Genuine Parts (GPC) Q1 2025 Earnings Transcript

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DATE

Tuesday, April 22, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

- President and Chief Executive Officer — Will Stengel

- Executive Vice President and Chief Financial Officer — Bert Nappier

Full Conference Call Transcript

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 opened for questions, the responses to which will reflect management's views as of today, April 22, 2025. If we're unable to get to your questions, please contact our Investor Relations Department.

Please be advised this call may include certain non-GAAP financial measures, 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, let me turn the call over to Will.

Will Stengel: Good morning, everyone, and thank you for joining us for our first quarter 2025 earnings call. Before we get into the details of our results I always want to start by thanking our over 63,000 GPC teammates around the globe. Your dedication and commitment to serving our customers remain the core of our success. I'm so proud of the team's continued focus and hard work. We had a solid quarter in line with our expectations, but we're obviously working in a dynamic external environment. Tariffs, trade, and geopolitics are impacting the operating landscape for all companies. These factors, combined with inflation and interest rates, are adding to an already cautious demand backdrop.

Despite this, we remain focused on what we can control, providing excellent customer service and executing on our strategic initiatives to make the business smarter, faster, and better. The teams have navigated multiple market environments over the past five years, and we've used those moments to drive positive change across our company and advance our strategic priorities. We're committed to this approach as we navigate the current environment and are confident that we have the relevant playbooks to remain agile. I experienced our focus on serving our customers first-hand last week at the NAPA National Ownership Workshop event where we celebrated NAPA’s 100-year anniversary. The event highlighted NAPA’s status as a global leader and pioneer of the automotive aftermarket industry.

Joined by 1,000s of our repair shop customers, independent owners, and field teammates, we reflected on this significant milestone and reinforced our commitment to delivering outstanding customer service together for the next 100 years. Not only was this event an opportunity to celebrate our history, it was also a chance to detail the in-flight work that's shaping our future. Our working sessions showcased details around talent and culture, sales effectiveness, operational excellence, and technology initiatives all designed to enhance our customer experience. As an example, we highlighted the recent rollout of our modernized e-commerce platform, NAPA ProLink, built specifically for our commercial customers. Developed in partnership with Google, this platform features proprietary search capabilities that are faster and more reliable.

The platform offers improved functionality with 10% more product coverage and leverages a more comprehensive and accurate catalog. In 2025, NAPA B2B e-sales are growing mid-single-digits and capturing new business. The customer feedback on the modernized platform is overwhelmingly positive and we're excited about the benefits this will deliver to the NAPA business and our customers as we move forward. Now, turning to our business results, I'll walk you through highlights of our first quarter performance, which were in line with our expectations. Following my remarks, Bert will provide some additional color on our financial results and touch on our 2025 outlook, which we're maintaining today despite the evolving trade policies.

A few highlights from the first quarter include total GPC sales of $5.9 billion, up 1.4% versus the same period in the prior year. Our sales growth was primarily driven by acquisitions and improving sales in our industrial business, which was partially offset by one less selling day, impacting sales growth in the quarter by 110 basis points. Gross margin expansion of 120 basis points versus the same period last year, reflecting the benefits from acquisitions and our strategic pricing and sourcing initiatives. And solid progress with our productivity initiatives to manage and optimize expenses. Turning to our results by business segment.

During the first quarter, total sales for global industrial were $2.2 billion, approximately flat versus the same period in the prior year, with comparable sales decreasing less than 1%. The one less selling day negatively impacted global industrial sales by 150 basis points. While we continue to navigate sluggish market conditions, we saw sequential improvement from the fourth quarter driven by increased customer activity and motions defined sales initiatives. From a cadence perspective, average daily sales were positive in all three months of the first quarter. Looking at the performance across our 14 end markets, we saw growth in pulp and paper, aggregate and cement, and DC and logistics, while iron and steel, automotive and oil and gas remained pressured.

During the quarter, nine of our 14 end markets saw sequential improvement from the fourth quarter. Our performance by customer type saw continued outperformance with our national account customers. We also saw sequential improvement in our local MRO accounts and value-add services, compared to 2024. Sales from value-added services like automation solutions and fluid power were flat to slightly down, which represents a notable improvement relative to last year. Switching to industrial profit during the first quarter, segment EBITDA was approximately $279 million and 12.7% of sales, representing the 10 basis point increase from the same period last year. Overall the motion team continues to make progress on its profitable growth, category management, and supply chain productivity initiatives.

The team is managing the business with discipline to deliver profitability, despite a persistent soft market environment. While industrial activity metrics like PMI and industrial production have been depressed for the longest period in over three decades, we were encouraged to see PMI start the year with some momentum, with two consecutive months above 50, before slipping back to 49 in March. Motion size and scale, diverse end markets, and strong customer value proposition position us well in a highly fragmented industry and across all market environments. Turning to global automotive segment, sales in the first quarter increased 2.5% with comparable sales decreasing 0.8% in line with our expectations.

