Genuine Parts Aktie

Thank you for joining us. It's my pleasure to introduce Genuine Parts Company. We have with us today Will Stengel, Chairman and Chief Executive Officer; and Bert Nappier, Executive Vice President and Chief Financial -- excuse me, Financial Officer and Operating Officer, too, sorry. And Will and Bert, thank you so much for joining us.

Thanks for having us. It's great to be here.

So I stumbled over the title because there's been some confusion, so sorry about that. And Will, last week, you issued a press release announcing the leadership teams for both the automotive and the industrial businesses. Congratulations.

Thank you.

Can you share a little color around the process for selecting the leadership teams, including the appointment of Court, as CEO-elect GPC and ultimately, how his operating background, Board, familiarity and leadership approach fit with the go-forward strategy for automotive.

Yes, happy to, and thanks for having us. This is obviously our first opportunity to talk about the announcement. So looking forward to the discussion. We've been working on this for quite some time, as you would expect.

And we're thrilled to be able to announce what we did last week. The way to think about it is we really were solving for 2 or 3 different thoughts. The first and foremost is making sure that we've got the right talent aligned with the right business strategy.

So it starts with the business strategy, making sure that we've got the skills and the capabilities of the leadership team aligned to go and execute against that. So that was kind of pillar #1. Pillar #2 is what I would call kind of continuity and familiarity where we needed to, especially in this transaction, make sure that on the Motion side, we were ready to be the public company right out of the gate. And so that was a pillar #2. 2B, what I would say is familiarity, which is how do we make sure that we maintain and sustain the business momentum that we have and the strategic work that we've done over the last 2 to 5 years on both sides of the business.

And I think if you look at the announcement, we've solved a lot of those objectives, starting obviously with Bert. Bert has been with the business for 5 years. As I've said publicly and certainly internally, Bert plays a bigger role than just the financial officer of the company. And so having him elevate and take on more responsibility on the automotive side, fits all 3 of our criteria, and Bert will do a great job taking on more and working with Court, who I'll talk about here in a second.

On the industrial side, similarly, James Howe, fantastic talent. He's been with Motion for over 30 years. He's had every single role in the business. Motion obviously has been an operating division of a public company. And so my public company background kind of partnered up with James and the team, I think, positions us to hit the ground running early on. Court will be a fantastic addition to the team, as you alluded to in your question, he's got all of the things that we need in a leader of the automotive business.

He actually has automotive experience. Similar to when I joined Genuine Parts Company, I mean, he's a distribution guy by trade. And so all of the value creation levers associated with anything distribution are relevant. Court's a high energy, high passion guy, great followership. He has been in the boardroom for the last couple of years. So in terms of understanding our strategy, he's very well up to speed.

He knows the team, the leadership team respects them. And I think he brings a lot of relevant expertise in terms of supply chain and tech and global business and global sourcing and e-commerce and everything in between. So we're thrilled to have them. Both sides of the business are super energized. I would obviously admit that people were waiting for this announcement internally. And I think the clarity that we provided everybody has created a lot of positive energy. So we're looking forward to closing out the year and then getting started in '27.

Great. Great. So maybe just to drill down a little bit more on that detail. Will, you're going to become Chairman and CEO of Motion following the separation. What excites you most about Motion as a stand-alone company? And how does your prior experience at GPC and HD Supply and in distribution shape your priorities for the business?

Yes. I would say on the last part of your question, I mean, the nice thing about the way in which we've set up these teams is the strategies have really been put in place well before this moment in time.

And not only have they been put in place, but we've been working as a collective team on those strategies for multiples of years. So in terms of what it means and a big reveal in terms of change of strategy, I don't see that.

As we think about kind of what I'm most excited about at Motion, I would say it's all about growth. And quite frankly, these comments could be for both sides of the business. But the special sauce of Motion is just the way in which it interacts with its customers. It's so embedded in the customer operation, and we've got so many great embedded relationships. But at the same time, we have so much opportunity to grow that wallet share with existing customers.

So we've got a lot of opportunities on organic growth that are exciting. We've got a lot of opportunities from a margin standpoint driven by pricing and sourcing. And we've got some really good opportunities to think about bolt-on M&A to add on top of our growth algorithm. So there's really a lot to like in the Motion business and certainly also on the automotive side.

Yes. And Bert, I have the same question for you on the automotive side. I mean, you have this expanded role now, as Will mentioned. What are some of the key operational and financial priorities you're focused on to ensure just day 1 readiness and long-term value creation?

Well, thanks for having us again. And I'm just thrilled to have the support of Will, Court, the Board in my new role, excited about our opportunities. Will said it best.

We both have compelling businesses, and there's a tremendous amount of growth ahead for us. The automotive business starts with a great team. So I continue to have the blessing of having Alain in his role in North America, Franck in Europe, Rob leading Asia Pac and strategies that we put in place almost a year ago.

And so in terms of being ready for day 1, I think we're there. We have to execute and continue to carry out 2026, but turn into the separation with a lot of momentum, which is what we have. We're going to be focused on supply chain excellence and investment in supply chain, modernizing our supply chain in the U.S. We've made these investments as many of you know, internationally over the last couple of years with changes to DCs in Asia Pac, changes to the DC network in Europe.

We now get to harvest that benefit as we turn into 2027 and take all of that learning and apply it in the U.S. now with the team that's ready to deploy the capital. We have a great supply chain team here in the U.S. We've got 2 new DCs coming online this year, 3 more approved.

So you'll see us modernize our supply chain in the U.S. because it's important to have the right place, part at the right time at the right place. Second part, I think, of where we'll be focused is on sales excellence. We have to continue to be competitive in terms of having the right people in the field, the right share of wallet. We have great opportunities with share of wallet inside the U.S. and internationally.

And that also drills down into the opportunity set we have with independent owners. And so continuing to drive that benefit we have with that really important part of our network in the U.S. and our operating model. So we'll continue to lean in there on sales excellence.

And I think the third part of where we'll be focused is on just continuing to run great stores. We've done a good job in the last 2 years of improving the performance of company-owned stores in the U.S. You've seen us go from a negative 0.5% comp 2 years ago to mid-single-digit comps as we started this year. And that's just a culmination of all the work we've done in the U.S. NAPA business in terms of foundation, leadership, inventory availability. And now we actually have that ability to carry that back to the independent owners set and drive further sales excellence there. So we're excited about our opportunities. I'm thrilled to be a part of this business going forward. It's going to be fantastic. We have 2 compelling businesses and great opportunities for everyone.

That's great. Just as we're getting closer to the planned separation of the 2 businesses, we've passed some critical milestones with the stand-alone audits and the soon-to-be filed Form 10.

Can you walk us through the remaining critical items between now and the separation date and what, if anything, could move the timing in either direction and what you're prioritizing over the balance of '26?

Sure. I mean we've had the benefit of this going a touch wood here pretty smoothly all year long. It doesn't mean there won't be hiccups along the way. We've really divided it into 3 buckets of work, and you touched on a few of them there. The first and most important is the separation of the business itself. And so we've got a dedicated team, a PMO team that's focused on the separation.

That was important to make sure that the business as usual part of the day-to-day continues to execute. We deliver our numbers and do what we need to do on the day-to-day. And so that team is dedicated to looking at the contract separation, looking at system separation and re-architecting process and that's going extremely well.

The second body of work you touched on it, Kate, with the stand-alone audit of Motion and the Form 10, all of that is in flight. It's on track. Our filings with the SEC are on track, and we feel really good about where we stand on that front. And then finally, it's just the rest of the capital markets kind of activity.

So the capital structure of the businesses, capital allocation, rolling into Investor Days, which are December 8 for automotive, December 9 for Motion here in New York and that will be the focus in the second half. I don't know that we have anything that I would call out at this point that would move us one way or the other from the first quarter.

There are certain things that aren't in our control. Obviously, we have an SEC review process to go through. But as I said, we continue to feel really good about that. And we feel good about the work that's being done. So I'd say we're on track. We've had a lot of great announcements through the course of the year with stand-alone costs, dis-synergies, all those things, now a leadership announcement. And so we continue to deliver on milestones. And I think that's just a reflection of the progress we're making and how confident we are and where we're headed.

And I would just add, of course, the teammates around the world, I mean, we've asked a lot of everybody to go through this separation while running the business and delivering on our customer commitments.

And I couldn't be more pleased with the work that we've done around the world while we are doing this work, but making sure that we're not losing focus on taking care of customers. So it starts and ends with that. And so delivering on our commitments, both internally and externally, the first half is something I'm proud that the team has been able to do for everybody.

Yes, it's a great point that you've been through this major change while maintaining the great metrics, financial metrics of the business. Bert, I wondered if I could ask you just how you're thinking about the targeted leverage profile and credit rating for each company post the separation.

So for both, I think we've been consistent in saying that we're targeting investment grade for both businesses. We believe we have a strong path to do that. Our automotive business, it is important to be investment grade for the supply chain finance program, which many of you are familiar with.

And so we've got all of that work underway right now. We'll be going to the rating agencies later this fall for that conversation and then continue to work on the structure side of it as well. The -- with that investment-grade rating, I think we'll still have the flexibility to follow capital allocations for both sides that follow the business strategy.

And this will be the moment that we -- really as we've been saying, there's no sacred cows. We're going to make sure that we're setting up and taking the separation as the moment to ensure that, that capital allocation strategy follows the business strategy. I think you'll see Motion lean on organic growth as a very strong compelling part of their storyline. But also that's a space where there's plenty of M&A opportunity.

Right.

And you'll see, I think, the industrial side of the business focus on M&A as a leading priority for capital allocation, followed by CapEx. It's a little less CapEx-intensive than automotive, and then we'll be focused on shareholder returns as well.

On the automotive side, I think you'll see us focus on CapEx as the leading kind of priority, particularly when you think about the point I was making a minute ago about modernizing our supply chain in the U.S. We have a great bolt-on M&A track record in Europe. You'll see us continue to lean in there and have opportunities in the U.S. as well. And then we'll have our opportunities for shareholder return for the U.S. business as well.

So we're going to be true to GPC's roots. We've always been very thoughtful and disciplined about capital allocation. And I think you'll see that as each business separates and shares its investment story, shares its strategic plans and shares the capital structure and allocation at Investor Day in December.

Kate, I missed the chance to welcome Howard Yu, who will be the CFO at Motion, just drafting off of the points that Bert made. We're thrilled to have Howard join the Motion team. Howard brings public company CFO experience and in fact, led a spin coming out of Danaher.

So he brings a lot of very deep and relevant expertise around all things capital markets, and spin-offs and then capital allocation. So we're thrilled to have him on the team. He started yesterday officially and is listening from Atlanta. So good to have you on the team, Howard.

Great. Thank you for that. One thing just because you just mentioned it, and I might be putting the cart before the horse, but I just wanted to make sure I didn't forget to ask it. Modernizing the supply chain in the U.S. for automotive is priority for CapEx is what I heard. Do you have line of sight into what that means or what that looks like yet?

Yes, we do actually. And I mentioned this earlier, great supply chain at NAPA in the U.S. And so over time, I think you're going to see us re-architect our network in a way that makes us more efficient and gets parts closer to the customer at the right time. It's a multi-echelon approach.

I think we'll re-architect it in a way that allows us to be smarter about product returns. It will be smarter about import product, and then it will be smarter about how we deploy the product and the availability into the store network.

So you'll see us kind of operate through those 3 different prisms. The one that -- the 2 that come online this year, one is a returns-oriented DC that came online in August. Second facility comes online later in the fall, that's more core DC-focused.

And so when we think about that, we're going to be leaning into probably over time, a net smaller network from where we are today, 60 DCs in North America will probably come down from that, but more efficient and a much deeper use of technology. There's no better time than right now to open a DC with all of the technology that we have available at our fingertips. We actually did what I think is a pretty clever investment just outside of Atlanta, we built a robotics lab where we're actually allowing vendors to test their technology in front of us and compete with each other so that we can take the best-of-breed technology, whether it's robotics or shelf movers into a facility and have that be today's technology and have that ability to compete.

And the good news is I think that we're going to do all of this investment in the U.S. within the cost envelope of CapEx that we've been deploying today. It's just a reallocation for where we've been able to deploy that offshore. We get to deploy it now into the U.S. and have a team that's ready and willing to go execute.

And then back to the separation, just -- again, I'm jumping around a little bit, but you mentioned M&A might be a little bit more prevalent in -- on the Motion side. But are we talking maybe larger transformative acquisitions or more bolt-on acquisitions?

I think we'll have a primary focus on doing bolt-on M&A, certainly as we get out of the gates. If you actually look at the fragmentation in the market, it would lean towards bolt-on types of deals just by definition of the landscape of the market. So that will be the primary focus, especially as we come out early days.

I think we've demonstrated our ability to do bigger deals with the KDG acquisition. So we've got a playbook that flexes based on the opportunity that we see. We're going to be very disciplined allocators of M&A capital. I think Howard brings that expertise based on his background as well. And we've got some good institutional capabilities around doing smart M&A. We see a really exciting opportunity in M&A, but we also see an equally exciting opportunity in just taking really, really good care of our existing customers, selling more to them, acquiring new customers, investing in our sales folks, being really thoughtful about our multichannel selling approach because that's a really profitable way to grow. So we'll do both and be very thoughtful.

And then a question we still get a lot is just how we should think about the dividend policy of each.

So I think that goes back to my capital allocation point from a moment ago. No sacred cows. As we look at capital allocation, we're going to be thoughtful about the competitive base and what competitors do on shareholder returns as we think about each business. We're going to be thoughtful about what's needed to invest in the business, whether it's CapEx at U.S. NAPA or it's an M&A opportunity at Motion.

But more to come on the specific policy as we get to Investor Day. But again, we're being really, really thoughtful about taking this moment to be sure that we've set the companies up on an individual basis for success and allow them to pursue all the growth opportunities that they have ahead.

Great. Maybe if we can drill now into the individual businesses, starting with Industrial or Motion. What growth opportunities are you focused on capturing regarding data center infrastructure? And how material is it today?

Yes, it's not a huge part of our business today. If you actually kind of decompose what goes into a data center, it's not your core traditional motion product set. We obviously have opportunities in things like hose, fittings, some of the kind of specialty solutions offerings that we offer up.

That being said, I think it's a big opportunity for us as we evolve. We have all the right relationships, whether it's with hyperscalers on the customer side, whether it's with the vendor base to make sure that we've got the relevant product offering to take care of our existing customers or new customers. And then importantly, we're kind of getting granular to think about what that means for investing back in our selling resources to go and attack the market opportunities, not just by product category, but also by geography.

So it's a big opportunity. You can get consultants to tell you and kind of try and frame it up. But the long story short is it's exciting for us as we move through probably the medium term. It's not material today, but it should be an exciting one for us as we move forward.

Great. And then if we can move to the automotive business. Last quarter, you talked about a softer June followed by a rebound to low single-digit growth in July. Since then, we've heard from a larger competitor who talked about softer demand, particularly from DIY customers.

And NAPA is more commercial than DIY. But can you talk about a little bit with regards to the recent demand trends and if you're experiencing any kind of similar headwinds? And if you're seeing any signs of deferral or trade down just given this K-shaped economy. We keep hearing about and the health of the lower-income consumer?

Yes. I think you made an important point, which is 80% of our business is B2B. So our retail business is not as pronounced as it is for some of our competitors. I would tell you that we've been really pleased with the sequential improvement through the first half.

On our earnings call, we did talk about what we saw in July and why that was encouraging. And we actually haven't seen a material change from what we previously disclosed. What the other competitors are seeing in their business on the retail side, maybe it's business specific. I don't know, I don't run the business.

But I think we're cautiously optimistic that we've continued to sequentially improve. And the environment is difficult, but it's been difficult for some time. So I don't think we see a material change in kind of the health of the underlying market from my perspective.

Okay. The comp impact from lapping last year's tariff-related price increases, I think, is very well known for the second half of this year. But we are seeing some commodity driving pricing increases in specific categories like motor oil, other lubricants. So could you -- could that support higher-than-expected same SKU inflation into the second half of the year?

I think it's possible. I don't think that would deviate from where we've kind of said inflation will be on the top line for the full year despite all the moving pieces. So for us, we've approached the last 12 to 15 months with both tariffs and the conflict in Iran with a very customer-centric focus. So you've seen us kind of pass on low single-digit price increases, steady as she goes kind of mentality.

We think that methodical and intentional kind of level of price increase is good for our customers, particularly in a challenging environment for them. And that's going to be our mentality for the rest of the year. We have commented that we think it's a low single-digit benefit to the full year, probably with a little less benefit in the second half. Could this potentially give us a little bit more lift as we look to the full year? Potentially. I think we'll take the third quarter data here.

And when we report in October, we'll make sure that we incorporate that and give everybody a good view on what we think the fourth quarter brings. Obviously, there's a lot of moving pieces, but that's true for everyone, right? The conflict, how long it lasts and some of those things and specific pressures on commodities. I think when we think about the commodity space, it's also been well handled on our side. We've got a great merchandising team. We've got good supply, and we've got really managed cost increases. And I think that goes back to our size and scale and our ability to work with our partner suppliers and then be really thoughtful about how we put that into the market.

So super proud of what's happening with the teams and how they're handling all these 1 in 100 things, whether it's the trade war from a year ago or Iran now and being able to work with the suppliers and use our relationships, but also make that an effective outcome for our customers as well.

We wanted to make sure we asked about the independents, which still account for about 60% of your North American automotive footprint. It is a very important part of your go-to-market strategy. You've talked the last several quarters about solutions you have designed to help the independents enhance their operations.

We talked a little bit about the supply chain. But can you talk about what other support you're providing, what inning we're in, in terms of the rollout or adoption and what you think some of the early successes have been from the support?

I think we're in inning one, not in inning one with independent owners. I mean independent owners have been a part of our business for 100 years and a really important part of our business and great partners for us and a great part of the NAPA brand and story.

But in terms of what we can do to make each other better, I think we're in inning one. And I credit Alain for this. He's come in. He's brought that experience from Canada, and he's energized the team to think about this in a different way. And it's a significant opportunity for us as we look ahead.

Independent owners have great size and scale. They're great competitors. They're hungry. And I think for the first time, we've really applied the science that we've used on the company-owned stores and taken the positive trend that we've seen there and gone to the independent owner with a lot of credibility.

Back to my point earlier, a year -- 2 years ago, we were negative comping in company-owned stores. Now we're at mid-single digits. It's telling you that all of the investment, all of the tools and technology that we're using are benefiting the company-owned storyline and the performance there. And now we can take that with a ton of credibility to the independent owners and say, look, here's what we can bring to you.

It starts with putting in quartiles. As I mentioned on the Q2 call, our top quartile independent owners did a 5% growth rate in the quarter. That's as good as anyone, and it shows how competitive they are. And with the rest of the set of independent owners, we're taking them inventory playbooks. This is what you can do in your store. We know that this is the right thing to do because we can look at the inventory of competitors around you.

This is where you need to be. You need to be more focused. We can give them sales excellence tools. We can give them pricing technology. We can help them think about how to operate a great store inside the 4 walls of their own store. What's happening with overtime. What's happening with turnover. So I think it's taking that rich playbook and deploying it from the company-owned store side to the independent owner side. The great news is we have a willing partner, and we have a group of owners that really want to win in the marketplace. And Alain has got an independent owner council where we're talking directly with the independent owner base and getting their feedback on how some of these things are happening and where else we can be helpful.

And then obviously, we're all leaning into technology. And I think that's another place where we can help the independent owner and what other tools and technologies that we bring to the table that we already deploy that they can leverage in the store.

Great. And then just to wrap up before we go into our 4 kind of rapid-fire questions, I wanted to be sure I asked about European automotive. Just the backdrop, I think, is fairly tough in Europe right now, but it was great to see a return to positive comps last quarter for you guys with the European automotive business. Can you talk a little bit about the outlook for that business and maybe where and why you're seeing signs of strength right now?

Yes. We're really proud of the European team. It is a tough backdrop. They've had a tough backdrop for a couple of years and done a really, really nice job executing, making some hard decisions while investing in the business.

We opened a couple of big distribution centers, just that body of work alone is not easy even in a good market. So there's a lot of really nice execution happening in Europe. And I think our results would suggest that we're taking some share. That business has a really bright future. It's got a really nice M&A engine. It's in the right markets in Europe. They're big. They're fragmented. We've invested a lot of capital into that platform in geographies where we really want to win and we will win.

And it's got a fantastic team led by Franck Baduel, who's been with the business for many years, has kind of come through ups and downs and knows what it takes to execute in tough cycles. I think we're differentiated in the market with our NAPA brand, honestly, in tough times. That's really reset the assortment logic and the assortment strategy in the market where we can offer a better product at a more competitive price and have that be a win-win for the customer and for NAPA.

