Good day, ladies and gentlemen. Welcome to the Genuine Parts Company Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] 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 Third Quarter 2025 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, October 21, 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. With that, I'll turn it over to Will.

Thank you, Tim. Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. As always, I want to start by thanking our over 63,000 global GPC teammates. Our people are at the heart of everything we do, and our team's dedication and commitment to serving our customers is the core of our success. Turning to our results for the third quarter. A few highlights include total GPC sales were $6.3 billion, an increase of approximately 5% versus the same period in the prior year with sequential improvement in comparable sales growth at both U.S. Automotive and Motion. Gross margin expansion of 60 basis points versus the same period last year, reflecting the ongoing benefits from our strategic pricing, sourcing initiatives and acquisitions. Adjusted EBITDA up 10% year-over-year with improvement in EBITDA margins in both our Automotive and Industrial segments for the quarter. And adjusted diluted earnings per share of $1.98, an increase of 5% from the same period last year. Our third quarter results were in line with our expectations and reflect the ongoing execution of our growth and productivity initiatives. Our end markets remain muted, most notably in Europe, but we're working around the world to earn business with existing new customers. Globally, customers remain cautious and looking for the best value as they make purchasing decisions. Tariffs, trade uncertainties, elevated interest rates, a cautious consumer and muted industrial spending are familiar challenges, but the teams have adapted to working in dynamic environments and remain resilient and determined. We have also been proactively managing the business to offset an inflationary cost environment and will stay disciplined. As it relates to tariffs, we continue to leverage our strategic supplier partnerships and collaborative GPC global approach. As we expected, the sales benefit from inflation was slightly more…

Thanks, Will, and thanks to everyone for joining the call. Our third quarter results reflect continued discipline and strong execution while navigating weak market conditions, particularly in Europe, the tariff environment and a cautious customer. Against this backdrop, our third quarter performance was highlighted by mid-single-digit sales growth, double-digit adjusted EBITDA growth, twice the rate of our sales growth. EBITDA margin expansion in both segments and a return to earnings growth. In July, we shared that we expected third quarter earnings to increase 5% to 10%, and we finished the quarter with adjusted EPS of $1.98, up 5.3% to prior year due to stronger top line growth and our restructuring and cost actions, which are offsetting known headwinds from lower pension income and higher depreciation and interest expense. Those headwinds cumulatively totaled a $0.25 negative impact to earnings per share. As it relates to tariffs, our teams are continuing to manage the tariff environment, leveraging our capabilities and expertise through a dynamic landscape. For the third quarter, we experienced a low single-digit benefit to sales growth from tariffs and a low single-digit increase to cost of goods sold, in line with our expectations. The net impact of the tariffs on the quarter was a slight benefit to our results. Turning to our detailed results. My comments this morning around our third quarter performance and outlook will focus primarily on adjusted results, which exclude the nonrecurring costs related to our global restructuring program. During the third quarter, these costs totaled $67 million of pretax adjustments or $49 million after tax. With that, let's get into the quarterly results. Total GPC sales increased 4.9% in the third quarter, which included a 230 basis point improvement in comparable sales, a benefit from acquisitions of 180 basis points and a foreign currency tailwind of…

[Operator Instructions] With that, our first question comes from the line of Greg Melich with Evercore.

I wanted to start on the -- where you ended Bert, on the fundamentals in the business in the fourth quarter guide. Besides the cycling of the business acquisitions, what would -- is anything else accounting for gross margins being up less in the fourth quarter, timing on tariff pass-through, vendor rebates, anything along those lines?

Greg, I would say, no. There's no other uniqueness to the gross margin expansion in the fourth quarter and the guide. It's really about just the continued great work we're doing on sourcing and pricing. And as you mentioned, the lapping of the acquisition benefit as we've gotten past the anniversary of the big U.S. auto acquisitions last year.

Got it. And then I guess more strategically on the review, given that this is the first time we've had a call since the Board evolution, well, I'd just like to -- as you're looking at it, what do you think are the real benefits of having the businesses together today? And if you think that would change? Is there any reason to have them together as you think about the longer-term future?

Yes, Greg, thanks for the question. We've enjoyed very meaningful benefits over the last 3 to 4 years associated with being together. As I've talked about before, as we studied all of the investments that we put into the business and the strategies around our initiatives, they are very, very consistent. And so as you think about the benefits of the work that's happened in the last 3 to 4 years, it's really been an acceleration in the sum of the pieces that is better than the individual pieces. So whether it's sales effectiveness, technology investment, supply chain, we've really benefited from working as one team. And as I said in my prepared remarks, we've had the opportunity, as we do every year as part of our strategic planning process, to evaluate all those initiatives, pressure test what's working, where we want to improve, what we want to do more of and how we think about the future? And so this is a very natural and -- process that we go through every year. And so we've done that with great rigor. I had my entire executive team plus another level out at an off-site later -- earlier this summer. And we've done really good work to ask tough questions, challenge each other, think about capital allocation. So it's a very healthy fulsome process. And again, as I said in my prepared remarks, we'll give everybody an update next year after we finish the work.

