low single digits. But is that sort of in line with what they're seeing from sellout and their inventory levels are generally stable, or are they destocking to some extent?

No. We've seen a really nice improvement, actually, in the independent owner inventory positions. As we've been working with them closely over the last twelve plus months to make sure that they were in great positions. That correlation between kind of purchases and sales out is as tight as it's been in the last couple of years, which is a good indicator. What's also a positive indicator is that the sales out from independent owners line up nicely with what we're seeing there on company-owned stores, which is up low single digits. So as we think about the sequential improvement through the first half and where we are today relative to twelve months ago, we're positive.

And I guess the follow-up question on pricing around the tariff increases and what you might see in the second half. Are you seeing that you're being able to attach full margin to the inflation? Like you said earlier, the pricing in the market's rational. Are you getting sort of a good pass-through on that cost increase?

Yeah, Bret. This is Bert. I'd say yes. I don't know that it's a net benefit at this point to gross margin, but I would say that at this point, we're pretty balanced between the cost increase that we're feeling from the supplier side and then what we're able to move into the market from a pricing dynamic.

I would just add that the complexity, I mean, it's a simple statement, but the complexity to arrive at that result is pretty high. So I just want to take the moment to acknowledge the teams. I mean, we talked about the command center. You know, in both of our big businesses, you've got anywhere from eight to ten different categories of tariffs. You've got, you know, millions of SKU combinations, multiple vendors. So it's a SKU by SKU, day by day game. And that's why I think we make the comments about the resource and the tools that you need and the expertise and talent you need to navigate this situation is high, and we feel really good about the work that's being done at the company.

And I guess still pretty fluid, but how do you see the cadence of these price tailwinds into the second half? It sounds like we might see a few points price, but is it really built into the fourth quarter?

No, Bret. I mean, I think the cadence accelerates from here. We talked about having an immaterial benefit both in the first quarter and the second quarter. So I think the cadence really builds from here as we look to the rest of the year. If I had to weight it, it probably has a little bit more impact here in the third quarter as we start to see some of those come through. And I think it levels out to more normalized kind of experiences there in the fourth quarter.

Great. Really appreciate it. Thank you.

Yep. Thanks, Bret.

Your next question comes from Scot Ciccarelli with Truist. Your line is now open.

Good morning, guys. I guess a little bit of a follow-up and then a primary. Can you guys just provide a bit more color on your expectations for same SKU inflation in the U.S. business? And it looks like you're assuming a little bit of negative unit elasticity. If you can provide more color around that, that'd be helpful. And then second, on the margin front, global auto margins are down over a hundred basis points from kind of where you were a year ago or two years ago and would have been a pretty steady rate for many years. Given the puts and takes you've identified, should we assume kind of the rebasing that we've seen is the likely go-forward rate on auto margins? Thanks.

Yeah, Scot. So on the first part of your question, I would say that our US assumptions, maybe I'll pull it up just a little bit. Our assumptions around inflation in the second half aren't materially different between the two segments. And they're not materially different between the geographies. And so when we think about how we've factored in a little higher assumption around the inflation rate, that obviously had a lot to do with the tariff environment. If I had weighted, I'd weight it a little bit more to the NAPA business for the industrial business, and I'd weight it more US than I would the other geographies. We are impacted when we think about the tariff most predominantly between NAPA and the motion business, although Canada will feel some of the impact there as well. So that's kind of how we're thinking about the inflation part of the rest of the year. I think on the second part of your question, you know, the key headwind right now for profitability in the automotive business is or the global automotive segment is the inflation that we're feeling across the world. So we've got a little bit upside-down correlation between the cost that we're feeling from an inflation perspective in SG&A and the benefit that we're getting in the top line. And this is true for each geography. So when we think about the US, we feel that difference. Inflation is probably running in the three, three and a half percent. It's a little higher actually in Europe and Asia Pac. And in every case, we see a delta that, as I've in my prepared remarks, is about a hundred basis points between the top line and the SG&A cost impact. So that's really why we've been thinking about all the work we're doing on the cost front, the restructuring actions we're taking, to try to bend the curve. I think we've made a lot of progress on bending the curve. As you heard me talk in my prepared remarks about sequentially improving the deleverage. To the latter part of your point about is this the new baseline for the global automotive business, I mean, that's not our objective is to keep it with declining profitability. We're doing all this work and we're taking all these actions to improve profitability over the long term. In the near term, we've got some very, I think, specific challenges with respect to this higher cost inflation. And as we look into the second half of the year, I think you're going to see, as I also said in my prepared remarks, an improvement in the profitability of the business, and we can't get there without an improving global automotive segment.