So I think there's a lot to like. And I would argue that in tough markets, that creates opportunities for people to step up their game, and I think the European team has done that.

Thank you for that. The 4 questions we're asking for every company. The first question is just the overall health of the consumer. Again, you're a little removed directly from the consumer just given the commercial aspects of your businesses. But what are your expectations for the environment in the second half of '26 versus your recent results? Do you expect things to be the same better or worse?

Look, I think it's reflected in our most recent guide. We took the revenue down on the automotive side just a bit because we thought the consumer was in a little tougher spot. That's the customer of our mechanic.

And so I think we were thoughtful about that. Certainly, that's on the back of the Iran conflict and probably nothing else. And we believe that's going to be the case for the balance of the year. I think there's been different moments in time of when people thought the conflict would end. And now I think we've kind of all prepared ourselves that this is going to go on for some period of time. And so that's the dynamic for everyone. And I think we were pretty thoughtful about how we updated that view. It's a little different on the industrial side.

I think the industrial side has seen PMI expand for the entirety of the year. That's a nice tailwind. Motion has performed extremely well through the course of 2026, probably a little bit better even than our high expectations for them. And we think that will carry on for the rest of the year as well. And so that was reflected in our updated guide. So maybe a little pressure on the automotive side that we thought about, maybe a kind of continued strong performance out of Motion for the rest of the year.

And then we'll just see once the year closes out and we turn into separate businesses, what we think about 2027. Obviously, Investor Days are an important moment for us to continue to comment on that. But that's the balance of how we thought about it.

I would just observe that -- I mean, this company and these industries have been choppy and challenged for the recent past. And that's the stuff that we can't control. I've never felt better about the controllable body of work that's happened at the company over the last 2 or 3 years.

And it's all going to culminate in this fantastic opportunity to really let these 2 businesses shine in their full glory as we turn the calendar year. So I'm going to be biased positive just because I see all the amazing work that's happening at the company. And if you continue to control what you can control and do good work, especially in these industries where scale matters and you're competing with folks that aren't fortunate enough to have the resources that you have and the talent that you have, I'm going to lean positive as we look forward to 2027.

Okay. Our second question is around pricing. Do you expect prices to be higher, lower or the same in the second half of this year versus what you saw in the first half?

I think it kind of sticks with my comment earlier, steady as she goes. We think it's a low single-digit benefit for both businesses for the rest of the year. I don't think we're going to see a material spike upwards nor do I see it moving downward rapidly.

So we love that position of being able to be really smart and methodical about it. And try to balance the pressure we feel from maybe cost increases being passed to us with being thoughtful about our customers and trying to help them through what is probably a tougher time, too.

And our third question is on margins. Do you expect to see more margin headwinds or tailwinds in '27 versus '26?

Kate, you always like to ask me about next year.

I know...

Rapid fire question.

This is prescribed, though I have to ask.

2027. Let's not give 2027 guidance, but let's think about the totality of the momentum in the business. Obviously, the war is a headwind right now. We've reflected that in our commentary so far this year. What happens in '27 with the war will be a question mark. We'll think about that as we go through the balance of the fall. I'm excited about both businesses.

I think both businesses have very compelling stories in terms of expansion of operating profit and margin. Will talked about gross margin opportunities at Motion. I think they're there. They will continue to be there. Those are true on the automotive side of the business as well. We're all being extremely thoughtful about cost. We do have cost inflation that we all deal with, but we're also taking great actions to offset that.

And I think when you put that together, and we continue to build great capabilities on the top line, whether it's sales excellence or even deeper inventory availability, it's the recipe for both businesses to have nice margin expansion going into 2027, absent some other market event that we're unaware of at this point.

And then our fourth question is on AI. Do you expect a significant increase in efficiency as a result of AI in '27 versus '26, and what areas?

Yes. I think we're really excited about the opportunities there. I would say our philosophy at the company globally has been to be really measured and thoughtful around the foundation that we're setting up to utilize AI.

So think data governance, think about who's paying for the cost and where does the cost show up. So we put a lot of really thoughtful building blocks in place. Our guiding principle is it's supposed to make our customers' lives easier, and it's supposed to make the lives of our teammates easier.

And I think there's just endless opportunities to prioritize around that. Things like inventory management, the efficiency of our operations, the productivity of our salespeople. There's just so many wonderful ways in which we can get better for our teammates and our customers. And we'll obviously, as we go through Investor Day, make sure that we are articulate about what that means for our financials.

Yes. Looking forward to that. Thank you so much for joining us today.

Thanks for having us, Kate. Thank you.

Thank you.

Good morning, ladies and gentlemen, and welcome to the Genuine Parts Company Second Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Tuesday, July 21, 2026.

I would now like to turn the conference over to Tim Walsh. Please go ahead.

Thank you, and good morning, everyone. Welcome to Genuine Parts Company's Second Quarter 2026 Earnings Call. Joining us on the call today are Will Stengel, Chairman 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, July 21, 2026. 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 include 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 2026 earnings call. I want to begin by thanking our teammates around the world for their hard work, resilience and commitment to serving our customers. Their dedication continues to be a defining strength of GPC. This morning, I'll review our second quarter results by segment, provide perspective on the current operating environment and share an update on the planned separation of our automotive and industrial businesses.

We remain on track for a separation in the first quarter of 2027. We delivered a strong second quarter, reflecting focused teamwork and disciplined execution across the businesses despite a dynamic global macro environment. I'm proud of the work the team is doing as we simultaneously navigate the developments in the Middle East, manage the business in a persistent inflationary environment and execute a meaningful body of strategic work at the company. Despite the environment, we executed well and delivered performance in the second quarter that exceeded our internal plans and underscores the agility and determination of our teams.

Turning to our financial results. A few highlights for the quarter include: total GPC sales of $6.5 billion an increase of approximately $400 million or up approximately 6% compared to the second quarter of 2025. Adjusted gross margin expansion of 20 basis points in line with our expectations and driven by strategic pricing and sourcing initiatives. Segment EBITDA growth in all 3 business segments with industrial EBITDA increasing approximately 10% and versus prior year and adjusted earnings per share of $2.15, up from $2.10 in the same period last year.

Now turning to our results by business segment. Total sales for Industrial were $2.4 billion, an increase of approximately $160 million or up 7% versus the same period in the prior year, with comparable sales up 6%. During the quarter, the benefit from price inflation was approximately 2.5%. From a cadence perspective, all 3 months of the quarter were similar on an average daily sales basis, growing mid- to high single digits versus last year. Motion delivered an excellent quarter with balanced growth across large corporate accounts, small- to medium-sized local customers as well as its value-add solution offerings. We're optimistic about the industrial market conditions and we're encouraged by 6 consecutive PMI readings over 50 and the strong performance to start the year.

Regardless of the environment, Motion has the scale, unique value proposition and operating discipline to differentiate itself from the competition and deliver profitable growth.

Looking at the performance across our end markets, we saw growth in 11 of our 14 end markets we track, which is up from 10 in the first quarter and 5 in the same period of the prior year. During the quarter, we saw notable growth in 2 key end markets: equipment and machinery and food products. We also saw strength with iron and steel, automotive, mining, fabricated metals, DC and logistics, oil and gas and equipment rental and leasing. This growth was slightly offset by softer demand in pulp and paper, lumber and wood and rubber and plastics.

Our core MRO business, which accounts for approximately 80% of Motion sales was up approximately 7% during the quarter and sequentially improved from the first quarter. Looking at the remaining 20% of Motion sales, which originates from more capital-intensive projects, we saw strong sequential improvement from the first quarter, with sales up approximately 9%. This project-based demand was the strongest performance since the first quarter of 2023.

Industrial segment EBITDA in the second quarter was $316 million, up approximately 10% and 13.1% of sales, which represents a 30 basis point increase from the same period last year. To close out on motion, we're encouraged by the work we're doing with customers and the overall sentiment. Deferred maintenance seems to be normalizing. Larger capital investment projects are improving and our strategic initiatives are delivering the benefits we expected. We're leaning into the strong core performance with disciplined and focused investments to position Motion for continued growth all while delivering strong operating leverage and returns on invested capital.

Moving now to our automotive segments. In North America Automotive, total sales in the second quarter increased approximately 4% and while comparable sales increased 2.6%. The team continues to advance our strategic priorities while navigating a cautious consumer backdrop and persistent inflation, both of which are impacted by the Iran conflict. During the quarter, North America Automotive segment EBITDA was $208 million, up 6% and 8.2% of sales. This represents a 20 basis point increase from the same period last year and a 160 basis point increase from the first quarter. The increase year-over-year reflects ordinary core seasonality and ongoing benefits from our strategic initiatives and restructuring actions, partially offset from pressure driven by cost inflation in healthcare, rent and freight.

Within North America, total sales in the U.S. were up approximately 3% for the quarter, with comparable sales up approximately 3% and price contribution of approximately 2.5%. From a cadence perspective, average daily sales were up low to mid-single digits in April and May and roughly flat in June, which we believe is driven by a softer market resulting from higher fuel prices. We've seen an improvement in July month-to-date with average daily sales growth tracking in line with our expectations.

In the second quarter, comparable sales at our company-owned stores increased approximately 4% and with commercial up approximately 5.5%. Independent same-store purchases sequentially improved from the first quarter, increasing approximately 1.5% versus last year. Our team continues to execute well on our company-owned store initiatives, and we're working closely with our independent owners.

Looking at the comparable sales performance of NAPA to the end customer, which includes our company-owned sales as well as the sales out to the end customer from our independent stores. The NAPA system delivered sales growth of 3% in the second quarter. By customer type, comparable sales to our commercial customers for the quarter were up approximately 4%, while comparable sales to our retail customers decreased approximately 3%. Within commercial, we saw solid growth in all 4 customer segments with particular strength in other wholesale and major account customers.

Across our product categories during the quarter, we saw continued relative strength in our nondiscretionary repair and maintenance and service categories, which were both up low to mid-single digits. As a reminder, combined, these categories account for approximately 85% of our U.S. business. Discretionary categories sequentially improved in the second quarter and were up low single digits.

In Canada, our team is executing well despite ongoing softer market conditions. We saw sequential improvement from the first quarter with total sales increasing 9% in local currency versus the same period last year and comparable sales up 1%. The Benson acquisition continues to provide a nice tailwind for our business, and we will remain ahead of our financial and operational target plans.

Turning to our international automotive business. Total sales during the quarter increased approximately 8% with comparable sales up approximately 1%. The International Automotive segment EBITDA for the quarter was $150 million, up 6% and 9.4% of sales, which represents a 20 basis point decrease from the same period last year. The decrease in EBITDA margin was predominantly driven by inflationary cost pressures from higher salaries and wages, rent and freight, which was partially offset by our restructuring initiatives and cost actions.

By geography, in Europe, total sales for the quarter increased approximately 4% in local currency, with comparable sales positive, up approximately 1%. Overall, results sequentially improved from the first quarter, and we saw notable improvement in the U.K. and Germany. We believe our teams are performing better than the market, driven by our strength with key account customers and the NAPA offering. Our accretive bolt-on acquisitions continue to add local service density and growth in priority geographies. The investments we've made in supply chain and technology across the region are also delivering the intended results. And when combined with our productivity initiatives, the business is well positioned as the market recovers.

Lastly, our team in Asia Pacific had a solid quarter despite challenging market conditions, in part due to the conflict in our end. In addition to the conflict, Australia has already experienced 3 interest rate increases this year with a 30-year record low consumer sentiment. Despite these conditions, our team is focused, motivated and executing at a high level to win profitable market share and add capabilities. For example, the team continues to invest in its supply chain and seamlessly executed a modern warehouse management system implementation on time, on budget in a key distribution center.

Total sales in the second quarter increased approximately 2% in local currency with comparable sales up 1%. Both trade and retail posted positive results during the quarter with retail performance continuing to stand out. In fact, during the quarter, our Repco business was named Australia's 2026 Major Retailer of the Year. A huge achievement for an auto parts retailer and a further testament to Repco being an employer of choice and an innovative market leader.

Lastly, I want to provide an update on our announced plan to separate our global automotive and global industrial businesses into 2 independent public companies. As mentioned, we remain on track for the separation plan for the first quarter of 2027. We continue to make meaningful progress against all of our key milestones. We have a rigorous operating cadence with a cross-functional project management office that is coordinated across our various tasks. We have created an enterprise communication portal to update the global organization with important developments. We created disciplined processes to understand and track all in-flight activities against stand-alone and dissynergy estimates. I'm really proud of the collaborative global teamwork and momentum.

The work for the stand-alone audit has now been completed, which is an important step in preparing each company to operate independently and provides the foundation for other important near-term work. We also expect to confidentially file the Form 10 with the SEC later this summer. This is another key milestone in the process and will allow us to advance the required regulatory work.

In addition, Bert will share the estimated allocation of GPT's current corporate costs and provide commentary in a moment. At the Board level, the work is progressing well, including the ongoing evaluation of leadership and governance for each company. We're taking a thoughtful and deliberate approach to ensure both organizations are positioned with relevant expertise and board governance to execute the business strategies and create long-term value.

Finally, we anticipate posting Investor Days for both companies in early December in New York. We look forward to using these events to provide investors with a more comprehensive view of each company's strategy financial profile, capital structure, capital allocation priorities and long-term value creation opportunities. Additional details and logistics will be announced later this fall.

Before I close, I'd like to take a moment to emphasize our focus on the work to create 2 public companies. We are aware of recent market speculation about a potential transaction between the global automotive business and a competitor. I want to take this opportunity to officially confirm that we are not currently in discussions with any competitor. We remain committed to maximizing shareholder value, and we'll always evaluate all potential options in that pursuit. We're making progress towards a separation in the first quarter of 2027 and are excited by the opportunity to create value as 2 industry-leading public companies.

In closing, we're pleased with our performance through the first half of the year and remain focused on controlling what we can control. We're executing with discipline in a dynamic market environment. We will continue to prioritize serving our customers and advancing our initiatives that extend our leadership positions in our markets. Thank you to our teammates around the world for your hard work and commitment.

I'll now turn the call over to Bert.

Thanks, Will, and good morning, everyone. Our teams delivered a solid quarter with 6% sales growth and profitability exceeding our expectations. Our performance reflects disciplined execution across the organization as we continue to manage through a dynamic operating environment, including the impacts of the Iran conflict. Our second quarter results with adjusted EPS of $2.15, reflects an increase in earnings of 2.5% versus prior year. Our results were driven by higher sales, particularly in industrial and the benefits from our global restructuring initiatives, which were partially offset by continued cost inflation and operating expenses, including the impact of the Iran complete.

Our earnings also include an $0.08 impact from depreciation and interest expense as expected. Before I take you through the details of the quarter, my comments this morning will focus on adjusted results, which exclude nonrecurring costs related to our global restructuring program and costs related to the planned separation of our automotive and industrial businesses. Collectively, these items totaled $93 million of pretax costs or $69 million after tax. Included in the $93 million is $16 million of costs related to the planned separation. Primarily related to third-party adviser fees.

Now let's turn to the details of the second quarter. Total GPC sales increased 6%, which included a 340 basis point improvement in comparable sales a 120 basis point benefit from acquisitions and a 140 basis point benefit from foreign currency. Of note, each of our 3 segments delivered comparable sales growth that sequentially improved from the prior quarter. Price inflation was a low single-digit benefit for each segment with North America auto at 2.5% and international auto at 1.5% and Industrial at 2.5%. Our adjusted gross margin was 37.9% and an increase of 20 basis points from last year and in line with our expectations.

The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives, partially offset by higher product costs from inflation due to the Iran conflict. Our adjusted SG&A as a percentage of sales in the second quarter was 29.1%, an increase of 40 basis points from the prior year. On an adjusted basis, SG&A grew year-over-year in absolute dollars by $130 million. Foreign currency and acquisitions represented $60 million of the year-over-year growth, with foreign currency representing about half of this. The remaining $70 million of core SG&A growth was up 4% from the prior year.

Within our core SG&A, we experienced higher costs in healthcare, freight and rent. Notably, U.S. healthcare expenses are up approximately 15%, while freight and rent expenses are up mid-single digits. During the quarter, people-related costs as a percent of sales were roughly flat versus prior year, a testament to our restructuring initiatives and cost actions, which are working to bend the curve on rising costs. Year-to-date, we've incurred restructuring costs of $134 million and realized $55 million of cost savings, including approximately $30 million in the second quarter or a benefit of $0.16 per share.

For the quarter, total adjusted EBITDA increased 4% with adjusted EBITDA margin of 8.7%, down 20 basis points year-over-year. During our Q1 call, we shared a perspective that the Iran conflict would have a $10 million to $20 million negative impact on EBITDA for the second quarter from higher operating expenses. We finished the second quarter with an estimated $16 million negative impact to EBITDA in line with our expectations.

During the second quarter, our EBITDA performance within the 3 business segments include the following highlights: for the North American Auto segment, EBITDA increased 6% with EBITDA margin of 8.2%, up 20 basis points from last year, driven by sales and our restructuring and cost actions. International Auto segment EBITDA increased 6% with EBITDA margin of 9.4%, down 20 basis points from the prior year. The decrease in EBITDA margin was primarily driven by a headwind from inflation and people costs as a result of mandatory minimum wage increases as well as higher freight and rent expenses. This was partially offset by the benefits of our restructuring and cost actions.

Industrial segment EBITDA increased 10%, with EBITDA margin of 13.1%, up 30 basis points year-over-year. The increase was driven by gross margin expansion, which benefited from our strategic pricing and sourcing initiatives, partially offset by profit headwinds in our Motion APAC business due to weak market conditions.

Turning to our cash flows. Year-to-date, we have generated $464 million in cash from operations. Our cash flow from operations benefited from an improvement in net working capital of approximately $260 million. For the first half of 2026, we invested $205 million in the business in the form of capital expenditures as we continue to modernize our supply chain infrastructure and IT systems. As an example, we are currently in flight with 2 state-of-the-art distribution centers at NAPA that we expect to go live at the end of the year. In addition, we also returned $288 million back to our shareholders in the form of dividends.

Now turning to our outlook. As we detailed in our press release this morning, we are reaffirming our guidance for 2026 adjusted earnings per share while updating other elements of our outlook. For the full year, we now expect diluted earnings per share, which includes the expenses related to our restructuring efforts and year-to-date separation costs to be in the range of $5.90 to $6.40. We continue to expect adjusted diluted earnings per share to be in the range of $7.50 to $8.00, up 5% at the midpoint of the range versus 2025.

Note, our adjusted EPS does not include onetime costs associated with the separation. We will continue to be transparent and call those out as they are incurred. We had a good start to 2026, and our year-to-date results are well ahead of our internal expectations. Absent second half headwinds, our performance would leave us tracking towards the high end of our earnings range for the year. However, while we are reaffirming our full year adjusted earnings per share guidance, our expectations for the remainder of 2026 take into account a more prudent view of the second half for Global Automotive, given the continued volatility around the Iran conflict, the sustainability of improved market conditions in Europe and the performance of our independent owners in our U.S. NAPA business.

Given the situation in Iran and based on our experience in the second quarter, our updated guidance includes the following assumptions. First, our revenue outlook incorporates moderating demand in global automotive as our experience indicates that higher energy prices from the Iran conflict are weakening consumer sentiment. With the conflict persisting as we begin the second half of the year, we expect this trend to continue and have lowered our outlook for revenue for Global Automotive for the remainder of the year by approximately 0.5 percentage point. The specific adjustments to our outlook can be found on Pages 9 and 10 of our earnings presentation on our website.

Our outlook for gross margin reflects continued cost increases from our suppliers as they face higher input and shipping costs. Our global teams are working with our supplier and vendor partners to manage any potential increases in a strategic and thoughtful manner. Broadly, we expect to pass through many of these cost increases, and as a result, we have not updated our expectations for gross margin for the remainder of the year.

Finally, we have incorporated revised assumptions on operating expenses, including higher freight and fuel costs. We now expect $20 million to $30 million of incremental costs for the remainder of the year as a result of the Iran conflict. Collectively, given these factors, we expect our first half outperformance to be offset by a moderated outlook for the second half. Leasing performance expectations for the year that are aligned to our reaffirmed outlook and business plan.

While we maintained our adjusted earnings per share guidance, I want to reemphasize a few points within our fiscal 2026 outlook, starting with sales. We continue to expect total GPC sales growth in the range of 3% to 5.5%. Our outlook assumes that market growth will be roughly flat and that the benefit from pricing, including tariffs and inflation will be approximately 2%. Our sales outlook assumes the benefit from M&A carryover and about 1 point of growth from our strategic initiatives and about 1 point of benefit from foreign exchange. We continue to expect expenses associated with the transformation activities and cost actions underway to be in a range of $225 million to $250 million, with an anticipated benefit in 2026 of $100 million to $125 million. These expenses do not include any costs associated with the separation of the businesses.