The first quarter included one less selling day, compared to last year, which negatively impacted sales and comparable sales growth by an estimated 90 basis points. Global Automotive segment EBITDA in the first quarter was $285 million, which was 7.8% of sales, representing a 110 basis point decrease from the same period last year. Our first quarter results for the global automotive segment reflect ongoing pressure from softer organic sales in the U.S. and Europe and the one less selling day. Now, let's turn to our automotive business performance by geography. Starting in the U.S., total sales for the first quarter were up approximately 4%, while comparable sales declined approximately 3%.

During the quarter, the one less selling day negatively impacted sales and comparable sales growth by approximately 160 basis points. Looking at average daily sales across the business, sales in the quarter were positive in all three months, with March being the strongest. Comparable sales for our company-owned stores were up low-single-digits, while independent purchases were down low-single-digits. By customer type, total sales to our commercial customers were up low-single-digits with all four customer segments being positive in the quarter, while sales to our retail customers decreased mid-single-digits. Our performance by category is consistent with the prior two quarters, with non-discretionary repair categories up low-single-digits and maintenance and service categories flat in the first quarter.

The pressure remains in our discretionary categories, which represent approximately 15% of sales, and we're down mid-single-digits. Additionally, we acquired 44 stores from independent owners and competitors, further strengthening our footprint in our priority markets. The integration of our recent acquisitions, including MPEC and Walker acquired in mid-2024, are progressing well and remain on plan. Both acquisitions are positively contributing to NAPA's EBITDA margin. Turning to Canada, total sales increased approximately 5% in local currency versus the same period last year, with comparable sales increasing approximately 4%. These results are a testament to the exceptional work of our Canadian team, who delivered strong results despite a softer macroeconomic environment.

In Europe, total sales increased approximately 3% in local currency, with comparable sales essentially flat. The team in Europe continues its expansion of the NAPA brand and its wins with key accounts. Underlying market demand remains soft across our geographies driven by macro challenges. Despite these headwinds our ongoing strategic initiatives including upgrades to our supply chain infrastructure, are expected to improve productivity efficiencies and support future profitable growth in our geographies. Rounding out automotive, our team in Asia Pac delivered another quarter of double-digit growth in local currency, driven by both organic initiatives and contributions from recent acquisitions. Total sales increased approximately 12% with comparable sales growth of approximately 3%.

Continued strength from our retail business is notable in the market. This sustained performance underscores the strength of our team in the region and their ability to execute effectively in the market. As we look ahead to the second quarter and the rest of the year, we remain focused on what we can control. We believe our diversified global geographies and business mix creates differentiation as we leverage our global relationships to navigate the market. Our scale creates an advantage relative to many other small players in our industries. We've got a battle-tested team in place with required expertise to navigate uncertain markets.

We've invested in the business over the recent past to provide tools to help us analyze the business with more granularity. We have a long-standing history of financial strength characterized by attractive cash generation. Importantly, we also have a team culture defined by an action bias, agility, and a passion for serving customers in every market environment. I want to conclude by thanking our shareholders, customers, and suppliers for their trust and continued support. Most of all, thanks again to our GPC teammates for your dedication and hard work. I'll now turn the call over to Bert.

Bert Nappier: Thanks, Will and thanks to everyone for joining the call. Our first quarter performance was in line with our expectations, despite a dynamic external backdrop, which is a reflection of the resiliency and agility of our teams as we continue to navigate through challenging conditions. Our discussion today of our first quarter performance and our 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 MPEC and Walker. During the first quarter, these costs totaled $69 million of pre-tax adjustments or $49 million after tax.

As expected, earnings were down in the first quarter, as our profitability was negatively impacted by one less selling day, lower pension income, higher depreciation and interest expense, and foreign currency headwinds, which cumulatively totaled a $0.48 negative impact. As we shared in February, we expected these factors to drive first quarter earnings down by 20% to 30% and we finished the quarter with adjusted EPS of $1.75, down 21% to prior year. While certain new tariffs took effect during the quarter, the financial impact of GPC for Q1 was immaterial. Let's turn to the details of the quarter starting with sales.

Total GPC sales increased 1.4% in the first quarter, which included a benefit from acquisitions of 300 basis points. These items were partially offset by foreign currency headwinds and an 80 basis point decrease in comparable sales as our businesses continue to operate in soft market conditions. Both total sales and comp sales were negatively impacted by 110 basis points from one less selling day. Our gross margin was 37.1% in the first quarter, an increase of 120 basis points from last year, relatively in line with our expectations. The improvement in our gross margin was driven by acquisitions, along with some favorability and vendor rebates.

Recall that we will begin to cycle these acquisitions through 2025 and as a result would expect the rate of gross margin expansion in subsequent quarters in 2025 to be below what we reported in the first quarter. Our adjusted SG&A as a percentage of sales for the first quarter was 28.9%, up 170 basis points year-over-year, sequentially improving from the fourth quarter. On an as-adjusted basis, our SG&A grew in absolute dollars by $120 million year-over-year, including approximately $80 million from acquired businesses. The SG&A impact of acquired businesses will diminish over time as we anniversary the acquisitions and continue to realize the anticipated synergies from the integration of these businesses.

Our core SG&A grew $40 million, or 2.5% in the quarter, as we curbed the rate of growth of core SG&A significantly on a sequential basis from the fourth quarter of 2024, when we experienced core SG&A growth of approximately 4%. We continue to do the hard work to improve our cost