Got it. Thanks a lot. Very helpful.

Yep. Thanks, Scot.

Your next question comes from Chris Horvers with JP Morgan. Your line is now open.

Thanks. Good morning, guys. So first, a question on the motion business, the top line. Can you talk about how you think about maybe the cadence of that? Is there an assumption that the tariff uncertainty dies down and that the organic growth rate accelerates as you proceed through the year? And qualitatively, is some of the improvements at the margin that you're seeing in the business, is that fueling your view, or does that just sort of provide hope that it might happen in the fourth quarter?

I'll take the second piece first, qualitatively. I mean, the improvements in the business are real and something that we're really proud about. We're doing a lot of work out in the field, making sure that we're covering our customers with selling resources the right way. So we've done some restructuring around making sure we're bringing our best industry technical experts to all of our customers in a different way. The intensity around making sure that we're calling on not just corporate accounts, but medium and small-sized customers. I made reference to the digital investments that we're making, which is an important way in which we connect with our customers electronically, that's seen amazing growth. So the sales effectiveness in quotes, strategies, and initiatives that we're running are building really, really nice momentum. On top of all of the really thoughtful pricing and sourcing initiatives and then cost discipline. So we are just desperate like everybody else for the end market to cooperate with us, and when it does, we're looking forward to much, much brighter days ahead. But we're doing a lot of self-help right now to make the best of a challenging market.

And Chris, I'll just add, you know, your point there about are we seeing more or less uncertainty with respect to tariffs. I think we found ourselves at a moment, which is why we added the tariffs into our guidance with more clarity but not full clarity. And I think that's allowed us to factor in what we see as of the environment over the last ninety days, we have a body of work to be able to manage and work with and understand. As Will has outlined, our teams are working diligently each day to understand that and factor that into the business, and I think that gave us some confidence to put some of our initial expectations into the outlook. But look, I think as we look ahead, there's more to come. I mean, we're in another pause here until August 1 in many respects. I think the current pause for China is August 10. And I think as we think about the longer view, tariff clarity would be a positive unlock in many respects, and I think it would give our customers some confidence about how they think about the go-forward. Now having said that, the rest of the year for motion, we do start the quarter in expansionary territory. The outlined downside scenario that we gave you all back in April played out, and that's why we moderated our expectations for motion for the rest of the year. But moderated doesn't mean we're not still seeing some positive things, as Will commented on. And it gives us the confidence to, while lower, still feel good about the growth for motion in the second half. Some context for that is we do have easing comparisons as we get into the rest of the year. If you recall a year ago, the reported results in the industrial segment were negative in both the third and the fourth quarters. And so as we look ahead, particularly as we exit the second quarter with positive growth in motion despite this continued sluggish PMI backdrop and built on the commentary that Will shared about customers looking to move forward despite some of these headwinds, we feel good about the guide. It does accelerate in Q3, and then it accelerates again in Q4. But on that two-year stack, I think what we're expecting is fairly reasonable.

And just to clarify, the positive organic motion to start the third quarter?

Yes. I think so. Look. I mean, we've, like I said, we had a negative growth territory in Q3 and in Q4 last year. And so we're continuing to see positive trends in the motion business, albeit at a little bit moderated pace from when we started the year.

Got it. And then, you know, a follow-up question on the US NAPA business. You know, as you think about the independents being down, the core stores being up, I think some people out there believe that, you know, maybe this gross margin expansion is you're taking too much price, and that's causing some share shift dynamic, share headwind dynamic. Doesn't look like that in the company-operated stores. So I guess what is different about independents going back to, you know, Bret's question just to kick off the Q&A.