Beyond these aspects, the remaining elements of our guidance remain unchanged and can be found in our earnings presentation. As we previously noted, our guidance includes an impact of approximately $0.30 for 2026 and depreciation and interest expense as we continue to invest in the business for growth.

Before I close, I'd like to share some additional comments around the separation of the businesses. We have completed our analysis of the estimated allocation of GPC's current corporate costs across the global automotive and global industrial businesses. For context, in 2025, our corporate costs were approximately $360 million and included costs related to executive leadership, IT, human resources, cybersecurity, legal, finance, asbestos defense and our AR sales agreement.

Over the past 3 years, we have consolidated many functions at the corporate level and work to streamline and optimize the cost of these activities. Based on our analysis, we estimate $210 million to $230 million of our current corporate costs to be allocated to the global automotive business, which includes approximately $20 million related to asbestos litigation costs. In addition, post separation, we expect $25 million to $40 million of dis-synergies for global automotive as we outlined on our first quarter call, and we will work to be at the low end of that range.

In total, between the allocated corporate costs and previously disclosed synergies we expect the pro forma global automotive business to incur an additional $250 million of costs. The remaining corporate costs consist of 2 categories: First, our corporate costs include approximately $50 million to $75 million of resources that will support global Industrial to operate as a stand-alone public company. Said differently, these corporate costs will fund the previously disclosed $50 million to $75 million of stand-alone costs to support motion as a public company and do not represent an incremental cost to Global Industrial.

When combined with the previously disclosed synergies for Global Industrial of $25 million to $40 million, we expect the pro forma global industrial business to incur an additional $100 million in costs. We have included an illustration of the allocation of the corporate costs, dissynergies and pro forma EBITDA for each business in Slide 11 of our earnings presentation. These estimated costs represent a targeted level of cost for each business as it exits year 1 post separation and would be a level of cost that is further refined and optimized over time. The remaining category of corporate costs is approximately $50 million of financing fees associated with our accounts receivable program, which remains under review as a part of the broader capital structure work stream. We expect to continue refining these estimates as separation planning and capital structure decisions progress through the remainder of 2026.

In closing, we are encouraged by our first half results and the continued progress we are making across the business. Our teams remain focused, agile and disciplined as we execute against our operating priorities and advance our separation activities. While the external environment remains challenging, we are confident in the strength of the business and our ability to deliver for our customers and shareholders.

Thank you, and we will now turn it back to the operator for your questions.

[Operator Instructions] We have our first question comes from Greg Melich from Evercore.

My first question is on the inflation and price environment. I think you mentioned the Iran conflict and some of those costs and that you expect to be able to pass those through in the back half. So would back half inflation be running similar to the 2% we had in the first half? Or do you think it will be higher or lower? .

Well, Greg, I think on the top line, it's going to run right around that 2% as we've said for the full year. The Iran conflict might have given us a little bit more lift in the second half. We didn't really model that into our updated guidance. So what we've seen so far the year runs in that low single-digit range and total inflation with about half of it coming from tariff and the rest of it, I would put at the feet of just general inflation or a combination of that plus the Iran conflict.

On the SG&A side of things, I would say that we're modeling, again, low single-digit impact from inflation for the full year. Obviously, we've got outsized pressure there in rent and freight from the Iran conflict. That's all running mid-single-digit as you heard me say in my prepared remarks, we are doing a bit better on controlling salaries and wages and keeping that kind of level as a percentage of sales year-over-year. So that plus our restructuring is working to bend the cost curve as much as we can. On cost of goods sold, I think, again, it's in that low single-digit range. So as we think about the rest of the year, we're really modeling around all 3 revenue gross cost of goods sold and SG&A running in the low single-digit range, and we factored all of that into the updated guidance and the headwind I gave on the operating side of the expenses as well.

And my follow-up is more on strategy. Will, thanks for being clear about not in discussions with a competitor for Global Auto. I'd like to maybe take a little broader as you're thinking about the next 6 months preparing for the separation. How are you thinking through potential M&A opportunities, both for either Motion or GPC Auto to acquire or the flip side, if they were people interested in buying parts of those businesses, how are you sorting through that?

Yes, Greg, listen, I think as we articulated pretty clearly, we're really focused and excited on creating 2 public companies, and that's the primary path, and that's where we're spending all of our energy and I think it was important for us to provide that clarity to the market and our diverse group of stakeholders. So that was objective #1. As it relates to M&A, we are always actively building our bolt-on M&A pipeline. As you know, it's always hard to predict timing of when deals come together. And so that's an important part of our strategy as 2 public companies on both automotive and industrial side. So that activity is in flight ongoing, and we'll continue to pursue that.

You bring up a good point as it relates to doing the work for a deal while you're doing the separation, I think we've got to be practical about that. But important part of our strategy moving forward, and we like the businesses as constructed and the growth profile and the value creation opportunities we have in both all of automotive and all of industrial as public companies. We're looking forward to sharing with that -- sharing that with everybody in December.

Your next question comes from the line of Chris Horvers from JPMorgan.

I wanted to dig in a little bit on the cadence of the quarter, May and June slowing down and looking similar, but a rebound in July. What do you attribute the rebound in July too? Do you think some of that was weather, maybe some lag on gas prices pulling back? And as you look forward, given that gas prices are back up, what do you think about the ability to lap harder inflation and see volume growth accelerate in the U.S. NAPA business or NA, NAPA?

Chris, it's Bert. I'll take a crack at that one and maybe broaden it just a little bit. I think when you think about Q2, I'd be careful to over-index on the sequence of the months. We wanted to be clear just because we think it's important color. But there's a lot of anomalies within the quarter in terms of what was happening around Iran. You think about some of our customers getting a little ahead of the curve on the potential price increases early in the quarter. I think that could have impacted a little stronger April than maybe otherwise would have been expected, same to some degree in May. There was a lot of trying to call the ball on anticipated price increases, anticipated increase in gasoline prices.

So -- when we look at the quarter, I think the best way to look at the quarter when you think about the performance of NAPA is to look at that full quarter, 2.6% growth in the quarter on a comp basis. and then translate that into how we've seen the beginning of July. And so as Will said in his prepared remarks, July started in line with our expectations that translates to low single-digit growth in July. And so we've seen the NAPA business come back off of what I think was kind of an anomaly there in June in terms of the performance. And coming back on the fact that we've seen a little bit of moderation in gas prices to start the quarter, but at the same time, unfortunately, we do not have an end to the brand conflict. And so that's why I think we're being prudent as we've updated the second half of the year.

With respect to the rest of the business as we started the quarter, I'd start with industrial and just say that July picked off -- picked up where June left off with continued really solid growth across the industrial complex. When we think about Europe, we're holding on to some of that sequential improvement we saw in Q2. So that's a positive story there as well. And we're pleased with how we're starting the quarter, and our teams are very focused on delivering another very solid Q3.

When we think about some of the things we have to lap in the second half of the year, as I said in my response to Greg's question, I think we've been really thoughtful about how we're lapping inflation and all of these other different moving pieces to come in with low single-digit assumptions around inflation for top line and low single-digit assumptions around cost of goods sold and SG&A as we balance the rest of the year.

But having said that, we did give you some updated views on different elements of the guide. We took a little bit of the revenue growth out of the global automotive business because we think that's prudent just based on overall sentiment as well as some operating expenses similar to what we saw here in the second quarter. We are feeling real increases in freight and fuel, and I don't expect that to change as we go through the rest of the year until we see some resolution with the war.

Great. And then as a follow-up, you have a pretty strong gross margin rate -- gross margin inflection year-over-year in the back half relative to the performance in the first half. So is there something that's going away? And on the other side, what's accelerating to drive that improvement?

I'll start with what's on the really positive side of the house, which is what's driving the improvement. We've got great work happening at both industrial and automotive in terms of gross margin improvement. You'll hear a lot more about some of our strategic plans at the respective Investor Days for each businesses later this year. But the strategic work we're doing in sourcing and pricing is driving a really nice outsized performance of both businesses, and that accelerates as you move through the back half of the year. So we feel confident about where we sit from a gross margin rate expansion perspective as we get into the second half, particularly with the execution continuing to accelerate.

We also moved past some of the algebra on the comps. The comps on gross margin are tougher in the first half of the year, particularly as we were lapping the acquisition benefits that we saw last year, particularly on the NAPA side of the house. When you think about Q2 a year ago, we were up 110 basis points on gross margin. About half of that came from acquisitions, and we still improved gross margin in this quarter by 20 basis points. So some of those comps ease in comparison from the acquisition benefits we were getting a year ago as we move into the second half. And so that gives us a lot of confidence into how we're moving into our expectations for gross margin expansion for 2026.

Your next question comes from the line of Scott Ciccarelli from Truist.

I think that's a new one, Scott Ciccarelli. Can you guys clarify your comments around financing fees being under review from your plus allocation side. Meaning, could we see changes around your supply chain financing program with potential implications around working capital?

Scott, I'll help you out to, since it's Scott Ciccarelli, I'll do you a favor and make sure everybody got that right pronunciation.

I appreciate that.

Yes, no problem. Look, the AR sales program, this factoring program that we have is the tool and the instrument that generates that $50 million. It's not meant to imply that we're looking at supply chain financing any differently. That's an important part of the backdrop of the global automotive landscape. It's a really important part of our working capital construct. And so that was not meant to imply that we're looking at anything different on supply chain finance, particularly because of how important it is to the marketplace. It's really about this AR factoring program that we have in place and look as we get into the second half of the year.

We're turning our attention now as we have been giving you all different pieces of information, the end of summer work is around capital structure and capital allocation. And so that $50 million relates to that program. And as we evaluate the capital stack and the cap structure stack, we'll make sure that we're being thoughtful about that. It could stay. It could be a different instrument in the future, and that's why we call the $50 million out separately.

Got it. Understood. And then your comments just regarding the Iran conflict you brought up a couple of different times. Is there much of an impact at all on the industrial side? Or is that really focused on auto because of the flow-through of gas prices?

Scott, I would say there's less impact. I would characterize the impact in industrial more is just kind of qualitative overhang with customer discussions. You heard in our prepared remarks, the sentiment has sequentially improved the customer discussion tone is positive, but you can't have a customer discussion without, of course, talking about the conflict in the Middle East, but we're not seeing it translate in the same way that it does on the global auto in terms of the financial statements.

Yes, Scott, I'll be really clear of the $16 million in the quarter, all but $1 million of it belongs to automotive.

Your next question comes from the line of Michael Lasser from UBS.

My first question is on the industrial business. You mentioned that the momentum has continued into July. Obviously, the comparisons for the industrial business get meaningfully more challenging as you move through the back half of the year. Has that already started in July, meaning that 2-year stacks have accelerated. This is just going to verify that the outlook for the back half would be reasonable in light of the math as well as maybe some moderating inflation in that business?

Yes, Michael, I think the outlook for Motion is pretty robust, really strong first half. The team is executing and firing on all cylinders. We believe that the PMI readings for 6 straight months are supportive. We think customer sentiment is supportive. And so I think there's a lot to be bullish about when you think about motion I would say that we've -- as we've thought about our updated guidance, we've factored in not only the comps that are there, but the current performance, as I said a few minutes ago, the Motion business has carried its June strength into July. And so we continue to feel good about where the business is. giving all the moving pieces. And as Will just mentioned, the Iran conflict has a little lesser of an impact on that side of the house than the automotive. So we're on track for a great year there and assuming that everything stays intact from a PMI and sentiment perspective, then I think you'll see Motion deliver a fantastic fiscal year.

Okay. My follow-up question is, as GPC moves closer to its separation, the market is trying to assign a value to each of the independent parts there's some pretty well-developed comps for both segments. But if you take the auto business, perhaps it is trading well below where the peer set is -- and that could be due in part to the slower performance, the slower sales performance for the independents. So -- with that being said, what do you think the key unlock is for the sales to the independents to accelerate from here? Is it simply a function of the macro? Or is there initiative that you can put in place that would help to address that? And when you talk about the acceleration of the business in July, has that been a function of end market demand or maybe some more buying behavior ahead of the end of these tariffs that are kicking in at the end of this week.

That's a lot to unpack, Michael. That's like 3 questions inside your 1 follow-up question, but let's start with the independent owners. Look, I really believe, and I think we all believe the independent owners are a material opportunity for the business going forward. It's an important part of our business. It's an important part of our model, and they're an important partner to us. And so I'll start there. And I think the way we think about moving forward is building out of the strategy and the playbook we've been running for the last company -- the last couple of years on the company, owned store side of the house. We've talked extensively about the investments we've made in running great company-owned stores. And there's no better evidence than the sequential improvement that we've seen in the company-owned stores over the past 10 quarters.

To give you some data there, we've moved from company-owned store sales growth of negative 0.5% in 2024 to positive 2.3% in 2025, and we started 2026 on the company-owned store side of the house with a 5.5% growth in Q1 and a 4% here in Q2. And if you just look back to Q2 of last year, we were less than 2%. So our progress is clear, but we're never satisfied, and we remain focused on continuous improvement, both on company-owned stores and on independent owners. That's an important backdrop because our teams at NAPA are now turning to this playbook to our independent owner base, and we're seeing really exciting opportunities there to drive performance optimization.

We've delevered some data analytics to quartile the owners into 4 groups, and we've designed solutions, so this is the part that's new and different and how we think we can really drive the performance moving forward. This is the new part. We've designed solutions for the independent owners to address sales excellence, pricing, inventory and purchasing, operations and technology so that we can make their performance better and take everything that we've done that's proving to be successful and translated over to the team. These programs are in the very early phases and drive our excitement, particularly as we look to a global automotive Investor Day later this year.

Just as a quick example, our top quartile of independent owners grew at 5% in the second quarter, demonstrating their competitiveness in the marketplace. So we've got a clear path for leveling up the performance of the entire independent owner base. and we experienced sequential improvement in independent owners from Q1 at 1% growth to Q2 at 2% growth. So we're really excited about the opportunities there. On the second part of your question on July acceleration, I wouldn't put it at the feet of any 1 thing. I just think that we're seeing, as I said a minute ago, a little bit of a kind of an anomaly in the pattern of Q2, and we're seeing July come back and start at the same place that the full second quarter performed.

And so we're not looking at any 1 in particular pocket of goodness. It's broad-based strength at the low single-digit level for NAPA as we start the month and as we start the quarter.

Your next question comes from Bret Jordan from Jefferies LLC.

On the national account strength you commented on, are you seeing relative outperformance of national accounts? Or obviously, 1 of your competitors has been maybe cutting back on some of the national account business. Is it share gain? Or is it just that category outperforming .

We think it's both. We're doing a lot of work, Bret, to make sure we're being super thoughtful as we think about that piece of the business. We've done some or changes to make sure that it's getting the right level of focus and with new leadership there. We've done a lot of analytics work to think about kind of the profitability of that customer segment. So there's a lot of attention on the part of -- on that part of the business, which is translating into wins. We think that the kind of competitive backdrop is also constructive.

And so we're taking advantage of the moment to lean in there. It's an important part of our business, and we're continuing to improve our operations to to support it, and make sure that we've got the operating processes to be a great partner in that regard. So a lot of good stuff there and an area of focus for us as we continue to lean into it.

And I guess you also called out strength in U.K. and Germany. How does that trend compared to the underlying market? I mean alive was doing an ERP implementation in the quarter? Is it -- do you see share gain substantially above the underlying market growth?

We feel really good about the share position that the European team in all of their geographies, but in the ones that we called out, the U.K., we've made some big investments in our infrastructure there in the supply chain. And those investments, as we expected, are starting to bear fruit. And as you said, we've got a very strong kind of regional footprint in Germany and taking advantage of moments in the market there to win some share as well. So overall, as we said in our prepared remarks, the European platform is in great shape. It's got a great team, a lot of focus, and it's a choppy market over there, but it's sequentially improving, and we're optimistic we'll keep it going.

We have no further questions in the queue. I'll turn the call back over to Will Stengel for closing comments.

Thank you, everybody, for joining us today. We look forward to updating you on the separation and our progress as we move through the quarter on the October earnings call. Thanks again for being with us today, and we appreciate your support. Have a great rest of the week.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Genuine Parts Company First Quarter 2026 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 First Quarter 2026 Earnings Call. Joining us on the call today are Will Stengel, Chair-Elect 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, April 21, 2026. 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 first quarter 2026 earnings call. I want to start this morning by recognizing and thanking our 65,000 teammates around the world for their continued dedication and hard work. Their commitment, expertise and focus are the foundation of our success as they work every day to deliver parts and solutions to our customers.

This morning, I'll review our first quarter financial results by business segment, followed by an update on our announced plan to separate our Global Automotive and Global Industrial businesses into 2 publicly traded companies. In short, the separation work is on track and progressing well. As we execute our separation plan, our top priorities remain the same: stay focused on key strategic initiatives, operate the business with discipline and deliver excellent service to our customers. During the first quarter, our teams did this well and delivered financial results ahead of our expectations.

The war in the Middle East will require us to remain agile and disciplined in a dynamic global environment. The war is impacting the flow of certain goods across the global supply chain, adding inflationary pressure to certain product and logistics costs and adding incremental uncertainty for customers. Despite the environment, we did not experience a material impact to our financial results during the first quarter.

Our teams have demonstrated the ability to manage through temporary economic and geopolitical disruptions in the past. We have global scale, playbooks and capabilities to deploy as needed. Moments of disruption create opportunities to gain market share and strengthen customer loyalty, especially when we respond with speed, discipline and focus. Bert will share more about how we're thinking about the conflict and the implications for our outlook.

Turning to our financial results. A few highlights for the quarter include: total GPC sales of $6.3 billion, an increase of approximately $400 million, approximately 7% compared to 2025, with sequential improvement in all 3 business segments; continued overall gross margin expansion despite tough year-over-year comparisons driven by strategic pricing and sourcing initiatives; and Global Industrial segment EBITDA margin expansion of 90 basis points or 13.6% of sales.

Now looking at our business segments. Total sales for Industrial were $2.3 billion, an increase of over $100 million or up approximately 5% versus the same period in the prior year, with comparable sales up approximately 4%. During the quarter, the benefit from price inflation was approximately 3%. From a cadence perspective, all 3 months of the quarter saw mid-single-digit average daily sales growth. Motion delivered a strong first quarter with balanced growth across our large corporate account customers as well as with our small- to medium-sized local accounts.

We remain cautiously optimistic about the outlook for industrial market conditions. While we're encouraged by 3 consecutive PMI readings over 50 in the first quarter and solid performance fundamentals, we balance that optimism with geopolitical realities and potential near-term uncertainty. That said, we're confident in Motion's ability to execute in every market environment and leverage its size and scale diverse end markets, extensive product offering and strong customer-centric execution to differentiate it from the market.

Looking at the performance across our end markets in the first quarter, we saw growth in 10 of our 14 end markets we track, which is up from 9 in the fourth quarter of 2025 and 3 in the same period of the prior year. During the quarter, we saw notable growth in food products, automotive, iron and steel, mining and fabricated metals. This growth was slightly offset by softer demand in pulp and paper, lumber and wood and rubber and plastic.

Our core MRO business, which accounts for approximately 80% of Motion sales was up over 5% during the quarter. We continue to see an increase in planned outage projects to start the year where customers stop operations to do maintenance and repair work as deferred maintenance needs are being addressed. Looking at the remaining 20% of Motion sales, which originates from more capital-intensive projects, we saw encouraging sequential improvement in customer activity with sales up approximately 4% during the quarter. Industrial segment EBITDA in the first quarter was $314 million, up approximately 13% and 13.6% of sales which represents a 90 basis point increase from the same period last year.

Turning to our automotive segments. Starting with North America Automotive, we saw sequential improvement with total sales for the first quarter, increasing approximately 4.5% and comparable sales growth increasing approximately 2%. During the quarter, North America Automotive segment EBITDA was $156 million, up 6% and 6.6% of sales. This represents a 10 basis point increase from the same period last year and a 110 basis point increase from the fourth quarter. The increase year-over-year reflects ongoing strategic initiatives, partially offset from pressure from cost inflation in salary and wages, health care, rent and freight.

Within North America, total sales in the U.S. were up approximately 4% for the quarter, with comparable sales up approximately 3% and price contribution of approximately 3%. Average daily sales were positive in all 3 months, with 2-year stack consistent across the quarter. We continue to see strong sales performance at our company-owned stores. In the first quarter, comparable sales at our company-owned stores increased approximately 5.5%. Independent same-store purchases during the quarter increased approximately 1%. We remain pleased with our company-owned store initiatives as well as the work we're doing to partner closely and grow with our independent owners.