And your next question comes from the line of Chris Horvers with JPMorgan.

It's Christian Carlino on for Chris. What was -- can you talk about what was same-SKU inflation in U.S. NAPA? And how are you thinking about incremental pricing coming through over the next couple of quarters for both U.S. NAPA and Motion? At what point will the full run rate of tariffs show up in sales? And what level of inflation do you see that approaching?

Yes, Christian, look, I think as we think about the full run rate of inflation, we're probably there as we look at how we exit the third quarter. We saw all of the tariff impacts start to build in the early part of the third quarter and kind of mature here at the end of the quarter. And really, honestly, with the stabilization of that, it's part of why we adjusted the revenue guide upward. I'd say that the benefit to U.S. automotive is 2.5-ish range, maybe a little stronger on the Motion side. And we'd expect it, as we said in our prepared remarks, to live in that kind of range for the rest of the year, low-single digit on the top line, low-single digit on cost of goods sold impact. It had a net benefit to the third quarter, and we expect a slight net benefit to the fourth quarter. But as we look ahead, I think we'll exit -- assuming everything else stays stable and the other dynamics around the fluid environment with China don't change too much, we'd expect to exit the year that way. And I think what would be a good thing for everyone is that we start 2026 with a lot of clarity around this issue and that can start to build back some confidence with our customers.

Got it. That's really helpful. And as you think about the right structure for GPC, how would you characterize any dissynergies if the 2 businesses operated separately both from a purchasing standpoint as well as shared corporate costs and any other explicit details you can put around that?

Yes, Christian, it's probably a little hypothetical to think about the split of the company and dissynergies and things like that. I'll build on Will's point. We have done a nice job in the last several years of leaning into one GPC, and we don't really think about it through the prism of allocating corporate to different segments or breaking things up at this moment. As Will said, when we think about where we've benefited, procurement is a place where we've been able to leverage capability, both direct procurement and indirect procurement. And that's just being smart, quite frankly. We have a big business. We have a powerful portfolio of spend, and we can come out and be smart about how we do that and work really closely with our suppliers and our customers on that front to find the right balance. The other thing I would tell you is that with Naveen coming in a few years ago, we've really made meaningful strides in the investment in technology. I'll start with our Poland tech center, which is celebrating their 3-year anniversary. The work we're doing in Krakow to benefit the entirety of the business is pretty spectacular. We're doing it at a high, high rate of quality and with great productivity. And these are initiatives that benefit everyone. So we're doing it one time rather than perhaps historical ways of doing it multiple times. And when you think about how that translates, there's a benefit to the entire business of doing it that way. And that cascades into every dimension of our investment profile. When we think about the automation of a DC, we're leveraging capabilities globally and thinking about how to do that smart and using our learnings and expertise to follow the best technology of the moment. And now as we've turned our attention to the transformation and work we're doing in the U.S. automotive business, we're seeing that cascade through with the 2 new DCs we're building this year in NAPA.

And your next question comes from the line of Jordan with Jefferies.

When you think about the factoring programs and obviously, the First Brands' issue, have you seen any either increased risk spread pricing from the banks or any less willingness to participate on the payables model?

No. I'll say it no, and then I'll give you a little bit more color on it. Look, we see the First Brands' situation with respect to supply chain financing really isolated to First Brands. Those programs have been around for some time, and they've been through periods of disruption, broader disruption like COVID and have remained strong. So our current view is that the programs are continuing to function normally across all of our other supplier partners. Our program is designed well. Our size and scale makes us an attractive partner for our suppliers. And we've got a great group of banking partners that help us work with the suppliers, 5 big platforms. And our utilization, while down year-to-date, really on the back of lower inventory replenishment, we don't see anything unusual. First Brands has been suspended in our programs, which you would expect. I can't speak to the others more broadly, but that's true for us globally. But we feel good about the program overall and wouldn't call any question into the health of it more broadly for the automotive aftermarket in the industry.

Bret, I would just add another couple of thoughts, which is, we are coordinated as a global team. We're operating with a high level of coordination around the world. As I said in my prepared remarks, the commercial relationship with First Brands continues to be solid. Fill rates are high, and we're in active discussions. So we're cautiously optimistic that we're going to continue to build path to resolution on this one.