Yeah. Look. I think we feel really good about how we're positioned from a price perspective in the market. There's a lot of science to it. We've got good visibility into where the market is, and as we've talked about before, it's SKU by SKU, but we study that and feel good about it and have a thoughtful strategy there. I think as it relates to kind of what's different between the independent owner performance and company-owned stores is really just the kind of the pace at which they get comfortable with the uncertain world that we live in. And, you know, as a big corporate organization, we work and navigate it centrally here and pull levers and move at pace, and we have to work with those independent owners, of which there's roughly 2,000, to understand what's going on in the market, help them realize what inventory they need to put in, and then partner with them to make sure that it makes sense. And that just takes time. But the most important takeaway is the work that we're doing in the business, whether it's company-owned stores or the way in which we're working with independent owners, is sequentially improving as designed, and we're going to stay after it and continue to work through them, but that's the value prop that we bring to these really important stakeholders, which is the independent owners.

Great. Thanks very much.

Thanks, Chris.

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

Hi. Thanks for the follow-up on inflation margins and then on the cost side. So first on inflation, I want to make sure I got it right that it's 200 bips for the year for the company. So that's implying the back half is 300 bips after 100 bips in the first half?

That's a fair ZIP code to live in, Greg.

Got it. And so I guess, is that the main reason why the guidance has margins up in the back half after having fallen in the first half? Or is there other things for?

No, Greg. I would say, look, I mean, our expectation for the year has always been to have an improving second half. I think part of that is driven by the expectations around a better top line, although we've moderated that to some degree. But the other thing I would point out is that we really have been working very diligently on our cost structure. And when you combine accelerating benefits from cost actions, the full-year impact of last year's restructuring work, the additional actions we've just implemented here at the end of the quarter, gating on the synergies around many of the acquisitions we executed in 2024, the totality of that body of work helps to drive a better bottom line as we look into the second half of the year. We've just come off of a quarter in which a sluggish top line wasn't enough to offset some of these headwinds that we had, and we've communicated to everyone. But as we look into the third quarter, as I mentioned, we're looking for earnings to be up somewhere between 5% and 10%. And that means the combination of everything within the business, the top line, the cost actions, the continued improvement in gross margin, all of those things in total I think give us a better outlook for the second half of the year in terms of how we'll perform from an earnings perspective.

And what was the incremental $30 million of restructuring expense? What was that spent on? And that $200 million of savings, is that already started to flow in, or does that come next year?

Well, no. I mean, we've already got the combination of actions we took last year along with the actions we've implemented in 2025 are already benefiting the current year. As we shared, for the quarter, we had an $0.18 benefit in the full year. The $200 million is what we're looking at as an annualized benefit getting into 2026. Obviously, we'll give you a sharper view on that as we give you a 2026 guide. But we think the way we're tracking at this point allows us to be confident that that will be an over $200 million annualized benefit as we go ahead. In terms of the additional actions we've taken to end the quarter, I would just say and keep it kind of simple, we're just continuing to lean in to simplifying our operations and streamlining our back office. We've got great opportunities to do that across some IT, looking at global efficiencies, and really being sure that we can be smart. Obviously, some of our weakness has been in Europe, and so we're looking to be smarter in terms of how we streamline things there as well and gain efficiencies. So we think the investment we made at the end of the quarter here to a few more actions is the right one. It's what you do when you continue to face a sluggish outlook and a weaker outlook and not turning as fast as you expected, and it's what you would expect us to do. So get a little bit more benefit for that in 2025. We've included that in our outlook, and that's the reason we also had a little bit of a tweak in our cash flow outlook as well.

Well, thanks, and good luck.

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.

No problem, Mike. Good morning.

Thank you very much. Genuine Parts Company is a large and complex organization. In the past, the company has taken action to streamline the portfolio. At this juncture, would you be able to accelerate the deployment of your strategies and the successful execution of those initiatives if you were to have more of a streamlined organization, and how does that fit into your thinking today?

Michael, I'll take that one. Listen. We love both of these businesses. They're great businesses. They're large markets, attractive markets. They're similar in many ways in the sense that the initiatives that we're doing at the business are additive to both, and we've leveraged that over the last two or three years to accelerate our execution to make both businesses better. So I would say, you know, the benefit that we get from having these two businesses together as we push forward in the near term. To execute on specific initiatives, whether it's sales effectiveness, tech initiatives, supply chain, they're all relevant. We feel good about making both sides of our business better at pace, and being separate certainly at this moment probably doesn't give us a pace benefit because of the way in which we're all working together. So we feel good about how we're positioned today. And constantly thinking about how to make the business better, you know, in each of our verticals, but also in the aggregate.