Looking at the comparable sales performance to the end customer, which includes our company-owned sales as well as the sales out to the end customer from our independent stores, the NAPA system delivered sales growth of 4% in the first quarter, up from 2% in the fourth quarter. By customer type, comparable sales to our commercial customers for the quarter were up approximately 5%, while comparable sales to our retail customers increased approximately 1%. Within commercial, we saw mid-single-digit growth in all 4 customer segments.

Across our product categories during the quarter, we saw continued relative strength in our nondiscretionary repair and maintenance and service categories, which were both up mid-single digits. As a reminder, combined, these categories account for approximately 85% of our U.S. business. Discretionary categories sequentially improved in the first quarter and were up low single digits.

Looking at our performance in Canada, our team is executing well despite soft market conditions. Total sales increased approximately 4% in local currency versus the same period last year, with comparable sales down approximately 2%. Trade disputes, tariffs and low consumer confidence over the past few quarters have cumulatively impacted the market environment. However, the Benson acquisition provided a nice tailwind this quarter and we're ahead of our financial and operational target plans.

Moving to our international automotive business. Total sales during the quarter increased approximately 13%, with comparable sales slightly positive. International Automotive segment EBITDA for the quarter was $145 million, up 5% and 9.1% of sales, which represents an 80 basis point decrease from the same period last year. The decrease in EBITDA margin was predominantly driven by ongoing inflationary cost pressures from higher salaries and wages, rent and freight, which was partially offset by our restructuring initiatives and cost actions.

By geography, in Europe, total sales for the quarter increased approximately 1% in local currency, with comparable sales down approximately 0.5%. Overall results for the first quarter sequentially improved from the fourth quarter with improvement across each geography. Despite challenging market conditions, we believe we continue to perform in line or better than the market, driven by strength with key account customers, the NAPA brand offering and accretive bolt-on acquisitions. The investments in supply chain and technology across the region, combined with productivity initiatives position the business well as the market recovers.

Finally, our team in Asia Pac had another solid quarter, with both total sales and comparable sales increasing approximately 4%. Both trade and retail businesses posted solid results during the quarter with retail performance continuing to stand out. Australia and New Zealand are reliant on oil from the Middle East and have recently been impacted by reduced fuel availability, elevated fuel prices and corresponding negative consumer sentiment. Australia has also raised interest rates twice in 2026. Despite a challenging market environment, our in-flight initiatives are working as designed and have translated into impressive relative share gains. The local team remains energized and action-oriented.

Before I turn to an update on the business separation, I'd like to take a moment to recognize and thank Paul Donahue, who will retire from our Board of Directors at our Annual Meeting next week. Paul's retirement from the Board will conclude an exceptional career with GPC, which includes his impactful service as CEO and Chairman. For more than 20 years, Paul played a pivotal role in transforming the company and enhancing our long-term strategic foundation. While his legacy includes transformational leadership and performance, his most enduring impact is on our culture, which he helped cultivate, evolve and position for the future. He represents the best of who we are at Genuine Parts Company, leading with respect, fostering teamwork and maintaining a deep sense of service to each other and our customers. On behalf of the Board and the entire global organization, I want to deeply thank Paul for his many contributions and years of dedicated service. We wish Paul all the best in retirement and hope he enjoys the well-deserved time with his family and friends.

Before I close, I can provide an update on our announced plan to separate our Global Automotive and Global Industrial businesses into 2 independent public companies. Overall, the announcement has been well received by investors, customers, suppliers and employees. All stakeholders are looking forward to additional details as we advance our planning.

To ensure the organization can focus on daily priorities, we've been mindful to create a disciplined, centralized process and operating cadence with our advisers, business units and functional project leaders. We increased our internal communication rhythm to provide global updates to ensure teams are informed and managing through change. Our leaders are doing an exceptional job leading and partnering as a global team.

As mentioned on our call in February, our automotive and industrial businesses maintain independent operations. Since our work stream has been to refine our initial estimates developed during our strategic review of potential dissynergies and incremental stand-alone costs that will be needed for 2 public companies. We expect the cost to be manageable and in the range of $100 million to $150 million, essentially in line with our initial estimates. Bert will share additional color in his remarks.

In addition, there is ongoing work to evaluate and identify leadership, prepare financial matters and organize stand-alone operational plans. We're progressing well and on track with our time line to complete the separation in the first quarter of 2027.

In closing, thank you to our customers, owners, suppliers and shareholders for your continued trust and support. As we look to the second quarter, we're focused to build on the positive momentum as we manage the current market environment. We're prioritizing serving our customers reliably and timely and have a proven and resilient team that positions us well. I want to offer again my sincere thanks to our global GPC teammates for their continued effort and teamwork.

I'll now turn the call over to Bert.

Thanks, Will, and good morning, everyone. Our teams delivered in the first quarter with sales in line and profit ahead of expectations. Our results reflect disciplined execution across the organization against evolving market conditions, particularly with the added uncertainties surrounding the conflict in Iran.

During the first quarter, adjusted EBITDA was up 5% and adjusted EPS of $1.77 was slightly above prior year. Our results were driven by higher sales and the benefits from our global restructuring initiatives, partially offset by cost inflation and operating expenses. Our previously communicated headwinds from depreciation and interest expense negatively impacted our earnings by $0.09.

This morning, I will review the details of our first quarter results and then share a few comments around our 2026 outlook, which we reaffirm this morning. Then I'll close with additional details on our estimated range of dis-synergies and stand-alone costs of our separation. Before I take you through the details of the quarter, my comments this morning will focus on adjusted results which include nonrecurring costs related to our global restructuring program and costs related to the planned separation of our automotive and industrial businesses. Collectively, these items totaled $75 million of pretax costs or $56 million after tax.

Now let's turn to the details of the first quarter. Total GPC sales increased 6.8%, which included a 240 basis point improvement in comparable sales, a 130 basis point benefit from acquisitions and a 320 basis point benefit from foreign currency. Of note, each of our 3 segments delivered comparable sales growth that sequentially improved from the prior quarter. Price inflation was up low single digits in each segment, with North American Auto at approximately 3%, international auto at approximately 2%, and industrial at approximately 3%.

Our gross margin was 37.3%, an increase of 20 basis points from last year and relatively in line with our expectations. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives, partially offset by the impact of inflation and tariffs on product costs. Our adjusted SG&A as a percentage of sales in the first quarter was 29.4%, an increase of 50 basis points from the prior year. On an adjusted basis, SG&A grew year-over-year in absolute dollars by approximately $145 million.

Foreign currency and acquisitions represented approximately $95 million of the growth year-over-year with foreign currency being the large majority of the increase. The remaining $50 million of core SG&A growth was up 2.9% from the prior year. Within our core SG&A, we experienced higher costs year-over-year in 2 main categories. Approximately half of the increase was driven by people-related costs associated with our merit increases a year ago and mandatory minimum wage increases outside the U.S. The remaining increase was largely driven by cost inflation in health care, rent and freight.

We continue to take actions to adjust our cost structure through our restructuring initiatives. During the quarter, we incurred restructuring costs of $59 million and realized $26 million of cost savings or a benefit of $0.14 per share. For the quarter, total adjusted EBITDA increased approximately 5% with an adjusted EBITDA margin of 7.9%, down 20 basis points year-over-year.

Our EBITDA performance within the 3 business segments includes the following highlights. For the North American Auto segment, EBITDA increased approximately $10 million or 6.3% and with EBITDA margin of 6.6%, up 10 basis points from last year. The primary driver of the increase was higher gross profit, partially offset by approximately $30 million of higher operating costs from cost inflation in people, health care and freight expenses as well as the impact of acquired businesses.

International Auto segment EBITDA increased $6 million or 4.6% with EBITDA margin of 9.1%, down 80 basis points from the prior year. The decrease in EBITDA margin was primarily driven by a 100 basis point headwind from inflation in salaries and wages, rent and freight. This was partially offset by a 50 basis point tailwind from the benefits of our restructuring and cost actions. Industrial segment EBITDA increased approximately 13%, representing a margin of 13.6%, up 90 basis points year-over-year. The increase was driven by both gross margin expansion and leverage and operating costs, driven by our global restructuring initiatives, and disciplined cost control.

Turning to our cash flows. For the quarter, we generated approximately $64 million in cash from operations. Our cash flow from operations benefited from an improvement in working capital of approximately $200 million, partially offset by payments related to tax planning initiatives. In the first quarter, we invested approximately $100 million back into the business in the form of capital expenditures as we continue to modernize our supply chain infrastructure and IT systems. We also returned approximately $142 million back to our shareholders in the form of dividends.

Now turning to our outlook. As we detailed in our press release this morning, we are reaffirming our outlook for 2026. For the full year, we continue to expect diluted earnings per share, which includes the expenses related to our restructuring efforts to be in the range of $6.10 to $6.60 and adjusted diluted earnings per share to be in the range of $7.50 to $8, up 5% at the midpoint of the range versus 2025.

With respect to our outlook, our expectations take into account our performance in the first quarter, which was ahead of our expectations. However, we have balanced our performance to date against a more prudent view of the second and third quarters, given uncertainty of the conflict in Iran, leaving our expected range of performance for 2026 unchanged.

As we consider the shape and timing of our performance in 2026, key themes remain, the market conditions in Europe, the performance of our independent owners in our U.S. NAPA business and the impact from the conflict in Iran, including their duration of any disruptions. We expect near-term cost pressure from the impact of the conflict as we turn into the second quarter and have incorporated those views into our outlook. As we've previously noted, we continue to expect depreciation and interest expense to be a headwind of approximately $0.30 in 2026 as we continue to invest in the business for growth.

With respect to the conflict in Iran, our outlook incorporates updated views across the various elements of our P&L as follows: first, our revenue outlook considers the impact of demand from higher oil and energy prices, which has the potential to drive lower consumer sentiment, miles driven and industrial and manufacturing output. Broadly speaking, during March, when the conflict was in its early stages, consumer behavior across our segments remained fairly resilient. It's difficult to predict how the conflict will play out but the duration of higher oil and energy costs will be something for us to watch.

Our outlook for gross margin reflects anticipated cost increases from our suppliers as they face higher input and shipping costs. We have also considered the cost of adjustments to our own supply chain to mitigate any disruption to inventory availability. Our global teams are working with our supplier and vendor partners to manage any potential increases in a strategic and thoughtful manner. Broadly, we expect to pass through many of these cost increases. On a consolidated basis, our exposure to products sourced from the Middle East is less than 0.5% of our total purchases.

Finally, we have incorporated revised assumptions on operating expenses, including freight and fuel costs. Our freight expense, which represents the cost of moving product to our stores and branches is approximately 3% of our revenue.

While we maintained our guidance, I will reemphasize a few points within our fiscal 2026 outlook, starting with sales. We continue to expect total GPC sales growth in the range of 3% to 5.5%. Our outlook assumes that the market growth will be roughly flat and that the benefit from pricing, including inflation and tariffs will be approximately 2%. Our sales outlook also assumes the benefit from M&A carryover and about 1 point of growth from our strategic initiatives and about 1 point of benefit from foreign exchange.

We continue to expect expenses associated with the transformation activities and cost actions to be in a range of $225 million to $250 million with an anticipated benefit in 2026 of $100 million to $125 million. These expenses do not include any costs associated with the separation of the businesses.

Beyond these aspects, the remaining elements of our guidance remain unchanged, including the individual segment sales growth projections as well as gross margin, SG&A, corporate costs, EBITDA, cash flow and capital allocation expectations. The details of these assumptions are included in our earnings presentation on our website.

Before I close, I'd like to add some additional details on the dis-synergies and stand-alone costs of our planned separation. We've done extensive work with our internal team as well as our external advisers, validating our estimates around the incremental run rate dis-synergy costs and stand-alone costs for the new public company.

As we have outlined on Slide 11 of our earnings presentation, our estimated range of cost is $100 million to $150 million. This range of cost includes 2 components: first, dis-synergy costs from activities associated with indirect sourcing due to loss of scale and back office and technology functions that will have to be replicated. We estimate this category to be in a range of $50 million to $75 million, and it would be evenly split between Global Automotive and Global Industrial.

The second category is incremental stand-alone costs associated with the design of the new public company and would include: new facilities, personnel, public company functions and costs. We estimate this category to also be in a range of $50 million to $75 million, the vast majority of which would be at Global Industrial. This range of cost does not include onetime costs associated with the separation, such as legal, banking and other professional fees. Further, it is important to note that this does not include the allocation of current corporate expense at Genuine Parts Company. We will share additional details on our views on the allocation of the existing corporate costs as that work progresses over the coming months.

In closing, we are pleased with our first quarter performance and the disciplined execution demonstrated across the organization. As we move forward, we remain focused on running the business effectively while continuing to make steady progress toward our intended separation. At the same time, we will stay agile and attentive to all market dynamics, including the ongoing conflict in Iran. Above all, we are confident in our teams and their ability to navigate uncertainty while delivering for our customers and our shareholders.

Thank you, and we will now turn it back to the operator for your questions.

[Operator Instructions] First, we will hear from Greg Melich at Evercore ISI.

Thanks for all the additional detail. I want to follow up on, I think, Bert, some of your comments about the conflict in Iran and some of the spillover and how it inflects the outlook. I think you mentioned pricing was up low single digits. I think it was [ 3% ] in North American auto and then similar in Industrial and International. How do you think the increased cost, as you mentioned on freight, you said it would pass through? So do you expect pricing to now for the year be running at that 3%? Or do you think it decelerates equally across the businesses?

Greg, thanks for the question. Look, I think I'll start -- I'll pull it up just a little bit and then come back to the pricing point and maybe give everybody a little bit more color on Q2 when we think about the next 100 days or so. And again, start with pointing back to my prepared remarks on those various elements of the P&L that I outlined where we think the impact comes from, when we think about the conflict, whether it's revenue, cost of goods sold or operating expenses. When we look across the balance of the year, I think we've been pretty prudent and pragmatic. That balancing, we finished ahead of expectations for Q1 against all these new dynamics we're dealing with the conflict.

And so when you think about the forecasting, obviously, we're thinking about your pricing question within that. But I think the biggest variable, which gets to the question you've asked about the duration of pricing for the year is the duration of the disruption itself and the conflict. And obviously, there's a wide range of outcomes and scenarios when we think about this and we've really tried to refine our perspective to the next 100 days because I think that's what we have the best insight to, which is obviously a bit arguable when you think about the strait opening and closing from morning to afternoon or just the point around oil prices, I think in the last 45 days, we've had 6 days of double-digit moves in oil prices with some of those swings at nearly 20%.

So with that backdrop, I think I'll give you just a little bit more precise color on Q2. We expect the impact to the forecast for us to be most pronounced in Q2. And when we've taken all the variables into consideration pricing, cost of goods sold and operating expenses, we see some downside risk that we've incorporated into our guidance of about $10 million to $20 million of EBITDA as the net negative impact of the conflict to the business. And so I'll give you a little bit more color there.

The headwind that we see is really the product of both increased cost of goods sold and operating expenses, which will be freight-in, freight-out and fuel, balanced against what we think our assumptions are for pricing benefits that will be likely offset by muted expectations on demand from the environment itself. So I would say that we think the pricing environment stays more in line with what we see for the full year that I shared in my prepared remarks, split evenly between tariff and just overall inflation. But obviously, this conflict will have a lot to say about how long that lasts.

And I think it gets back to the duration of the environment that we face. As I mentioned, we've incorporated all of this, including a very solid first quarter into our reaffirmed guidance for the year. And as we look beyond updating the guidance this morning. I would just say that April has started steady and helped inform our views. When we look about the rest of the year, I would remind everybody that we do have interest and depreciation headwinds. Those abate in the second half but we also expect the Q2 impact of those 2 items to be roughly in line with the first quarter.

And then finally, I would just say, look, our teams have been here before. We've problem solved. We had the problem solved. And that gives us confidence as we look to our full year guide about our strategic initiatives, the transformation activities we're running, our restructuring actions, which will also build sequentially across the year.

That's great. And for a follow-up, I would love to ask Will, as you're going through this big separation process and -- how do you think it could impact the culture and how do you think about working that through the thinking just bolt-on M&A along the way or even thinking of selling some of the businesses, if that's what makes sense along the way?

Yes, Greg, I think this is a moment where our culture really shines. It's based in team. It's based in hard work. It's based in collaboration. I referred to the way in which we've set up the project team, it's cross-functional, it's cross-business unit, it's global. We meet every week. So I think the operating rhythm and the way in which we're all working is a perfect reflection of how this company works as a team and has built its culture over 100 years.

As I've talked about before, we have a very consistent culture, both geographically and across business units. So that's part of our special sauce, and I wouldn't expect anything about the work that we're doing in 2026 or our strategy going forward. to change that. And in fact, I would argue that it amplifies the depth and the way in which we work together. So we feel really good about where we are.

Next question will be from Bret Jordan at Jefferies.

Could you give us a little more color on the European backdrop, I guess, or regional performance, competitive landscape, are there stronger and weaker markets over there that sort of [indiscernible]?

Yes, happy to, Bret. As I said in the prepared remarks, we were really encouraged -- we saw sequential meaningful sequential improvement versus the fourth quarter in all of our geographies. So we're seeing continued good execution and arguably improving market fundamentals across each of the geographies. We had some nice progress in our Germany business this past quarter. They're doing a nice job relative to competition, and we continue to show really nice progress in our Iberia platform that has done a lot of work to build its national supply chain, work closely with its vendors. It's accelerating its NAPA brand offering in the market that's new and different in the marketplace. So those are 2 highlights. And as I said, the other markets improved, and we're cautiously optimistic that as we go through 2026, we'll continue to build that momentum.

Great. And then I guess sort of early thoughts on the dividend policy for the [ spincos ]. Obviously, it will be a sort of a different business profile, but how do you think about that capital allocation?

Yes, Bret, look, I think we've got more work to do on capital allocation. We're obviously mindful of the dividend and the importance of that to the various customer base -- or the various shareholder bases. One thing that I would say is that we have -- we've increased the dividend again for 2026. It's an important part of the current GPC capital allocation structure, and it will be going forward as well.

I think as we shared a few weeks ago at the conference with Michael, this is a moment in which we'll ensure that the capital allocation strategy of the 2 businesses follows its growth strategy. And those will be different. And that's a backdrop for why the separation of the businesses make sense. Each business has a different trajectory going forward, both super positive, and we're both -- and we're excited about both. But when we think about it, I think you'll see an automotive business that has a focus on shareholder returns, first and -- first and foremost, and secondarily, probably an indexing towards capital CapEx investments and a little bit of bolt-on M&A.

And when you think about industrial, I think you'll be thinking about a profile of more M&A. It's a little less capital-intensive business, so CapEx as well, but also shareholder returns. So early innings, we're doing that work right now, and we'll continue to progress that work and share thoughts later. But the most important thing will be to continue to focus on shareholder returns and make sure the capital allocation strategies follow the business strategies and in the end, make sure that we stay faithful to our intention to have both companies investment-grade ratings.

Next question will be from Christopher Horvers at JPMorgan.

So I had a couple pricing follow-ups. So first on Section 232, the new steel tariffs, to what extent do you expect that to be inflationary? And I guess, to what degree and is that baked into your guidance as you look to the balance of the year? And then you mentioned potentially pricing through some of the freight costs. Just wanted to understand is like freight costs that get capitalized into inventory. You passed -- it sounds like you're willing to pass those through, but the periodic costs of domestic freight, is that something that you would anticipate passing through over time? Or is that something more of a TBD, we're going to have to eat that now, figure out the need to pass that into price later?

Yes, Chris, maybe I'll start with -- that's a long question. I'll start with the second part on the current environment with respect to the conflict and how we're thinking about that, and then I'll come back to the Section 232 tariffs. Look, I think this is going to be a steady as it goes kind of environment. We're dealing with something that's incredibly dynamic. As I mentioned a few minutes ago, just oil prices alone and the volatility changing from day to day. On the freight end, which does get capitalized into inventory, that would be part of our pricing strategy. We'll be thinking about how do we pass that through balanced against our regular playbook on pricing and where we're considering the moves of pricing across markets, geographies, SKUs and what elasticity is out there.

I think the consumer has a lot to consider right now. Customers and consumers have a lot to consider on the pricing front. And we'll have to be thoughtful about this environment on top of overall inflation and then tariffs. When we think about the freight out and so that's the cost that we're incurring to move product inside the U.S. or inside a certain geography from DC to the branch or store. Again, we're having to absorb increases in cost, and that's why I shared the thoughts I shared on the second quarter about those additional downside risks to the business in the near term.