Great. And then I think you commented that your sellout from independents and your company comp was a plus 3-ish. So maybe a little bit less inventory at the independents. And you mentioned that you were sort of helping them along the path of better in-stocks. Could you give us maybe a bit more color as to how you're helping the independents and sort of what level of inventory are you seeing them at versus where you target them being?

Yes, Bret. We're constantly working with the owners. I think you've summarized the facts appropriately, which is we're really pleased with what we're seeing selling out into the market. We've talked a lot about over the last couple of years, the work that we've been doing with independent owners and our own stores for that matter to make sure that we've got the right inventory in the right place at the right time. They're pretty individualized discussions with owners, so it depends on the needs of the independent owner, whether it's helping them thinking about pricing, helping them thinking about cash flow management, helping them think about product assortment. So that's super granular by local market by size and scale of owners. So those are the discussions that we're having owner by owner, and we're really pleased with the types of discussions that we're having and the momentum that we've built through the course of the year.

Should we expect the sell-in to accelerate in the fourth quarter just given the fact that they would seem to be -- they have sold more in the third quarter than they took?

Bret, I wouldn't assume that they're going to accelerate in the fourth quarter. We had an expectation that they would start to accelerate a little -- maybe a little stronger than they did in the third quarter. We're pleased with the improvement. But in the fourth quarter, we've kind of assumed that it's going to be pretty level on with Q3 with respect to their behavior. Things that could be helpful that would give us some upside, one of the biggest things impacting the independent owner are the elevated interest rates. And so if we saw more relief there, that would be a factor that could lead us to a bit of an acceleration. They really are -- as Will mentioned, it's really individualized and they really are managing their own cash flows and being tight on their working capital. And as such, they tend to make these replenishment decisions through that prism. And so I think that may be a way we get a little bit more clarity and help on the independent owner as we drive through the rest of the year.

And your next question comes from the line of Scot Ciccarelli with Truist Securities.

So with the independents continuing to work down their inventory levels and just given what we know the typical dynamics of the industry are, do we think that the independents have been losing market share? And like is there a way to potentially quantify that?

Yes, Scot, I wouldn't say they're working down their inventories. I think they're -- they've been mindful like we all have about managing inventory balances. And so that doesn't necessarily mean they don't have enough to compete. And so no, I'm not prepared to say that the independent owners are losing share in the market. I think all of the initiatives that we've been doing across company-owned stores and independent-owned stores are having their intended effect. We've been very consistent about the body of work in that regard, whether it's assortment planning, making sure you got the inventory operational excellence. And so I would describe the partnership with the independent owners as good as it's been in some time. So we need to keep our head down and continue to support them in a choppy market, but I feel good about the work that we're doing with the owners and how they're competing in the market.

Okay. Maybe I'll take a little different angle on this one then. Maybe a bit of a follow-up to Bret's question as well. Is there a point in your estimation where the independents have to start building back up their inventory levels from where they are currently?

I would say it depends, but on the margin, yes, could we have them buying more inventory? The answer is yes.

Yes. I think I would just add to that, Scot, that it's always -- inventory availability is a daily focus. And I think we can always continue to get better, whether we're talking about independently-owned stores or the company-owned stores. Obviously, we have more control over the company-owned stores and the growth and the performance of the company-owned stores at a 4% improvement year-over-year is a reflection of the hard work we're doing in the business, and we're doing that same hard work with the independent owners. And you saw that with sequential improvement in their performance in the quarter as well. So look, I mean, I think we can always be better. And I wouldn't isolate being better on inventory availability to the independent owners in isolation. As Will said, partnership with them has never been better and the opportunities that lie ahead are strong. I think if you want to kind of anchor one thing on where they could be replenishing faster, while they're being cautious right now, it's back to my comment a few minutes ago on interest rates. Anything we can do to help them on interest rates outside of all the things we're already doing from a GPC perspective would be helpful for them.

And Scot, maybe just to summarize it with a simple sentence. I mean, our inventory positions, whether it's company-owned stores or with independent owners is not a reason for underperformance. Our inventory levels have never been healthier in the aggregate. So we're in a great spot. We're competing effectively, and we're going to continue to keep our head down.

And your next question comes from the line of Michael Lasser with UBS.

You mentioned you expect the run rate for inflation to remain in this range of, call it, 2% to 3%. Others in the industry have suggested that inflationary impact could peak as soon as the first quarter of next year, and that could be within the mid- to high-single-digit impact range. So what is different about GPC that it's not experiencing as much inflation? And presumably, it's not because you are not passing along the price increases, so we shouldn't expect price gaps to widen or anything of that nature?