Okay. My follow-up question is, on the auto business. It's performed consistent with what you expected in the first half of the year. You have now taken into account all of the tariffs. You're going to get a couple hundred, maybe a few hundred basis points of like-for-like pricing in the back half of the year. So a, is that what you expect the industry to see from a like-for-like pricing benefit? And b, why are you lowering your top-line outlook for this segment in light of those first two factors?

Maybe I'll take the second part of your question first, Michael. And just give you some color on the way we thought about kind of the elements of the top line. And we gave those comments at the segment level, so I'll try to break it down a little bit, and there's a lot of moving pieces here. We certainly saw, you know, the inflation benefit that we gave you move up, that's predominantly on the back of what we see as more tariffs and the pricing benefit from tariffs being in the low single-digit range that I shared in my prepared remarks. You know, the question is a good one. Why not keep the revenue outlook flat? Why do you change it? And I think that really gets into unpacking the different elements. They don't impact us in a linear fashion. So maybe we'll start with Europe as an example. Europe market conditions, while they haven't gotten any worse, they certainly didn't get any better in the second quarter, and we don't expect them to get much better for the rest of the year. And so when you think about a Europe business in which we've moderated expectations, we've done that on the top-line base revenue assumption, but there was no tariff benefit to offset any of that. And so you have a pure negative there. When you move back to the US and you look at the automotive business, we did moderate some of the base assumptions there, but we do have an offset there. And so that impact is a little bit more balanced. I would say still leaning towards a net headwind when we think about that. Then you move into the rest of the automotive segment, you think about Canada again moderated top line, but with a little bit of tariff consideration. Asia Pac, another one like Europe, taking down the revenue with no tariff offset. So I think when you take the totality of that, and let's remember, we're giving you guys ranges. They're meant to be guideposts. And we can land the plane in varying degrees of those guideposts. And so I don't want to be overly precise about something that's pretty imprecise given the backdrop. But I would just say that hopefully that gives you some color about how we thought about the individual pieces. It is complex. We do have some tariff offsets in certain regards, but in other places, we didn't. And the net totality of that was to bring the revenue outlook down for the year.

Hey, Michael. I might just also add, you know, as it relates to is our same SKU inflation outlook relevant for everybody else. I don't know. All of our businesses are different. All of our country of origin nuances are different. Our exposure to steel is different. We had some industrial competitors out that, you know, had a different view of their inflation outlook. So I know that's not what the investment community wants to hear because we want to extrapolate, you know, our information to others, but I think I would offer up some caution on doing this. We've done the work that we think is most appropriate and thoughtful for our business. And how that relates to others, I'll leave it to the experts to figure out.

Thank you so much, and good luck.

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

Hi. Good morning. Thanks for taking our question. We just wanted to drill down a little bit more on the performance in the European segment by country and just wondered how much of your initiatives like the NAPA brand expansion are helping offset some of maybe those broader macro headwinds.

Yeah. Thanks, Kate. You know, we had kind of mixed performance throughout Europe. The key takeaway is that while it was mixed, it sequentially improved in most geographies in the second quarter. So as we closed the second quarter, we saw improvement in the majority of our geographies. The NAPA branded product is a real differentiator for us in the market. And what we're seeing, and we've made some public comments about this, I mean, in these markets, your customers are looking for value. And that's at the core of the NAPA offering in Europe, and it's first of its kind in many ways. And so we've got good penetration in all of our geographies from a NAPA branded product standpoint. And it's absolutely helping us offset a sluggish market over there. So I'd say mixed. Not one market, kind of an outlier. But all kind of mostly sequentially improving as we went through the second quarter.

Thank you. We have now reached the end of our allotted time. I will now turn the call to Will for closing remarks.

Thanks again, everybody, for your interest in Genuine Parts Company. We look forward to giving everybody an update on our call in October. Have a great day, and thanks so much.

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