That also will factor in how do we think about pricing on that front as well. I mean all of these things factor into our operating costs and the cost to serve our customers, and we put them first. And so we're being super thoughtful about how do we balance the additional costs we have in the business with what we can push through to price and then how can we be more efficient, which is an important part of our model as well and that we have to control costs. So it's a lot of algebra, it's a lot of 3D chest, when we think about it, but we're also trying to make sure that we put customer first and make sure that we balance all of that across those considerations. So there are good thoughts. I think we've thoughtfully incorporated them into our views. And that's why we see the conflict as a near-term net negative.

When I think about Section 232, we're managing this just like we manage the overall tariff situation. Our command center is still up and running. Our teams are still focused on it. At this point, we have not seen any additional requests from customers on Section 232. Same thesis here to the extent we started to see those increases from suppliers or request for increases from suppliers, we factor in that into our models for pricing and how we pass that through. Again, our intent would be to pass through where we can.

I would say that the overall tariff environment, I think, has finally found it's at risk of jeopardizing my views. I think it's found its normalized point. We're in a normalized rhythm and cadence. We're heading into the full anniversary of the tariff landscape. I think the noise has died down largely, and the request that we're seeing coming in from suppliers have become more normal conversations around annual price increases and negotiations versus specific to tariffs.

So we'll continue to deal with whatever dynamic comes up tomorrow, but at the same time with respect to Section 232, we haven't seen any material increases. And anything we would see we'd be sure to think about how we pass that through and how we manage the overall cost.

And then staying on the pricing topic, you talked about 3% inflation roughly. You also talked about a gross margin headwind with respect to tariffs. So is it that you're not passing -- and that number lags -- that 3% lags what Zone and O'Reilly have talked about, albeit in line with Advance. So is that gross margin headwind essentially indicative that you're holding back on some of the tariff costs and as a mean to maybe narrow price gaps? Or are you trying to adjust for prices that are perhaps too high in certain markets and just trying to get back down to normal?

No, I don't think there's anything to see there other than we had a really strong Q1 a year ago, a 120 basis point expansion in gross margin. So we had a tough comp to begin with. The second element would just be that don't forget that the first quarter of last year had no tariff impact. And so for Q1 this year, we're actually carrying all the increases in cost of goods sold with the top line benefit and all of those things are hunting in the low single-digit range. So when we think about how we've expanded gross margin over the past several quarters, we've had the benefit at moments in time of lags and where we sit in terms of the delta between price and cost.

And in this particular quarter, I think they're pretty lined up. And so that created a little bit of attention on expansion to gross margin for the quarter. But nothing concerning from our perspective, in line with our expectations. And as I -- as we mentioned in my prepared remarks, we've reaffirmed our outlook for the full year, 40 to 60 basis points of gross margin expansion. And that's going to come on this great work we're doing across the business, which is going to build benefits across the course of the year.

Next question will be from Scot Ciccarelli at Truist.

Scot Ciccarelli, two auto-related questions. First, I don't know if you guys are willing to provide anything at this stage, but any more detail around the profitability of your North American company-owned stores versus the independent biz? And then secondly, kind of on a related basis, where do you think company-owned profit -- company-owned store profitability can go over time, just given what we can see from some of your biggest competitors?

Yes, Scot, on the first one, I hope you can appreciate, I'm not sure we prefer to disclose that level of detail on the profitability. On the second question, maybe we won't talk with specific numbers, but I can tell you with a lot of empirical data behind it as you think about our 2025 strategic review, obviously, we spent a lot of time looking at what we call our entitlement in all of our businesses, but in particular, in our automotive business, and it's really compelling. And it's a material improvement in the business. The exciting part about it is, we've got best-in-class examples that are already at the level of entitlement. And so it's not pie in the sky in the sense that we've got to go out and do something unnatural. We have to get all of our opportunities up to best-in-class.

And I think we'll bring that to life in the Investor Day to put some numbers around it. But we're excited about the work we're doing and the sequential improvement in company-owned stores is the early days work of executing that road map and that playbook to get the best of breed to teach the others and work with the others to get to that level. So more to come on it. It's a good question. It's a fair question. I would note, we are a B2B business. So we are different than your traditional retailers. So we'll have our own benchmark for what we view as entitlement and best of breed that might potentially look different than a traditional retailer.

Can I just ask a follow-up, given the lack of information on the first question there. What are you hearing just in terms of your conversations with your independents, given their appetite for inventory and given some of the cost pressures that they've been under with the interest expense related to inventory?

We had a -- I should mention, we had 20 of our largest owners here in the U.S. in the Atlanta headquarters 2, 3 weeks ago and the tone and the discussions are very positive and optimistic, honestly, sequentially improved, as you saw in our results, which I think reflects the cautious optimism as we go through 2026. Alain Masse and the NAPA team here in the States, part of his expertise and his experience working with independent owners is playing out as we thought. There's really good alignment in terms of the priorities of the business and the investments we're making in the business on behalf of the independent owners.

And we're also spending time thinking creatively about different ways to support their inventory investments, and there's more to come on that topic as well. So we're working as well as we've ever worked with our independent owners over the recent years. Obviously, it's been a tough market backdrop for them in all small businesses and part of our strategy today and going forward is to make sure that they're in a position to win in the local markets.

And their sales outperformance is encouraging. And as long as we're all selling out in the markets there, I think the independent owners have a real opportunity to be successful and we're here to support them to be successful in the same. So more to come on it, but a fair question and a good question.

Next question will be from Michael Lasser at UBS.

It's essentially a follow-up on that last topic, which is, is there a trade-off for GPC corporate in the Auto segment where you have to balance the free cash flow generation of the North American auto business versus the top line growth for your independents, meaning you have an opportunity potentially to sacrifice some of the free cash flow generation. If you were to extend more capital or longer terms to your independents? And if that's the case, how is that going to impact the free cash flow generation of a stand-alone auto business?

Michael, it's Bert. I think the short answer to that is it doesn't impact the medium or long-term outlook for cash flow generation for the business. The bottom line is that we've been using our very strong balance sheet for many, many years to support our independent owners whether that's capital programs that we guarantee, that we disclose to support their growth and loans that they need to grow, which gives them access to capital at a more favorable -- at a little bit more favorable rate than they could on their own to payment terms, to deeper investments in inventory to make sure they have the availability.

We've been using the GPC balance sheet long before I got here to support the independent owners, and that's in our run rate. And so I think when we think about how we look ahead to the global automotive business on a stand-alone basis, we'll continue to do that. And as Will just mentioned, we're reimagining even as we speak, how we support independent owners. The independent owner has a -- it's the backbone of this business. It's how the aftermarket grew up and it will always have a place. We just have to find a way to optimize it in a maximized way and continue to grow together and do the right thing for our customers. And so we're going to continue to do that.

I don't think even with some of the new things we're considering, it changes the long-term view on cash generation or how we've used the balance sheet. We're just going to use it in a different way, and we'll have more to come on that. Look, I think all of these questions build into what will be a very exciting Investor Day for Global Automotive. We'll be talking about the strength of the 2 channels, the company-owned stores, the independent owners and what we can do as we look ahead. And so that's why we're excited. And that's why I think everyone should be excited about the separation of these 2 businesses and will be 2 great public companies.

Got you. Very helpful. And you also provided some really helpful commentary on sizing the incremental EBITDA impact from all the geopolitical issues, $10 million to $20 million of EBITDA. Putting a couple of points together, you mentioned that April has been steady for the business. So should we be modeling pretty consistent top line performance in the second quarter with what you experienced in the first quarter and yet take into account this $10 million to $20 million EBITDA hit? And how does that play into your expectations in the back half of the year and how we should be modeling that?

Look, maybe I'll answer that on a core basis, Michael. So don't forget the first quarter had a nice tailwind from currency. I think that's the one element that we've assumed about 1 point of FX growth for the rest of the year. We had 320 basis points of FX tailwind in Q1. So let's not -- let's not everybody run out and remodel on that kind of FX tailwind as we look to the balance of the year.

When I look at core revenue growth for Q2, I think it will be pretty steady. April has started out steady, March was pretty resilient, April a steady start. And April helped inform the downside risk that I shared earlier. But within that, I think the top line will continue to perform. The things we watch on the top line are the European market conditions, which, as Will mentioned, we're cautiously optimistic have improved from the fourth quarter. They're still muted, but they are improved from the fourth quarter, so we'll continue to watch that.

Independent owners had a sequentially improved quarter. We'll continue to stay focused there. And as I shared earlier, I think when we think about revenue in Q2, we'll have what we think is maybe a little bit more pricing benefit from some of the things that are happening with the costs we're passing on to perhaps more muted demand, and that leaves us neutral in our assumptions. So I'd say, keep the core kind of in line and don't model in a bunch of additional FX tailwind, if that's helpful.

And at this time, we have no other questions registered. I will turn the call over to Mr. Tengel -- Stengel. Please go ahead.

Thank you, everybody, for joining us today. We look forward to updating you on the transaction and our progress as we move through the quarter on the July earnings call. Thanks again for being with us, and thanks for your support. Have a great day.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Good morning, everyone. I'm Michael Lasser, the hardline, broadline and food retail analyst from UBS. I could not be more excited to have the team from Genuine Parts with us today. This feels a little bit like seeing your buddies after they've had quite a lot going on. And so there is amount of things to talk about. And we are excited to have Will Stengel, the company's Chief Executive Officer; Bert Nappier, the company's Chief Financial Officer; and of course, Tim Walsh, who leads the company's Investor Relations.

Where I want to start our conversation is, obviously, you are intently focused on maximizing shareholder value. Genuine Parts has announced that there's going to be a split in the 2 businesses. Presumably, this is the result of a lot of work, a lot of diligence.

So as a place for us to start, could you just walk us through the thought process around this? What are the advantages for each of Genuine Parts 2 businesses from being a stand-alone company?

Yes. Well, first and foremost, thanks for having us. It's always great to see you. It's a great conference and happy to represent Genuine Parts Company.

So as we talked about last year, we had really embarked on a big analysis in 2025 as we were thinking about our next Investor Day. If you recall, we had an Investor Day in 2023. We set out a 3-year plan. And so we were coming up on the anniversary of our next plan, and that triggered really a fairly robust strategic analysis that started in the early part of 2025.

All things strategy, all things financial analytics, all things understanding our investor base, our capital needs. So it was a pretty broad-based assessment. That work went through the balance of 2025 and culminated, as you said, in a decision to separate the business. And I think at its core, the decision was about creating the right conditions to enable both sides of our business to go get the opportunities that we saw.

And we think doing that as 2 separate public companies is the best way to do that. I think it creates really a lot of agility for both sides of the business, and it's not a material departure in terms of the things that we're working on, but I think it clarifies and creates a different level of focus for us to go faster. As I think about the industrial side of the business, it's kind of all things growth.

So whether that's organic growth or M&A growth, I think we've got opportunities to really lean into that. We're doing some good work around our e-commerce platform and our go-to-market strategy on the organic side and industrial, I think we can go faster there with some investments. I think on the M&A side for industrial, there's a ton of bolt-on consolidation opportunities that we can do there in a different way.

And I think on the automotive side, it's all about investing in the business with a little bit more intensity and focus. So whether it's technology or supply chain, we have bolt-on M&A opportunities there. And I think you put all of that together, and it allows us to really grow the heck out of the business and also expand our margins in a different way. I think importantly, too, it simplifies and clarifies the appreciation of both businesses with our external stakeholders.

So we've spent a lot of time over the years telling both stories. And I think as 2 entities, we'll be able to really articulate that to the investment community, the sell-side research community in a different way. So you put it all together and not only operationally, but also financially, we think there's a lot of value to unlock. We're focused on running the business now while we do all this work, which is important, but really excited about the decision that we've made.

And I would tell you the reception, both internally and externally on the news of 2 companies has been very positive. A lot of discussion about this makes total sense. A lot of discussion internally about this topic have been discussed over the years, and so we're glad to bring it to this moment.

And you guys deserve a lot of credit for taking a fresh perspective and bringing institutional fortitude and some courage to making this decision.

Well, I think the other thing, too -- thank you for saying that. I think the other thing, too, is it gives us a chance to really reimagine the capital structures for both businesses. So you heard me talking a lot about investing in the business. We'll continue to do that. But that, I think, is also part of the calculus as to why this makes sense as we think about creating incremental value so we can put the right teams on the field, give them the right focus, give them the right capital structures and we can go to work.

And there's a lot of heavy lifting involved in making these changes. What are the work streams that are currently underway? And how do you think about additional costs that are going to need to come into each business as a result of this change?

Yes. The good news is that these businesses are led largely independently of each other. So our Motion customers are independent of automotive -- our Motion salespeople are independent of our automotive sales force. So operationally and commercially, they're already largely independent. We use the word manageable separation costs. That's an appropriate word. So there's not a massive, heavy operational lift to separate them. Bert, do you want to take that...?

Yes. Look, I'll just add a little bit more color to that, Michael. When you think about the specific work streams, Will mentioned capital structure. We need to be dedicated and focused on the capital structure for each business, capital allocation policy. That's going to follow business strategy, as Will outlined. So we'll be doing a lot of work in that space. We obviously have the process side of it. There's just a process side to doing these things. And I think this transaction on average takes somewhere between 9 and 12 months.

And so we've got an audit to do. There's a heavy work stream there. There's an SEC filing that has to be done. There's a work stream that will come later on that. We're really focused on that. And then the main work right now is the separation and making sure we're separating the right way and that we're focused on the synergy. We had an opportunity to do synergy work before the announcement. Obviously, we're to the point now where we've got the whole team involved and we can refine that estimate. And when we get to the point where we're comfortable with it, we'll share it with everybody. I will say, as I told you when we talked right after earnings that when we think manageable...

Yes. You said manageable...

It's not the number you put out there...

yes, tell me about it.

I'd put your number in the eye-popping range, and I'd put our number in the manageable range, and we think the number will be something everybody can wrap their mind around and doesn't live in the $400 million to $500 million range.

Bert, if I had a $1 for everyone. Every time someone called me eye popping and not in a good way, I would be very happy man. But with that being said, how are you looking to preserve the culture of each independent organization? Because part of the culture of each entity right now is intertwined in this long-standing business that has more than 100 years of heritage. How do you preserve that as part of this?

It's a great question. I mean part of why GPC works, whether you're in motion or automotive is it is a very common and consistent culture already and has been built over 100 years. So that is certainly something we're not looking to change. It's really good people working hard. I mean we love our customers. So we'll preserve that by setting up the right leadership teams. It starts at the top. And we've got a really deep bench as we think about our choices there as we think about one of the key work streams that's happening now is all around talent strategy, talent management, governance.

And so that's a Board-led process. And it starts with, as Bert said, understanding the business strategy, what capabilities do you need to execute that strategy? What choices do we have on the team today, where do we need to fill in some of the gaps, whether it's some of the public company support functions, et cetera. So we feel good about that. And as I said, the reception of the transaction internally was quite positive. Obviously, lots of questions. And as we answer those, I think people are really excited about the future of the business.

And this is an important point about leadership. I think Bert had emphasized that in order to have the proper tax treatment for this transaction, there needs to be an equitable distribution of leadership. So the market should take comfort in that.

They should take comfort and they should take comfort that we've got a good team across the board, and we've got a deep team across the board. And as I said, we'll fill in gaps as we think we need to. But I'm not worried about having a dislocation of talent one way or the other, and I know the Board is focused on it as well.

And we, as outsiders often look at the combined entity and its cap structure and with the different capital investment needs and different capital structure requirements for each business, how are you looking at those independent moving pieces? Your auto business might require different capital structure than your -- in Motion business, what are the considerations there?

Yes. I think when we think about that, Michael, the primary focus, and we said this in the release and on the call, is that we're targeting investment grade for both as we look at the capital structure. We have a strong balance sheet to begin with. We have a tremendous amount of liquidity. And as we think through setting up each business, we're targeting that structure so that we can move forward with that footing.

The one consideration I would call out is that on the automotive side, it becomes more of an imperative when you think about the supply chain financing programs that are underpinning not just GPC, but all of the automotive aftermarket. So we'll be focused there. The investment grade really kind of bolsters the treatment of that and that keeps it cost effective. And so when we think through that, we'll make sure that we've appropriately considered the supply chain side, the financing side of it. And I think we have plenty of levers as we look ahead and choices we can make in terms of structure to allow us to preserve that construct on both.

And importantly, these are great cash flowing businesses. I mean distribution by nature, is a good cash flow profile. So that helps.

And the important point is that there are different needs of the businesses, which give you flexibility on how to capitalize each respective independent organization...

100%. And again, like Will mentioned earlier and like I mentioned, one of our big work streams is not only the capital structure, but the capital allocation.

Sure.

And we'll want the capital allocation policy to follow the strategies of the business so that we're balancing the right things between CapEx, M&A, share repurchase and dividend and making sure that we're setting both up for the success of the future.

And just to emphasize the point, there is an imperative to make sure that the supply chain finance program that underlies the auto business will remain intact such that, that will be an important consideration.

It is for sure.

Got you. If we were to dig into the Motion business that for some investors, especially those who come at it from the consumer angle is less familiar, but the encouraging sign is that you have seen over the last year a widening out in the number of verticals that continue to show improvement. So if you could give us a sense of how that has unfolded and what you're seeing more recently, especially as there's been some encouraging signs around industrial manufacturing, ISM has been starting to show some positive signs.

Yes. I think you articulated it well. We're really encouraged. We've seen a couple of solid prints out of the PMI reading above 50. We've been here before. So we're cautiously optimistic, but it does feel like 2026 is a year where after a couple, 2, 3 years of depressed manufacturing activity that people are finally, a, comfortable with this idea of the world is uncertain, so I got to get on with work. And then two, one of the great things about both of these businesses, the concept of deferred maintenance. I mean there's only so long that you can run your manufacturing facility to fail.

And so I would say on the margin, as we flip the page on '25 coming into 2026, it feels like the customers are ready to do work, and we've had a good start to the year, cautiously optimistic. But across many of our verticals, we're starting to see kind of more positive backlog trends and most importantly, more positive sentiment from customers.

And your concept of deferred maintenance is important because one of the key topics that's on everyone's mind is, and you alluded to this, is the world is a very dynamic place. There's a lot of uncertainty out there. Does it give you pause with what -- on the geopolitical events, the price of oil moving up? we'll touch on this in a minute with the auto business.

Yes, not in the Motion business really. I mean from a customer perspective, we have very little, what I would call, kind of upstream or downstream oil and gas exposure that are trying to make sense of the price of oil to figure out what they're going to do. So that's not material. And it's not really material for kind of the demand function of industrial. So I'd say on that, it's -- the team is pretty focused on just supporting customers with an uncertain world, and we feel good about that in '26.

And I think you've been making an important point, which is the world, the U.S., we as consumers have been operating under a period of uncertainty now for a while. And it just so happens that we're going to just adapt. And now we're -- it seems like the industrial economy is on the verge of adapting and operating in this environment such that it can provide a nice tailwind as that business is separating. So a, is that fair? And b, what does the flow-through look like as that recovery unfolds?

I think it's fair. I'd say on the industrial side, the consumer getting comfortable with uncertainty means something different for the maintenance professional keeping the factory up and running. So he's got to do work to keep the lights on essentially. That's slightly different than quasi-discretionary purchasing choices for you and me to get 2 brake pads versus 4 brake pads. So I'd say on the industrial side, we feel really, really good about where we find ourselves in the cycle. And Bert, if you want to talk a little bit about the flow-through on the business.

Look, I mean, when we think about the upside as we look ahead, I think it has a tremendous amount of upside because the discipline that we have had in the business over the last 2 years. I mean a large part of Motion outperforming with really weak backdrop has been execution of sales initiatives where they're taking share and they're out executing in the marketplace, but also a lot of great cost work.

And we don't think we need to flex the cost structure much to be able to capitalize on the recovery. We will, and we'll do it in the right surgical places to make sure that we're taking advantage of the recovery that comes at us. But at the same time, I don't think that's a big move, and I think that actually creates quite a bit of leverage as we look ahead.

Sorry to throw one out of left field, but does it matter what drives the recovery if it's certain industries? Or this is just a leverage game. So you get more throughput through the machine...

That's the great thing about Motion. I mean we track 14 verticals where they go to market, very disciplined, diversified book of business without anything that's over-indexed in any one place. So to Will's point, we're not oversized in oil and gas. We're not oversized in food and beverage. So it doesn't take much for it all to start working, and you've seen it working here in the fourth quarter. I mean, Motion had a 5% top line with PMI declining through the quarter. So we're really out executing. And if we get a nice tailwind from PMI and just good energy and good momentum, it won't take much, and it doesn't have to come from any one place for it to be successful and to drive the business forward.

Well, the great news is both of you have good energy. So that's a good starting point. On -- one last one on the Motion business. Last year was a year of outsized investment, more of the capital flowed to the Motion business. Are there any significant areas where this business needs some investment at this point? There's been some investment in automation, how much further can you go in that regard?