Yes. Look, Michael, I would just say that as we think about this tariff dynamic, the most important thing that we focus on is to work with our suppliers to make sure that we are minimizing any disruption to our customers. And that means a very tight balancing of cost increases and price increases, and we're doing that in a very thoughtful way and considering what we think the market can accept. I think the experience today -- to date would tell you that the market has accepted the price increases across the board. And I think our philosophy is no different than the rest of the players in the marketplace, whether you're talking about the Industrial side of our business or the Automotive side of our business. We're working to pass along what we can. We benefit from it being a break-fix model on both sides. And we think that what's happening is rational. So I think we're thinking about it through all of those dimensions. We're certainly seeing a benefit -- a net small benefit of the outcome of that in the quarter, and we'll see that again in the fourth quarter. And so I don't think there's anything that's fundamentally different as we approach it to anyone else. Are the numbers slightly different? Of course, I think everybody has different dynamics in terms of their exposure to China, their size and scale. I think smaller players probably are feeling more of a price increase because they don't have the size and scale that we do. And I think when we think about that, it gives us some degrees of flexibility to work really closely with our customers. So we've seen a low single-digit benefit on the top line through the third quarter, we expect that again in the fourth quarter. Low single-digit increase to cost of goods sold here in the third quarter, we expect that for the fourth quarter. And again, it's a dynamic area. So we'll continue to watch it closely. But I think we've got it balanced and dialed in, in the right way.

Okay. My follow-up question is on the fourth quarter outlook and how that should inform how we, as external observers, should start to think about 2026? You raised the top end of your sales outlook, yet lowered the midpoint of your earnings outlook. Presumably, you wanted to be around where the consensus was for the fourth quarter. So, a, should we -- how should we read the profitability outlook in the fourth quarter? And b, how should that inform how we think about Genuine Parts margin structure next year? Assuming that the company can maintain this pace of sales growth, should you experience a similar amount of margin expansion or leverage on your SG&A that you're embedding in the fourth quarter because you do have a onetime lap that you're benefiting from in the fourth quarter?

That was a very long question, Michael. I might have to charge the...

I tend to be long-winded, Bert.

I'm going to charge you extra next time for the length of that question.

I can't afford it with all this inflation.

Look, I mean, I'm going to start with a very -- just straightforward comment about the fourth quarter. We expect to have a really solid fourth quarter. And now I'll walk you through a little bit of my perspectives on the guide. We did narrow the range. And I want to go back to how we started the year on our outlook, which was that we expected a more muted first half and a recovery building and accelerating through Q3 and Q4. And full transparency, as I said in my prepared remarks, we didn't see that happen in the third quarter. And so we don't see the improvement in market conditions for the remainder of 2025 despite our third quarter performance, which was in line with our own expectations. So it's that more muted recovery that we had expected for the full year that led to the narrowing of our range and that more robust trading environment and stronger underlying demand that we might have expected was really the path to the upside of our previous EPS range. And so with 1 quarter left and 3 quarters already in the books, we felt it was important to give everyone some color on how we see the fourth quarter playing out with respect to trends on revenue and EPS. And while I don't give you guys quarterly guidance, when we think about the revenue for the fourth quarter, we're going to build on this momentum we've had here in the third quarter. Sequential improvement in NAPA, we think solid growth at Motion and a tariff landscape that while it's been fluid has been stabilized to some respect, and that's why we've included and talked about some of the benefits that we have assumed for the rest of the year on the…

And just to clarify, how should the fourth quarter implied expectation inform how we should think about 2026?

Well, look, I don't want to get out in front of my skis on giving you guidance on 2026. As Will mentioned, we had a lot of work we're doing here. This is also our business planning process season for 2026. I think the great work we've done on SG&A will continue to show through as we look into next year. Obviously, I think we'll continue to have gross margin expansion as we look ahead because we're doing such great work in that space, and we have opportunities across the board, across the business. Look, I don't want to get into market conditions or top line forecast for 2026. As I think about how 2026 could set up, I think we're in a bit of a similar dynamic to a year ago. Everyone was waiting on the outcome of an election, we got election resolution and clarity and we started the year 2025 with, I think, a bit more optimistic outlook. You saw that just as an example, with PMI starting the year above 50%. I think as we find ourselves at the end of 2025, we sit in a similar place. There's a lot of folks sitting on the sidelines, not around an election, but more around what's going to happen with interest rates and how do we get some kind of good clear rules of engagement on tariffs. If we got that in the fourth quarter, I think you could see a trading environment in 2026 that would be a little bit more robust. Obviously, Europe would continue to be a watch point. So we'll be thinking about that. So those are a few of the broad strokes that we're thinking about as we move through our business planning process and set up for 2026. The other watch point I would give you is cost inflation and SG&A. It's been persistent, and we'll want to take a really hard look at that. So that's about the highest level of color and detail I can give you, Michael, on 2026 without getting too specific and getting out in front of the good work we need to do here in the fourth quarter to give you an informed guide on the full year '26. But I would just say this, I mean, we've got a lot of good momentum in the business. We delivered a solid third quarter, and we've shown earnings growth for the first time in a while, and we're going to continue to be focused on that as a leadership team.