I think the big 3 areas of investment for Motion core -- investment are obviously technology. So -- but think about technology through the prism of what it means for our sales go-to-market strategy. So how do we connect closer with the customer? How do we make it easier for them to do business with us? How do we create sales effectiveness go-to-market where if you want to use a website or you want to work with inside sales or you need a dedicated. So that kind of technology enablement around growing organically with customers, that's an area of focus.

Always an opportunity to invest in supply chain to get more productive. For Motion, that's less about creating a bunch of scaled DCs with automation and more about optimizing existing footprint using supply chain technology and technology. And then lastly, it's not necessarily CapEx, but to Bert's point, investing in feet on the street and sales coverage or inside sales professionals. So how do we create that really holistic sales coverage model and making sure that you're appropriately invested there. You do all those 3 things well and you manage your working capital and you get some tailwinds on the top line, you're going to have a really nice operating leverage story and cash flow story.

Got you. Very helpful. Let's pivot over to the NAPA business, which you guys deserve a lot of credit. NAPA is a little bit like a puzzle, and you guys have been trying to move some of those pieces around in order to optimize the picture of the broader organization. So a, while you've seen some improvements in areas in the company-owned stores, independents have lagged behind a little bit. Give us a sense of how you expect this to unfold from here? You only have so much influence you can provide a lot of support to your independent operator partners, but it's kind of just the nature of that business. So what do you see in that regard?

I think you said it well. We made a lot of really good progress. We saw some nice sequential improvement through the year, in particular, on our company-owned stores. We were very focused on making that be a differentiated part of our effort and focus and wanted the results out of that. And I think we've done a really nice job there. The independent owners will always be part of the NAPA story. They're an important part of covering some of our smaller, more rural markets.

There, like even our own company-owned stores, we got some really impressive best-in-class, and we've got some owners that we get the opportunity to work with to get better, just like our company-owned stores, and we've made progress there, and we would expect to continue to make progress.

The way that you do that is you work with them as essentially a small business and you help them think about inventory and pricing and sales coverage and footprint. And I would tell you that Alain Masse, who spent the better part of a decade up in Canada in the same operating model has now been in his role for 6 months in the U.S. We've consolidated his responsibilities to be both Canada and the U.S. And he has seen a lot of these dynamics in terms of working with independent owners to make them more successful.

And so I'm incredibly encouraged by some of the work that he's doing. There'll always be part of a discussion as we move forward about how are they doing, what was this month versus last month. But substantively, they are getting better. They're healthy. They're stable. The business is stable, and we're in a position to make them even more successful as we come into [ 2026 ].

Got you. Obviously, all the geopolitical events have resulted in gas prices moving a little higher. How do you think about this as an influence on the auto aftermarket? What has been the relationship historically? Do you view the relationship any different today than it's been in the past?

I don't think so. I mean the historical relationship is the higher gas prices conceptually the fewer miles people drive. I think that relationship holds. I don't know where the breakpoints are. Typically, anything in the $3s we've seen as not material. And so we would expect that to hold true, but haven't studied it recently. From a gas price perspective, as it relates to our P&L, obviously, our freight out is an expense associated with being a distribution business. It's low single digits as a percent of sales. Plus or minus gas prices is probably not material in the grand scheme of things. So I think the thing to watch closely is on the customer demand side, miles driven. But I think it would have to be a pretty material move for that to make an impact.

Is it fair to think your mindset is -- all right, the longer this goes on, the duration is important as well as the intensity because that's going to have a ripple effect on potential price of barrel oil, which in turn will have an impact on gas price.

I mean I'm not an economist, but my sense is if you've got a material global oil shock going through global economies, that can't probably be constructive. And the longer it lasts, the more disruptive it gets. So hopefully, we're in a moment. The good news is -- or the bad news is we've been accustomed to being agile to global shocks in one way or the other. And I think as investors, what you're hoping to invest alongside is people that have some operating muscle to adjust and make hard calls as the world unfolds. These jobs require an incredible amount of agility and calmness in chaos and whether it was tariffs, whether it was pandemic, whether it was supply chain crisis, I think the global GPC team, I would say, is pretty well positioned and well accustomed to navigating change.

Yes. I have a few more questions on the auto business and flow-through and the profitability. But this is a good speaking of a very dynamic environment. Obviously, tariffs have been an evolving story with IEEPA tariffs now repealed. What does that mean for the auto business? How does that unfold? What are your expectations in that regard?

Yes. Look, maybe I'll take that one. I think the first place that folks go is, okay, well, does that mean that you've got some -- now that they were repealed or shut down, is there some big windfall coming back? And from our perspective, the -- not to get too technical, but the importer of record is the owner of the receipt of a refund if there's going to be one because they paid it. And for the automotive business on our side of the house, we're not the importer of record for virtually anything. We have a very, very small amount of goods that we import as the importer of record.

So for us, this is a case where our suppliers, if they have the ability, will be going back to get refunds. And if that happens and we're entitled to some piece of that, then great. We know exactly what we paid them, SKU by SKU and supplier by supplier. So we've got great data on how to have a good negotiation going forward if they were to have a different cost profile.

So for us, we're going to continue to execute. We continue to have our tariff command center set up and we're working on the situation every single day for the ones that are still applicable across the entire business. And for the small de minimis amount that we have available to us, we'll look at what opportunities we have for our own recoveries there. But look, it's just one more thing that's happened, right, here in the first quarter, and we're pivoting and adjusting the business accordingly.

I would just add, scale matters here, again, kind of like when tariffs came out and supply chain crisis. So I think if you're a scaled player in either one of these businesses, the communication and relationships that you have that are long-standing with these vendor partners and supplier partners, like that makes a difference where you can engage in the discussion, as Bert talked about, hey, we've done our analysis, looks like you are a benefactor from the following 3 factors, we'd like to have a discussion. So those discussions are happening as we speak.

And is your expectation that this has an influence or a change in the pricing environment for the sector?

I don't think so. I mean I think if you look at the automotive aftermarket and all of us play in a very rational space, and we'll continue to do so. So I don't think you're going to see a material pivot of any shape, form or fashion in an overall pricing environment. We obviously all continue to run our own individual playbooks and make our individual choices market by market and SKU by SKU. But in terms of an overall kind of shaping, I don't think that you're going to see anything differently.

And are there 2 points here? Because one, there's a lot of factors that have led to this above-average growth in pricing over the last several quarters, and it's not just tariffs. So that is one reason why the pricing may stick. And two, even if there are pockets where some of prices roll back as certain players might try and sneak a little -- look to gain a little more market share that is not going to be pervasive or widespread. Are those 2 ways to look at it?

I think that's right. The pricing strategies for any distribution business is at the SKU level. So it's at the market level, it's at the SKU level. And so as we've talked about before, you're always having movement up and down. In the aggregate, these -- both markets are very rational. They're very structured and steady, consistent kind of low to mid-single-digit price inflation is healthy and not totally unusual.

And if you remember, too, this is a break-fix business. So when we talk to our customers, if that maintenance professional that's trying to keep line one of the bottling plant up because it costs them $100,000 an hour for it to be down, we're not spending a lot of time talking about the price of the widget. We're there to be helpful and say, you need this widget, but you also need this, and we've got the team coming over.

And so that's relevant on both sides of the business. So I think all of that put together puts us in a pretty advantaged position, certainly relative to the smaller, less sophisticated competitor, of which there are many in both profit pools, but also, I think, relative to other industries.

And the message that GPC has offered is there's been a little bit more pricing in auto than Motion, and it accelerated a bit over the course of the year. Is it your expectation that the first half pricing environment or contribution is going to look like the second half and then it will just moderate to more historic levels. Is that the right way to think about it?

I think one point I would make is it doesn't accelerate from here, right? So I think where we guided to was that we exited at a place in 2025, it's not going to accelerate. And if I have to shape the year on that specific point, I would say the comps on the pricing side of it are a little easier in the first half than they are in the second half. So that's how I would weigh out the way we think about the benefit of price to the top line for the year.

Got you. And one of the areas of focus that you guys have had across the organization is on maximizing the gross margin, maximizing the profitability. Can you give us a sense of what's been driving that? I think there's an expectation that, that's going to continue this year, especially on the auto side. How much more room is there to go?

Well, look, we guided to another 40 to 60 basis points of gross margin improvement for the year. We believe that we've got great opportunities still. It cools off a little bit from last year. Last year was 90 basis points of year-over-year improvement. About 1/3 of that came from the big acquisitions we did at NAPA. So you can't expect that to repeat. But I think the 40 to 60 puts us in a nice place.

The work that we're doing is really our own work. And so it's about strategic sourcing, and it's about pricing capability and technology. Those are the 2 big ones. And when I say sourcing, I'm talking about professionalizing and continuing to modernize the category management team, the strategic sourcing team, leveraging our size and scale in ways that we never had historically.

And that's one dimension. We're going to continue to get goodness there. We're also going to continue to lean into the investments we've made in pricing technology and allow us to deploy, as Will mentioned, really scientific approach to SKU by SKU, market-by-market pricing strategies on both businesses. And that's what's been driving the gross margin benefit over the last couple of years, and that's what we continue to see moving forward on both sides of the house.

Got you. I think if there was an area of focus in the fourth quarter, it was on the flow-through that the business has slowed a little bit, especially on the auto side, on the independent side and maybe in Europe a little bit. And that -- the outcome of that was the flow-through may not have been as strong as what you had anticipated. So give us a sense on how that unfolded. What are levers from here that GPC can pull in order to maximize the flow-through that you see on the auto business? And then I have a follow-up. I'm so excited.

You're so excited. It's -- look, it's a great question, and we did have a tough fourth quarter. Everybody knows that, no doubt. I will say that we shared some commentary on the call around the headwinds we saw with independent owners and with Europe. That was about a $0.20 headwind to our profitability in the fourth quarter, below our expectations. When we talk about the North American automotive business, to your point, Michael, we shared on the call that we had cost inflation headwinds. Those are mostly in rent and wages in the fourth quarter.

We're continuing to invest in IT. So we're making investments in IT and those flow through SG&A now because of the technology we're deploying. I'll add a little color maybe that we haven't shared in the call to this group, which was the fourth quarter at the NAPA business had some unanticipated, what I would call, year-end kind of things that I wouldn't expect to repeat. And that's probably somewhere in the order of $30 million or so of cost headwinds, mostly with health care.

We had a tough year with health care, not only in terms of our own claims experience, but also as we've talked about the high level of inflation with health care costs. And that really hit us in the fourth quarter. And we had a couple of other areas of SG&A costs that came in a little higher than we expected. Having said all that, I wouldn't expect those things to repeat, and I do think we've got a very stable business.

The other color I would give everyone is that when you look historically at the North American automotive business, the first quarter and the fourth quarter always have the lowest EBITDA rate conversion with the middle 2 quarters, Q2 and Q3 being the highest, and we finished the year at [ 7 ]. I don't think the fourth quarter is the proxy for how to measure the business going forward. And the evidence of that is that we started out 2026 really well.

So when I say stability, I can point to the way we started the first quarter. January and February, right in line with our expectations. North American automotive business top line at mid-single digits in both months. We've had a great start at Motion, particularly with PMI above 50. We are still watching Europe. The European market conditions remain muted, but that was in line with the guide we gave.

And so when I think about all of that and what levers do we have, we're very confident in our guidance for 2026 and how we look ahead. And that's because we've got, I think, pretty prudent thoughts around market conditions. So we're not banking on a big lift from market conditions, but our sales growth is going to come from execution of strategic initiatives. You couple that with the transformation and restructuring benefits we'll see for the full year, particularly accelerating in the second half, I think that gives us a lot of confidence as we think about the shape of the year and how we're going to go execute.

When I think about the first half of the year, we're looking through the entire year at EBITDA growth, a sequential improvement in EBITDA across the year. When I look at the first half, there's some tougher comparisons. Europe is going to continue to be muted, I think. We've got the tariff comparison starting to come in, particularly as we look into the second half of half 1.

And then as we mentioned on the call, my depreciation and interest headwinds of $0.30 for the year, $0.20 of that happens in the first half. So we've got some things we got to work through. But I think when you think about the way we're attacking it with restructuring, transformation, continued gross margin expansion, sales initiatives, it gives us a tremendous amount of confidence of the strength of the businesses and the stability of the business going forward.

It's so fun when you give us nuggets [indiscernible], this is great. A couple of things to dig in there. Number one, Genuine Parts is not alone in experiencing some of these outsized cost pressures in areas like health care and insurance. What is your view on how the industry ultimately manages this? You're not in the -- you don't have a fiduciary responsibility to absorb those costs. You have a responsibility to try and maximize profitability. So is it of your view that over time, the industry is just simply going to have to price to these factors in order to navigate through them? Or are there some other ways to manage through them?

I think it's all of it. I really do. I think it's all of it. But I think you left out an important stakeholder, which is how do we manage and lead and take care of our people while we do all this. And I'm proud of the work that we did starting 2 years ago. We call it restructuring, but I mean, this is basically adjusting to the actions, adjusting to the realities of the world that we operate in. So whether it's cost inflation, health care, wage pressure, et cetera.

And we've done a big body of work. And without that body of work, who knows where you would be. So going back to my point about the operating intensity of these management teams, I think you're looking for folks that are willing to make hard calls and do that work. I think AI presents a really interesting opportunity as we think about new ways of working.

I'm not prepared to declare how that's in or out of our budget and our plan. But I would tell you that like many companies, if not all companies, we're exploring it and testing it actively, but taking all that non-value-add activity work and finding ways to get more productive. I think it's going to take all of that. And to your point, making really hard calls, tough calls like we've done in 2026, like we did in '25 on getting these businesses to their best potential. That's just -- that's our job, and it's not an easy one, but we're prepared to do it.

Since you brought it up, technology and related investments and opportunities from it. As we look at the GPC business, your largest cost is inventory. There's clear applications for how artificial intelligence and other technology could work to optimize how you deploy inventory. You have constant interactions with your consumers, largely on the professional side. So there's probably opportunities there. Can you give us some insight into how you're thinking about this? How quickly can you embrace this technology? It's obviously, we're rolling this together and try to figure it out. So how are you looking at it?

Yes, we were really intentional in '25. We pulled out one of our best operators and made his entire day job around institutionalizing AI. So he wakes up every single day coordinating and creating governance and process around how to make sense of it. So part of that foundation was actually creating what we call ChatGPC.

There we go.

It is proprietary to our ecosystem, which is a really important point in terms of the governance of the data and the output of information coming out of AI. I think -- and the protection for that matter of your data. So that would be observation number one. We have 6,000 active users on ChatGPC. So...

We're having a good ChatGPC right now.

We are. The second part that's relevant for work that we've done is all around data governance. so AI is only helpful if your data is actionable. And so to your point, we've done a ton of work around customer data. We've done a ton of work on inventory data. We've done a ton of work on supply chain visibility. So with that foundation and ChatGPC, I think you're in a position to start to make sense of it. It's like any big technology shift. People are scared of it.

It requires education. We had a lot of folks come into the building. We did the entire global technology team. All of our engineers have been through AI training, and it's part of their annual performance review on proficiency for AI. So in terms of actually coding and doing engineering work, they will use it, and we will use it to be more efficient. So it's happening. And it's really exciting.

I think your point about inventory, like that's a very tangible use case. Sales coverage and taking the non-value-add work, as you heard me describe that motion sales experience so that we can dedicate more resources to spending time with customers that's a real use case. So there's a lot of exciting things, and it's early days.

Your nonverbal cues are picking up a little bit. You're smiling when you talk about this. Are you struck by the pace at how quickly this is changing as a leader of a very large organization?

I am. I mean this is obviously -- I've never been through this type of...

None of us have. Yes.

In this -- certainly in this chair, but probably ever to your point. I think it's exciting. I mean I really do. I think if you're intellectually curious and you're open to change, and you're open to better ways, like we've just been given a gift, and it's hard to figure out. But I think those that figure it out in a very disciplined way. I would tell you, you can let AI costs run wild really quickly. And I think one of the things that was behind our calculus on creating the proprietary tool was to make sure it still uses a lot of those partners, but the engine itself is very cost efficient. So I think it -- this moment requires that discipline, but it is really exciting.

So as an operator and a leader of a business, very large business, you're more excited about ...

100%.

Yes. Michael, I mean, I'll give you a specific example, like just this same leader that is basically our AI quarterback for GPC he had the experience to bring the credibility into that role, he built the technology using AI at Motion that allowed us to rearchitect our business rules for inventory replenishment. So using AI to really look across the spectrum SKU by SKU of when is that part predictably going to sell again to a customer and looking at the tails of inventory and saying, okay, that's actually one of the slowest moving parts we have in our business, it probably won't sell again for another 11 months. And we changed the business rules around replenishment to match the predictive modeling from this AI tool, which allows me to be more efficient on working capital.

So it has a real impact to the business. We've seen it's changed the way we interact with customers. Back to Will's earlier point about being frictionless, where we can use AI to ingest a customer e-mail on an inquiry or an order and turn that into something that happens much, much faster, which inventory availability is such an important part of both businesses.

So we're seeing it change the way we work through the prism of the customer daily. I think the way we think about it internally is no different than a capital investment, no different than an M&A business. We've actually put our investment committee governance on top of these things to make sure that we're hunting on the right opportunities, hunting with the right returns and managing the cost side of it as well...

And I want to merge this topic into another question, which is that the perception from outsiders is that the NAPA business needs some investment. And so a, is that a fair assessment? And b, does this technological change actually enable some of that investment to happen more quickly, more efficiently and maybe less capital intensively than it might have otherwise been?

I think any good business needs investment. How much and through the cycle is the debate. But absolutely, we're very focused on investing in both Motion and NAPA, and that was part of the calculus as to why do you create new conditions or different conditions to make that happen. So absolutely, we're excited about investing in the business through the cycle. And I think our recent track record would suggest that even as the world does this, we're prepared to invest in the business.

And I do think AI will change the nature of the way in which you invest. I mean think about a new distribution, like how will AI change what's required to go into that facility. I don't have a perfect answer for that, but I know it will be different than it was 3 years ago. So I think there's the whole software application, the WMS, does that get replaced with AI logic and so you don't need to do a big ERP conversion. I think all of those things become discussions in a way that are perhaps different than they have been in the past 3 years.

And in terms of investment, especially on the auto business, is there anything you would put off or save until post separation? And is the post-separation investment posture look like it is now?

I would say there's nothing that we're putting off. I think there are a handful of things that were One GPC in nature that perhaps we'll pause on so maybe pivot them to One Automotive, if you will, One NAPA. But no, I don't think we're going to slow down. I mean in these markets, we're being a lot more precise about where we want to focus and execute. That's part of our natural process.

And I think this moment has made us do that with a different level of depth. But no, I mean, I think we're very focused on investing in the business. We need to be prudent stewards of the capital. Bert alluded to our investment committee. That's a process that we put in place. The good news is that, as we've said publicly, the last, call it, 5 to 10 years, this investment philosophy has positioned these businesses and the geographies to have a great platform where you can kind of pivot off of it from an investment standpoint.

Our Asia Pacific business is very well invested. Our European business now is very well invested. Our technology and some of our foundational work in the North America auto business is very well invested. We've done DC work. So we're not starting flat-footed as 2 new entities, and we can continue to get more precise and more impactful as we deploy capital for the long-term benefit of the business.

What a fun ChatGPC. I can do this all day. Please join me in thanking both Will, Bert and Tim for a great conversation.

Good to be with you. Thank you.

Thanks, Michael.

Good day, ladies and gentlemen, and welcome to Genuine Parts Company Fourth Quarter 2025 Earnings Conference Call. Note that 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 Fourth Quarter 2025 Earnings Call. Joining us on the call today are Will Stengel, Chair-Elect 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 17, 2026. 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 City 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 fourth quarter and full year 2025 earnings call. Before we start, as always, I want to thank our 65,000 global teammates for their efforts in serving our customers. Our employees are at the core of our success as they work every day to deliver solutions and service to our customers. Our 2025 achievements are a result of their hard work and dedication.

We shared a significant and exciting update for Genuine Parts Company this morning: our intent to separate into 2 independent publicly traded companies. Our Automotive businesses will continue to be the largest global automotive aftermarket replacement parts and solutions provider in the world, and our Global Industrial businesses will create a stand-alone best-in-class industrial solutions platform. I'll start this morning by sharing additional perspective on the announcement and then discuss our full year performance. Bert will discuss the financial results for the fourth quarter, trends to start the year and our 2026 outlook, before we open it up for questions.