Your next question comes from the line of Kate McShane with Goldman Sachs.

This is Mark Jordan on for Kate McShane. You touched on it a little bit there, but maybe can you talk about what you're seeing for inflationary cost increases in terms of salaries, wages and rent? And what the magnitude of the pressure is there and maybe what the company is doing to try and offset those headwinds?

Yes. Look, I think the magnitude of the kind of increase in inflation lives in that 3-ish percent range in the aggregate. I would say the inflation in rent is probably a little higher right now than it is in wages. Wages probably lives into 3% to 5%. Rent probably lives a little higher than that just because most of the lease renewals we're feeling right now are being renewed for the first time outside of the COVID period in which, obviously, leasing rates and rent renewals were depressed. And so there's a bit higher pressure there. I think in terms of what we're doing, it's everything we've talked about, and you see that here in the third quarter. We've taken, as a leadership team, a tremendous amount of actions across the business in 2024 double down in 2025 because with the cost inflation and SG&A being persistent, that means we have to work smarter. And that means we have to invest in productivity and operational efficiencies to offset that headwind. And we've done that. You've seen that here in Q3 with a flat SG&A as a percentage of revenue year-over-year, which is a massive improvement from Q1 and Q2. And so we're proud of that work. It's largely offsetting that headwind, and you see that with an overall core SG&A growth of 2.7% against the top line of 5%, which I think is allowing us to get some leverage on EBITDA in the business. So we're going to continue the hard work. We've got to keep our head down. We've got to keep grinding. And I think that work that we've done is the reason why you're going to see a bit of SG&A leverage in the fourth quarter as we work to continue to offset some of these other headwinds in the business.

Perfect. And then just changing the subject real quick to the U.S. NAPA business. Retail, of course, a smaller portion of your sales, but are you seeing any signs of changing customer behavior there?

We haven't seen any changing customer behavior, I would say. That part of the business continues to be pressured. It's more discretionary in nature. And as you noted, it's not a big part of our business. It sequentially improved, but it's still pressured. So no material changes in behavior or trading down or the like, but continue to be pressured.

And your next question comes from the line of Chris Dankert with Loop Capital Markets.

I guess I wanted to talk about the supply chain investment in NAPA, specifically thinking about the Nashville DC investment there, more efficient picking and shipping. Anything you can share with us in terms of kind of quantifying the improved customer service levels or maybe the subsequent sales growth in the region following that investment?

Yes, Chris, happy to. I wouldn't isolate it just to a Nashville example. We've seen benefits from our supply chain investments when we make building improvements. And it's everything that you described. It's kind of the productivity of the building itself. It's the service level to the customer. As a result, it's a function and drives better growth in the local market. I can think of one building in Canada that we've made recent investments, and they've got double-digit growth in the market post investment. And so that's kind of the marker that we set. You want to see significantly better growth, better coverage, better inventory flows, better safety, better productivity. So Nashville is one of many examples where we've seen really nice success as a result of our investments in the supply chain.

Got you. And then I guess maybe to kind of shift over to the Motion business. Definitely encouraging to hear about the backlog growth. I guess anything you can -- I mean, I assume the majority of that is OEM-centric, just given the nature of those businesses. Anything you'd share in terms of how you're expecting OEM to trend? It sounds like you're expecting some level of acceleration there? Just that any color would be helpful.

Yes. I think we're cautiously optimistic. We obviously have been cautiously optimistic about this part of the business for some period of time. And so we're ever hopeful that we're closer to the bottom than not. As I said in the prepared remarks, the large order book of business is sequentially improving. As you noted, that's largely OEM-based business. I think Bert made an interesting and appropriate comment about coming into the end of the year and feeling better about the world and turning the calendar and feeling like '26 has more clarity, whether it's rates or the industrial complex or the like. So the conversations with customers, as I said last quarter, they're generally constructive, but they're cautious. And so there's work out there to be done, and we're just slowly working through the bottom part of this phase in the market and feel good about where we're headed into the fourth quarter and into 2026.

And we have no further questions at this time. I would like to turn it back to Will Stengel for closing remarks.

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

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.