For nearly a century, Genuine Parts Company has a proud history of leadership and driving change in its industries, always focused on serving our customers and taking action to strengthen the business as markets evolve. Over the last decade, we have established leading global footprints in attractive geographies, simplified our business mix and accelerated strategic investments to further advance and differentiate our business. More recently, despite dynamic markets, we have focused on a broad-based supply chain and technology transformation effort and we have simultaneously invested in talent and capabilities across the company.

We've complemented our work with significant acquisition activity to add scale and local service in our priority markets. We've leveraged a global team approach to evolve the business and increase the intrinsic value of the company.

As we shared last September, throughout 2025, we performed a comprehensive strategic and operational review of the business. with the objective to understand how best to unlock our full potential and maximize shareholder value. Our work, in partnership with our advisers, included an assessment of our business structure, operational and strategic growth opportunities and corresponding capital allocation priorities.

Following the detailed review, we have concluded that separating our Global Automotive and Global Industrial businesses is the best path forward for the company, our people, our customers and our shareholders. Today we have 2 scaled market-leading companies with compelling but different growth strategies. This new business structure will enable each to capture the opportunities most effectively. We believe that separating automotive and industrial into 2 public companies will set both up for significant long-term growth.

The transaction provides clarity in many important ways. Each company will be more agile and more focused. Each will have tailored strategies with business-specific investments that are directly aligned to their respective customers and market needs. Each will be well capitalized and have greater financial flexibility with specific capital allocation strategies. And each will be easier for investors to appreciate and understand with clear, differentiated value propositions.

Global Automotive, with its globally recognized NAPA brand, will be a pure-play automotive aftermarket replacement parts and solutions provider. The separation will allow Global Automotive to more effectively capitalize on common automotive customer needs and market trends, particularly with the growing commercial customer. Its geographic diversity creates a balanced and global platform with identified market share opportunities.

NAPA's unmatched loyalty built on trusted product quality, deep relationships and a vast global network will continue to be core differentiators as it competes in an over $200 billion addressable market that's nondiscretionary in nature. There are more than 550 million used cars on the road in the markets we serve, with an average age of more than 12 years, which creates compelling opportunities.

Our Global Automotive business is currently executing a transformation program to deliver growth in excess of the market, and margin expansion, while optimizing working capital and increasing return on invested capital. These will remain hallmarks of the business on a stand-alone basis. Significant progress has already been made in each geography with investments deployed and capability building.

Regarding its capital structure, the business is targeting to maintain an investment-grade credit rating, and we'll have a balanced capital allocation program to support the strategic vision, including organic investment, accretive bolt-on acquisitions and returns to shareholders.

Turning to Global Industrial, Motion is a leading diversified industrial distributor, serving over 180,000 customers across a diverse group of end markets. At approximately 2x the size of its next competitor, we have the largest offering of mission-critical, industrial maintenance and repair parts, and value-added solutions to keep manufacturing facilities operating and efficient. We differentiate with a technical product and industry expertise and go to market with a unique omnichannel sales strategy that leverages deep, long-standing supplier and customer relationships.

Motion operates in a highly fragmented $150 billion global market with defined commercial and operational initiatives to extend its industry-leading position. Motion will build on its best-in-class financial performance by delivering profitable sales growth, operating leverage that translates into improving double-digit EBITDA margins, strong free cash flow generation and attractive returns on invested capital.

Motion is targeting to maintain an investment-grade rating, and with strong cash flow characteristics and the backing of a dedicated balance sheet, will be well positioned to make strategic growth investments. Motion will continue to pursue strategic and bolt-on acquisitions to add to priority product, market and solutions expertise.

The Automotive and Industrial businesses already operate independently. There are no shared customer-facing roles and there are limited shared facilities. There's an ongoing body of work to finalize all the separation details and there are a select number of IT, sourcing and back-office support functions that we will manage and transition.

The initial estimates of the dis-synergy costs associated with the separation are manageable, and we will share more information as we finalize our estimates. The separation is planned to be tax-free to GPC shareholders. We'll provide further updates on leadership and governance, stand-alone financial profiles and long-range targets, capital structure, capital allocation strategies and other separation matters as we move through our process.

We're working at pace and targeting to complete the separation in the first quarter of 2027, subject to customary approval processes. We contemplate holding Investor Days for each business in the second half of 2026, and we look forward to sharing more about the exciting vision for these 2 companies as we progress.

With that, as we reflect on 2025, it was a dynamic year across the businesses and geographies marked by tariffs, global trade policies, interest rates and a cautious consumer. To start the year, we built plans that assumed sequential market improvement as the year progressed. Despite the environment realities, we advanced our strategy and delivered growth, expanded gross margins, took proactive action to offset cost inflation and continued to invest in strategic capabilities.

A few highlights from the year include: Total GPC sales were $24.3 billion, an increase of over $800 million or 3.5% compared to 2024. Gross margin expansion for the third consecutive year, driven by pricing, sourcing and acquisitions. Global restructuring initiatives and cost actions, which provided an approximately $175 million benefit in 2025, above our expected range of $110 million to $135 million. And investments of approximately $470 million across our businesses, primarily in supply chain and technology.

In addition to the investments in our business, we returned over $560 million to our shareholders in the form of dividends. This morning, our Board approved a 3.2% increase to our dividend, which marks the 70th consecutive year GPC has increased the dividend.

While we have many accomplishments in 2025, our full year results came in below our expectations, largely driven by weaker-than-forecasted sales performance in the fourth quarter, which impacted profit. Of note, despite our overall sales growth in the quarter, we saw weakening of market conditions in Europe and sales below our internal forecasts for U.S. independent owners. There was sequential improvement through the year across many areas of the business that are encouraging. And in 2026, we've started strong, and we'll look to build on that momentum as we progress. Bert will provide more commentary.

Before we touch on our results by business segment, you'll see in this morning's earnings release that we made a change in the way that we report our Global Automotive business. We made this change to provide increased transparency and better align with how we manage the business. We're now reporting 3 business segments: North America Automotive, which contains our Automotive businesses in the U.S. and Canada; International Automotive, which contains our Automotive businesses in Europe and Australasia; and Industrial. There are no changes to how we report Industrial, which, as a reminder, is predominantly North America.

Now turning to our full year results by business segment. During the year, total sales for Industrial were $8.9 billion, an increase of $200 million or up approximately 2% versus the same period in the prior year, with comparable sales up 1.5%. Recall that in the first quarter of 2025, the U.S. had 1 less selling day, which impacted sales by 40 basis points. We believe our Industrial business grew in excess of the market in 2025 despite a sluggish industrial and manufacturing economy, as evidenced by PMI being below 50 for the last 10 months of the year. This performance reflects Motion's diverse end markets, extensive product offering and strong execution focused on customer service via technical and solution-based selling.

Looking at the performance across our end markets, we saw growth in 7 of our 14 end markets during the year, which is up from 4 in 2024. We saw notable improvement within 1 of our largest end markets, equipment and machinery, and growth in food products, pulp and paper, aggregate and cement, and fabricated metals amongst others. This growth was partially offset by softer demand in automotive, lumber and wood, and oil and gas. Each value-add solutions segment, such as automation, conveyance and repair services, saw improvement throughout 2025. Our core MRO business, which accounts for approximately 80% of Motion sales, was up over 3% during the year, with shared strength in both our local account and corporate account customers.

We have seen an increase in planned outage projects as we closed the year, where customers stopped operation to do maintenance and repair work as deferred maintenance needs are starting to be addressed. In the fourth quarter, we were also encouraged with the outsized strength with small and medium-sized customers, driven by targeted second half sales initiatives.

The remaining 20% of Motion sales, which originates from more capital-intensive projects, was up approximately 1% during the year as customers continue to selectively pursue larger projects.

E-commerce had another strong growth year in 2025 with penetration as a percent of total sales up over 800 basis points to approximately 45%, as we continue to integrate more closely with our customers via technology. While 1 month doesn't make a trend, we're also encouraged to see January PMI above 50 for the first time since February 2025.

Industrial segment EBITDA in 2025 was approximately $1.1 billion and 12.9% of sales, representing a 30 basis point increase from the same period last year. The Motion team showed outstanding operational discipline during the year as they navigated tariffs, managed a soft demand environment and offset pressure from cost inflation. Driving operating leverage on low single-digit growth is great execution. Motion's organization and cost structure is set up nicely for the rebound in industrial demand and we expect to see strong operating leverage as the market improves.

Turning to our Automotive segments. Starting with North America Automotive, total sales for the year increased approximately 3%, with comparable sales growth up approximately 0.5%. In 2025, North America Automotive segment EBITDA was $672 million, which was 7.1% of sales, representing a 70 basis point decrease from the same period last year. The decrease year-over-year reflects ongoing pressures from cost inflation and higher salaries and wages, health care, rent and freight, which was partially offset by our restructuring initiatives and cost actions.

Within North America, total sales in the U.S. were up approximately 4% for the year, with comparable sales up approximately 0.5%. Reminder that in the first quarter, the U.S. had 1 less selling day, which impacted sales by 40 basis points in 2025. We saw strong sales growth from our company-owned stores with comparable sales up approximately 2.5% for the full year and approximately 4% in the second half.

Independent purchases during the year were down approximately 1%. We remain pleased with our progress on running better company-owned stores and the sequential improvement throughout the year.

Looking at the comparable sales performance of NAPA to the end customer, which includes our company-owned sales as well as the sales out to the end customer from our independent stores, the NAPA system delivered sales growth of approximately 1% for the full year and approximately 2% in the second half.

By customer type, comparable sales to our commercial customers for the year were up approximately 2%, while sales to our retail customers decreased approximately 4%. We saw the strongest growth with our AutoCare and major account customers, which were up mid-single digits.

Across our product categories, during the year, we saw solid growth in our nondiscretionary repair and maintenance and service categories, which were both up low to mid-single digits. As a reminder, combined, these categories account for approximately 85% of our U.S. Automotive business. Discretionary categories remained softer and were flat to slightly positive for the year, with specific category initiatives in our tool and equipment offering helping to offset some of the weakness.

Our value and service proposition were key to our success in winning business during the year despite the tariff-driven inflation environment. Customers continue to use discretion and are looking for value. However, deferred maintenance will ultimately need to be addressed as you can only defer for so long.

Lastly, in 2025, we further advanced our acquisition strategy in our U.S. Automotive business to continue to strengthen our relative footprint in strategic priority markets by acquiring over 100 locations from both independent owners and competitors. Additionally, in October, we closed on the acquisition of Benson Auto Parts, one of the largest independent aftermarket players in Canada.

Looking at our performance in Canada, our team had a strong year with total sales increasing nearly 5% in local currency versus the same period last year, with comparable sales increasing approximately 3%. We believe our business grew in excess of the market in 2025 and we're proud of the team's execution throughout the year to deliver solid results.

Moving to our International Automotive business, total sales during the year increased approximately 5%, with comparable sales up slightly. International Automotive segment EBITDA for the year was $544 million, which was 9.3% of sales and represents a 90 basis point decrease from the same period last year. Similar to North America, the decrease year-over-year reflects ongoing inflation cost pressures from higher salaries and wages, health care, rent and freight, which was partially offset by our restructuring and cost actions.

By geography, in Europe, total sales for the year increased slightly in local currency, with comparable sales down approximately 2%. These results were below our expectations due to moderated market conditions across our geographies in the second half of the year. Through the year, we took aggressive actions in Europe to align the business with market realities. For example, we closed underperforming locations, consolidated distribution centers, reduced head count, and reduced general and administrative costs.

Despite a challenging environment, we believe we performed in line or better than the market in 2025, driven by strength with key account customers, the continued expansion of the NAPA brand, sourcing initiatives and accretive bolt-on acquisitions. The difficult work completed in 2025 will position the business well as the market recovers.

Finally, our team in Asia Pacific had another strong year in 2025 and further distanced themselves as the market leader. Our team delivered double-digit growth in local currency, driven by both organic initiatives and contributions from acquisitions. Total sales increased approximately 10% during the year, with comparable sales up approximately 5%. Both trade and retail businesses posted strong results for the year, with standout performance in retail relative to the competition.

The 2-wheel division also had an exceptional year in 2025, growing sales 20% versus 2024 as it continued its multiyear track record of impressive accretive growth. Our in-flight initiatives are working as designed and the local team is energized to build on the strong momentum in 2026.

Before I close, I want to provide a quick update on First Brands Group. Following their bankruptcy filing, our teams quickly mobilized plans to ensure operational and service continuity. As the situation evolved, we methodically executed the plans with alternative suppliers. Thanks to the readiness, we do not expect any operational and product disruption in 2026. Bert will share additional comments on the accounting implications of the bankruptcy in his remarks.

In closing, thank you to our customers, owners, supplier partners and shareholders for your continued trust and support. This is an exciting time for Genuine Parts Company as we're proactively pursuing a strategy to unlock value and position each business and geography for long-term success. Today we have 2 leading distribution platforms in attractive industries with defined plans to capture exciting opportunities. The clarity this transaction provides will accelerate our ability to deliver performance and extend our leadership positions in our industries for years to come.

I want to reaffirm my sincere thanks to our GPC teammates for your effort and commitment this year. While the announcement today represents a change in how we plan to structure the business, it's business as usual in 2026 as we navigate the market and focus on doing what we've done for a long time: take care of our customers and teammates every day. Thanks for all you do for Genuine Parts Company.

I'll now turn the call over to Bert.

Thanks, Will, and thanks to everyone for joining the call. We closed 2025 with fourth quarter sales growth of 4% and adjusted gross margin expansion of 70 basis points. Our sales performance was highlighted by a near 5% increase in sales within Industrial as well as strength in our U.S. NAPA company-owned stores with approximately 4% comparable sales growth in the quarter.

Despite these tailwinds, our fourth quarter adjusted earnings of $1.55 were below prior year as the benefit from higher sales and gross margin expansion was offset by our previously communicated headwinds from depreciation and interest expense and lost pension income. Our fourth quarter results have been adjusted for onetime items, including the settlement charge associated with the planned termination of our pension plan.

Before turning to the specifics of the quarter, I'd like to share a few thoughts on our performance relative to our original outlook. As we began the quarter, we expected stronger fourth quarter sales growth to offset the collective headwinds from depreciation, interest and lost pension income, resulting in earnings growth. However, our results fell short of our expectations, entirely driven by weaker sales in Europe and lower sales to independent owners in our U.S. NAPA business. Our gross margin expansion and absolute dollars of SG&A expense were right on our forecast and the underlying fundamentals driving our segments remain solid.

With respect to Europe, underlying market conditions deteriorated sequentially from September to October and then again in November, leaving the underlying market growth down mid-single digits for the quarter. This deterioration led to a decrease in sales for Europe versus our expectations for low single-digit growth. The impact of these weaker market conditions had an estimated $0.10 negative impact to the quarter relative to our initial view. Despite the tough market conditions, we believe our performance was aligned with general market trends across the region.

While overall sales at NAPA were up in the fourth quarter, our sales to our independent owners fell below our expectations. Comparable sales to our independent owners were flat in the fourth quarter, down from the 1% growth we delivered in the third quarter. While we had a tough comparison to last year due to a promotional event that did not repeat this year, we anticipated the momentum from the third quarter to carry over.

Our independent owners continue to navigate a challenging backdrop in the U.S., balancing numerous headwinds while serving the needs of our customers. The lower-than-expected sales to independent owners created an estimated $0.10 negative impact relative to our expectations for the quarter.

Before I take you through the details of the quarter, my comments this morning will focus on adjusted results, which, as I mentioned, include several nonrecurring items recorded in the fourth quarter. In total, these adjustments amounted to $1.1 billion of pretax costs or $825 million after tax. These adjustments related to the following: first, as previously communicated, the termination of our U.S. pension plan was successfully completed in December. The termination required us to immediately recognize a onetime noncash settlement charge of $742 million, which represented the accumulation over many decades of the actuarial gains and losses on the plan and had been recorded as an unrecognized loss on our balance sheet. The final settlement charge was in line with our expectations.

Second, we recorded a charge of approximately $150 million for expected losses on amounts due to us from First Brands Group. The amounts owed to GPC, including rebates on purchases, were subject to long-term supply agreements across our Automotive businesses. While we made extensive efforts to recover the amounts owed, the bankruptcy and the financial challenges at First Brands were significant. Given the financial and operational difficulties, during the fourth quarter, we moved our business away from First Brands and executed our contingency plans with alternative suppliers. This was the right decision for our customers and moves us into 2026 with confidence in our supply chain and inventory availability.

Third, we increased our asbestos product liability reserve by $103 million, which reflects a rise in both the frequency and clarity of claims. While our transition to asbestos-free products was largely completed in the early 1990s, our claims experience in 2025 deteriorated and gave rise to the adjustment, which is not reflective of our current operations.

During the quarter, we had $87 million of costs related to our global restructuring program. And lastly, we incurred $30 million in charges related to account adjustments in the fourth quarter, largely related to the accounting for asset retirement obligations.

With that backdrop, let's turn to the performance of the underlying business. As we look at the fourth quarter, total GPC sales increased 4.1%, including a 170 basis point improvement in comparable sales, a 150 basis point benefit from acquisitions and a 130 basis point benefit from foreign currency. As we expected, the tariff landscape normalized as we closed out 2025, with a low single-digit pricing benefit in revenue and a low single-digit increase in cost of goods sold, resulting in a slight benefit to our consolidated results for the quarter.

Turning to our quarterly sales results by business unit. Starting with Industrial. Sales in the fourth quarter increased 4.6%, with comparable sales up 3.4%, in line with third quarter. During the quarter, average daily sales were solid and improved sequentially, with December being the strongest month despite declines in PMI throughout the quarter. Sales inflation during the fourth quarter was 4%.

Looking at the performance of our end markets, we experienced sequential improvement with growth in 9 of our 14 end markets and strength in automotive, iron and steel, food products and fabricated metals, which were offset by softer demand in lumber and wood, chemicals, and oil and gas.

As we look at North America Automotive, total sales in the fourth quarter increased 2.4%, with comparable sales up 1.7%. Within North America Automotive, total sales and comparable sales in the U.S. were up approximately 2% in the fourth quarter. At a high level, the comparable sales performance in the fourth quarter looked very similar to the third quarter. Average daily sales were positive in all 3 months. Sales inflation during the fourth quarter was slightly over 3%.

We continue to see strong sales to our commercial customers, which represents over 80% of sales in the U.S. Comparable sales out to commercial customers increased approximately 3.5%, while comparable sales to retail customers declined low single digits.

Looking at the performance of our company-owned stores to our commercial customers, comparable sales grew nearly 6%, with strength in Auto Care, major accounts and [ fleet and ] government. As Will mentioned, we closed on the acquisition of Benson in Canada at the end of October, which provided a nice benefit for the 2 months they were included in our results.

Turning to our International Automotive business, total sales in the fourth quarter increased approximately 6%, with comparable sales down approximately 1%. In Europe, during the fourth quarter, total sales decreased approximately 2% in local currency, with comparable sales down approximately 3% as a result of weak market conditions, which were partially offset by the NAPA private label product expansion across the region.

In Asia Pacific, sales in the fourth quarter increased approximately 5% in local currency, with comparable sales also up approximately 5%. Our team continues to outperform and take market share in both the trade and retail customer segments.

As we turn back to our consolidated results, our adjusted gross margin was 37.6% in the fourth quarter, an increase of 70 basis points from last year. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives with all 3 segments expanding gross margin in the fourth quarter.

Our adjusted SG&A as a percentage of sales for the fourth quarter was 29.7%, an increase of 30 basis points from the prior year. On an adjusted basis, SG&A grew year-over-year in absolute dollars by $88 million, including $60 million from acquisitions and foreign currency. However, our acquisitions continue to have a positive impact to net operating profit margin. Our core SG&A increased 1.7% or $28 million in the quarter. Our rate of core SG&A expense growth improved from the 2.7% growth we experienced in the third quarter.

Stubborn cost inflation continues to be a challenge, impacting people costs, including high single-digit inflation in U.S. health care costs, as well as rent and freight.

The growth of our core SG&A was mitigated by a $75 million benefit related to our restructuring and cost initiatives as our actions worked to mitigate cost inflation. We made significant progress on our global restructuring efforts in 2025. During the year, we incurred restructuring costs of approximately $255 million. And through the team's hard work, we exceeded expectations, realizing approximately $175 million of cost savings or a benefit of $0.95 per share. This was above our target of delivering $110 million to $135 million of cost savings in 2025.

For the quarter, total adjusted EBITDA margin was 7.6%, up 10 basis points year-over-year. The improvement was driven by gross margin expansion and the benefits of our restructuring activities, which offset cost inflation in wages, health care and rent.

Our fourth quarter adjusted net income, which excludes nonrecurring expenses of $825 million after tax, or $5.94 per share, was $216 million or $1.55 per share. Our full year adjusted net income was $1 billion or $7.37 per share.

Turning to our cash flows, for the year, we generated approximately $890 million in cash from operations with $380 million in the fourth quarter and $421 million of free cash flow. Our operating cash flow in 2025 was impacted by lower earnings and higher interest payments. Our cash flows were also impacted by working capital changes associated with commercial activity in the first half of 2024 from inventory investments made at NAPA and the associated build of accounts payable and receipt of supplier incentives, which did not repeat in 2025, creating a tough year-over-year comparison. This headwind was concentrated in the first half of the year and our cash generation accelerated to over $700 million in the second half of 2025.

In 2025, we invested approximately $470 million back into the business in the form of capital expenditures as we continue to modernize our supply chain and IT systems. In addition, we invested approximately $320 million in M&A, highlighted by our Benson acquisition in Canada.

Now let's turn to our outlook for 2026. We expect diluted earnings per share, which includes the expenses related to our transformation efforts, to be in a range of $6.10 to $6.60. We expect adjusted diluted earnings per share to be in the range of $7.50 to $8, up 5% at the midpoint of the range versus 2025 adjusted EPS of $7.37.

Overall, our 2026 outlook has been developed based on our expectations for underlying market conditions, modest price inflation and further gross margin expansion. We've also assumed continued cost inflation, partially offset by the benefits of our restructuring and transformation programs. Depreciation and interest expense will be a headwind of approximately $0.30 in 2026 as we continue to invest in the business for growth.

Let me take a few moments to review the individual elements of our outlook in more detail, which we've expanded in light of our separation announcement. We expect total GPC sales growth to be in the range of 3% to 5.5%. Our outlook assumes that market growth will be roughly flat and that the benefit from pricing, including inflation and tariffs, will be approximately 2%. Our sales outlook also assumes the benefit of M&A carryover and about 1 point of growth from our strategic initiatives and about 1 point of benefit from foreign currency assuming current market rates.

As we look at sales for the individual business segments, we expect total sales growth in our North America segment to be 3% to 5%, with comparable sales growth of 1.5% to 3.5%. Our total sales growth in North America in 2026 benefits from our Benson acquisition in Canada, which closed in the fourth quarter of 2025. For International Automotive, we expect total sales growth of 3% to 6% and comparable sales growth of 1.5% to 3.5%. For the Industrial segment, we expect total sales growth of 3% to 6%, with comparable sales growth in the 3% to 6% range.

For gross margin, we expect 40 to 60 basis points of full year adjusted gross margin expansion, driven by our continued focus on our strategic sourcing and pricing initiatives. Our outlook assumes that adjusted SG&A will deleverage between 30 and 50 basis points for the year. Despite the restructuring actions we've taken over the past 2 years to reduce our cost structure, our SG&A outlook is driven by persistent cost inflation. We expect ongoing cost inflation in salaries and wages, driven primarily by mandatory pay increases in international jurisdictions and continued headwinds from inflation in U.S. health care costs, which are growing at a high single-digit rate.

As we begin 2026, and as Will shared in his remarks, we are continuing key transformation programs globally, including in our U.S. NAPA business that further strengthened our businesses moving forward. In addition, given the persistent cost inflation headwinds, we're taking further actions to adjust our cost structure to market conditions. We expect expenses associated with transformation activities and cost actions to be in a range of $225 million to $250 million, with an anticipated benefit in 2026 of $100 million to $125 million. These expenses do not include any costs associated with the separation of the businesses.

We expect consolidated adjusted EBITDA in 2026 to be in a range of $2 billion to $2.2 billion, an increase of 2% to 9% compared to prior year. In our North America Automotive segment, we expect segment EBITDA of $700 million to $730 million, an increase of 5% to 9% versus last year. For International Automotive, we expect segment EBITDA of $560 million to $600 million or an increase of 4% to 10% compared to last year. And finally, for Global Industrial, we expect segment EBITDA of $1.2 billion to $1.3 billion, an increase of 7% to 12% versus last year.

For corporate, we expect expenses to be in a range of 1.5% to 2% of total sales.

Two additional areas to highlight. For 2026, we expect depreciation and amortization expense to be in a range of $515 million to $540 million as continued growth investments in technology and supply chain drive the year-over-year increases. Of note, our investments in technology generally have shorter useful lives, typically ranging from 3 to 5 years.

For interest expense, we currently expect to be in a range of $180 million to $190 million as we expect debt levels to remain consistent with 2025, but anticipate higher borrowing costs in 2026.

With those details, I'd like to share some thoughts on the start of 2026. As we consider the range of outcomes for the year, our opportunities to achieve the high end of our expectations center on improving market conditions in Europe and sustained PMI readings above 50, driving a tailwind in our Industrial business. Conversely, should market conditions deteriorate further in Europe or we experience downside variability in sales to our independent owners, we would expect to be in the lower end of our range.

Near-term market conditions remain mixed with an improved PMI reading in January but continued soft market conditions in Europe. Our sales in January on an average selling day basis were strong, highlighted by strength at Motion. Europe remains a watch point, and we do not expect an improvement in market conditions in Europe through the first quarter from those that we experienced as we closed out the year.

With the backdrop of an improved PMI reading in January, we are encouraged by the start of 2026 but are remaining prudent in our outlook.

Turning to a few other items of interest. We expect to generate cash from operations in a range of $1 billion to $1.2 billion for the year, up approximately 20% from 2025 at the midpoint of the range, inclusive of the cost of transformation and other actions that I shared. For CapEx, we expect approximately $450 million to $500 million or approximately 2% of revenue in 2026 at the high end of the range, in line with our 2025 levels.

As we look at M&A, our global pipeline remains robust, and we will continue to remain disciplined, pursuing opportunities that create value. We expect our M&A capital deployment to be consistent with 2025 and in a range of $300 million to $350 million.

The fourth quarter required us to navigate many areas, including unexpected sales headwinds, the bankruptcy of First Brands Group and transition of our supply chain to new suppliers and the onetime adjustments I outlined. However, we maintained tight control on our expenses and drove continued expansion in gross margin, themes we will carry into 2026 alongside solid industry fundamentals.

As we turn to 2026, we are excited to begin a new chapter in our history with the announcement this morning of our plan to create 2 industry-leading public companies. Our strategic initiatives, investments in supply chain and technology and efforts to drive productivity over the past few years have positioned both businesses for long-term success. We are encouraged by the initial positive indicators to start 2026, but will remain prudent on our views on the full year outlook given the early stages of the year.

Thank you. And I will now turn the call back to the operator for your questions.

[Operator Instructions] Your first question will be from Scot Ciccarelli at Truist.

Scot Ciccarelli. I think separating the businesses is a good idea. But with that on the table, can you help us better understand the margin pressures on the North American Auto business, a 14% EBITDA decline against pretty soft performance in the prior year and a 5.5% margin just seems quite a bit lower than what we would have anticipated. And then related to that, so part 2, with the improved disclosure, can you give us an idea of how much the earnings contribution in North America is coming from your company-owned stores versus how much from the independents?

Thanks, Scot. I'll start off on the EBITDA margin for North America and maybe take it up just a little bit. I think when we think about the fourth quarter, at a consolidated level, we think about what happened during the quarter, we talked a little bit in my prepared remarks about our expectations coming in short both in Europe and with independent owners. We also had profit growth -- we also had sales growth that came from FX in the quarter. There's very little profit benefit on that as well.

So when we look at the movement through the P&L, I think we did a nice job of controlling costs, despite some inflation in wages. Core cost growth in the quarter was 1.7%, which excludes acquisitions and FX. So I think the benefits of our restructuring program have performed nicely, and in [ looking ] at the core, we've really tried to control it pretty well.

That left us with an EBITDA level that wasn't enough to offset some of those headwinds we talked about at the beginning of the year and then it persisted through the course of the year with depreciation and pension and interest expense.

When I look at North America Auto -- or the North American business more specifically, I think the themes are similar to the ones I talked about in my prepared remarks. We had the wage pressure with cost inflation. U.S. health care has been a particular challenge here in the fourth quarter. For the full year, it was up $32 million, about $20 million more than our expectations for the full year. And that particular cost is growing at a very high clip, I would say high single digits for the full year. Beyond that, we had some rent and freight pressure in the North American business in the fourth quarter from cost inflation. And on IT, a disproportionate level of our IT investments are happening in the North America business, and that's challenging SG&A because, as you know, those investments, as we modernize and move to cloud-based technology, move the rest of the SG&A.

And then -- okay. And can you give us an idea about the earnings contribution company-owned versus independents? Obviously, the independents have been under pressure for a while.

Yes, Scot, that's probably something we'll get into more detail when we have an Investor Day for Global Automotive. As you know, the stores are split 65-35 now. Sales is probably more 50-50. But we'd say that both are contributing to our profit. And we'll get into a little bit more color on the model, I think, as we look ahead and move to an Investor Day.

Scot, I would just add one other thing in terms of kind of operationally the improvements that we're making with our company-owned stores, there's been a lot of good work through the year. We made some organization structure changes to make sure that we had the right resources and leadership over top of our company-owned stores, both at an executive level and in the field. And that's really all around driving discipline and standardized processes and all the things that we need to do at a very basic and fundamental level each and every day to take care of our customers. So whether it's pricing strategies, inventory strategies, payroll mix, we've made a lot of really nice progress. I think our payroll percentage in our company-owned stores was as good as it's ever been in the fourth quarter.

So a lot to like as we go through the transformation around all things company-owned stores, and then working with these owners to get everybody in a better spot competing in the market.

Next question will be from Greg Melich at Evercore.

My first question was on the inflation trends in the quarter. You mentioned, I think it was a little over 4% in Industrial and a little over 3% in Auto. Could you give us an update on what you expect in your guidance for this year for those 2 numbers?

Yes. So Greg, I think for inflation for the full year, which includes tariffs, we said 2%, as we look across the balance of the entirety of the year, you'll remember that the lapping of benefits will come as we get through the first half. So I would expect pricing benefits to get a little bit more compressed in the second half. About 1 point of the 2% we're expecting for the full year comes from tariff when we look out across the full year.

I think as I look at the 2 individual businesses, we'll just keep it kind of where we've kept it, which is at the 2% low single digit. I don't think they're really disproportionately weighted between the North American Industrial business and the NAPA business. So I don't know that there's a distinction to make between the 2. I think the 2% holds for the full year for both, and about 0.5 point -- or I'm sorry, about half of that comes from tariff as we look across the full year.

Greg, I might just also comment that the tariff anomalies in terms of interacting with our suppliers have all largely moderated, so we're back into a more ordinary course commercial discussion with suppliers about how to think about standard price increases as we go through a new calendar year. And in some instances, given all of the activity that happened in 2025, those discussions are noncontroversial and, in some cases, not even happening given all the stuff that happened in 2025. So I think we're coming on the back side of all things tariff inflation and we're back to a more standard, structured inflationary environment from a price standpoint.

And my follow-up is on the separation of the businesses. Given that you just had or announced like the 70th year of a dividend increase, you talked about investment-grade capital structure for both businesses, how are you thinking about the dividend, either having one or bringing -- keeping a growth rate given the history of Genuine Parts of that?

Greg, thanks for the question. I think there's a lot more to come on the capital structure of the 2 businesses and the capital allocation policies. And we're working on refining those details internally and we'll get that to you guys in due course.

I think we'll stay focused on, one, capital structure side, as Will mentioned in his remarks, making sure that we have strong balance sheet for both businesses and that we maintain investment-grade rating on both. When we think about capital allocation, it will start with the business strategies of each individual business and where we think we need to invest and, at the same time, being very balanced on shareholder returns and making sure we're thoughtful about how to do that and the right strategies for those 2 things that attract the right investor base based on the business strategy. So it will be an important conversation as we go forward.

I think there's no change to the GPC dividend policy for this year in 2026. We announced a 3.2% increase this morning. That's in line with last year. And I think it's the right decision for the business as we go through this transition.

Next question will be from Bret Jordan at Jefferies.

On that capital allocation comment, if you look at the 2 sides of the business, do you see one of them sort of needing more catch-up investment than the other? I mean it does seem like the Motion business might be a bit more modern given more significant recent M&A there. Is there a big difference in catalog location between the 2?

I think they have different priorities, Bret. I don't know that they have different overall investment needs. I think as you point out, Motion business is inherently capital-light. And I think Motion has really invested in the business smartly. And as Will mentioned in his prepared remarks, I think Motion is positioned to continue to grow through bolt-on and strategic acquisitions.

When you think about the Global Automotive business, we'll continue to do bolt-on M&A there looking ahead. But I also think that we have interesting and exciting and compelling investment opportunities on the capital side that provide medium-term margin expansion. Some of those we've been making. As you guys know, we've put $3 billion of capital into the business over the last 5 years and put it to work.

And that's why we're so excited about the opportunities that we have ahead with the separation, because we think that business, don't forget, Global Automotive will be a $16 billion top line business with $1.3 billion of EBITDA at the midpoint of the ranges we gave you for the year. So we're excited about what that business can do. And I think its investment might tilt a little bit more towards CapEx versus M&A, but I don't want to prejudge the capital allocation policy for either company. But hopefully, as we look ahead, that will give you a little color.

I guess then a quick follow-up, European regional performance, I mean it sounds like it's all weak, but is there anything to speak of around performance dispersion?

Yes. I would say it was certainly weak relative to our expectations, as we've commented, particular weakness in the U.K. and France and Germany, which are big 3 markets. Interestingly, one of our steady performers, in our Benelux business, it's a small business for us, but it actually sequentially weakened through the year as well. A bright spot for us is the great work happening in Spain and Portugal, which has been a really nice case study for how we bring the NAPA brand to a new geography in Europe. We've essentially doubled that business. We've essentially doubled the EBITDA rate of that business. And the NAPA brand is really carrying the day to, even in a tough market, win share.

So generally weak across the board. But as Bert said in his prepared remarks, we've put a lot of capital into Europe. We've got really nice supply chain investments in the U.K., really nice supply chain investments in France, supply chain investments in Germany and Spain. So as that market recovers, we're going to have a very differentiated platform relative to the balance of the market. And it's a great operating team with a lot of focus and a lot of urgency to make hard calls in a tough market. So we feel good about the future. We're just working through a soft moment in time.

And Bret, I'd just add to that, that I think for the region for the fourth quarter, our performance was right in line, everybody had a bit tougher experience. And I think if you look at the balance of 2025, I'd say that our European business performed in line or better than the region for the full year.

Next question will be from Chris Horvers at JPMorgan.

Congratulations on the announcement. In the new reporting framework, you're breaking out NAPA between North America and International. As you've gone through this process and just a broader separation announcement, how are you thinking about the synergies of operating in a Global Automotive business? Obviously, there's the NAPA brand and the sourcing, but is there something to having sort of a dedicated North American company and a dedicated European, Australia, Asia business?

Chris, I would say it's incrementally easier to extract a global harmonization with just an Automotive platform versus Auto and Industrial. Part of that logic was as we thought strategically about what we call One GPC, we've made a lot of progress on that front, but for a combined entity to take that next phase of what does One GPC mean and how do you extract value, it gets complex across both an Industrial and Automotive platform. And I would say it gets incrementally less complex for a stand-alone Automotive business.

Having said that, I do think we've come to really appreciate the importance of having specialized expertise down at the geographic level, meaning Asia Pac needs to be close to those customers and make the right customer level decisions. Europe has customer-specific decisions to make. And so we will continue even in the Global Automotive platform to pursue "One GPC" synergies, but we made good progress and it's probably not the value driver as we think about the value -- the multiple expansion and the margin expansion as we move forward.

And then following up on Bret's question, can you break out for us sort of your expected CapEx and D&A between Motion and the Automotive business as you're planning 2026, what's the split there?

Yes. Bret, we don't -- I'm sorry. Chris, we don't really get into that kind of level of detail. I would just say that when we think about CapEx, we think about it more from an activity perspective. So as I look at the year, about 50% of the upcoming investment for will be in IT, with about another 30% to 35% in what we would call supply chain modernization, and that might be buildings and DCs and things like that.

I would say that in general though, because Motion is a relatively capital-light business, the orientation, if you want to think about it from the 2 business units, would weight more towards the Global Automotive business.

Chris, I also just wanted to follow up on another thought that I had as it relates to North America. As you know, we put Elaine Moss in a leadership role running both our Canadian and our U.S. business. And I would say in that situation, we're excited about the opportunities to continue to extract value from working more closely together as a North American platform. So in that geography, I think we've got intra-geography opportunity, but my comments I think still hold for the cross global opportunities. Those are a little bit harder to get and will take some time.

Next question will be from Michael Lasser at UBS.

If we look at the North American Auto business, it does appear that market share took a step back in the fourth quarter, perhaps largely related to the independent business. So A, why was that the case? And B, if we look at your guidance, it does indicate that you expect that business to accelerate in 2026. Would that be predicated on an improvement in the independent business? And what would be responsible for that?

Michael, I'll take that one. I think when we look at the performance of the business in the fourth quarter, I'd start with the strength of the company-owned stores in North America and, in particular, NAPA, 4% comp sales, I think they're performing nicely, sequential improvement and continue to control the things that we can control.

As I mentioned with the independent owners in my prepared remarks, we had a quarter -- Q3 in which we had built some nice momentum, sequential improvement for independent owner performance through the course of the year, and we flatly expected that to maintain in the fourth quarter, even with the promotional comp that I mentioned in my prepared remarks. And unfortunately, that wasn't the case, as I shared, and they didn't meet our expectations for what we thought for what would happen in Q4.

The independent owners continue to be an important part of our model, and I think they are just continuing to deal with the headwinds that we're all dealing with, whether it's cost inflation, persistent elevated interest rates, all the different dynamics we've mentioned before.

As we look ahead to 2026, as I mentioned in my prepared remarks, we're being prudent and cautious. I would say that as we look into the early part of the year, we're not expecting or anticipating any material improvement in performance there. That's not because we are doubting what they're doing. It's more about just being smart about the trajectory as we came out of the fourth quarter.

As we move through the balance of the year, Will mentioned this a few minutes ago, we're going to continue to work very closely with them on positioning them for strength in the marketplace and making sure we're staying balanced on investing with them, growing with them and pushing them forward.

So look, we've done a lot of great work in this space. I think we'll continue to see more benefits. But in the early part of the year, I think we're being a bit prudent not only with the performance of the independent owner but also in Europe.

Okay. My follow-up question is, as you look forward to the separation, you provided some helpful detail on the profitability of the North American Auto business versus the International Auto business, do you think it would be prudent, and I'm recognizing that it's still very early and you're likely to give some information over time, but just conceptually, do you think it would be prudent to take down the profitability of the North American Auto business as a manner in which to stabilize or maybe improve the overall market share of that segment?

Michael, if I'm following your question, I don't think that's necessary for us to take down the margin profile of the North American business to compete more effectively. I think we feel really good about the work that's been done and that's planned to be done as we move forward. And that should position that business to be a very enticing and compelling value creation story. And part of our assessment and the work that we did in 2025 was to get very granular and tactical on what are the initiatives and what is the pathway to creating and earning our entitlement in North America Automotive. And we're looking forward to sharing all of that great work at an Investor Day to get everybody really excited, as excited as we are, about the potential of that business.

Next question will be from Chris Dankert at Loop Capital Markets.

Again, first off, just congrats on the announcement. Very exciting times. I guess just to move more operationally here, the streamlining, you guys called out, I think, $100 million to $125 million of kind of restructuring benefit for the year. Can you break out what the mix is of the attribution? I assume most of it's Automotive, but any color that would be helpful.

Yes, Chris, actually, it's pretty split between both businesses. Both have really compelling opportunities on the transformation side as we look ahead. So I would say if you're thinking about the benefit that we'll see in the year, one, the benefit will move through the P&L, partly through gross margin and partly through productivity and SG&A. So it's not all a cost play. And as we think about it, we're getting more and more weighted towards transformation activities, I think, which are the more exciting and the more compelling things that are going to drive opportunities in the medium term. We'll still do some restructuring through the course of the year. We'll have some things that we focus on in terms of facilities and store optimization, branch optimization, DC optimization. But the transformation initiatives, again, are thematically aligned to where we've talked about investing. We've got great opportunities in the NAPA supply chain. We're working really hard on sales effectiveness, both at NAPA and the Industrial business.

And that gets back to Will's comments on partnership with independent owners. We think we can make some really nice moves with sales effectiveness, not only company-owned stores at NAPA, but also with independent owners. And those are going to be compelling. And then Motion is doing great work on just doubling down on how great they already are.

And when you look past that, we've got some opportunities in the commercial space at Motion. I think we'll be smarter and much sharper on pricing tools and capabilities that are going to be in this [ sub-transformation ] initiatives. And then finally, we have great opportunities in technology. What [ Navin ] is doing with the team around the world to drive productivity, both in terms of back office, store technology, catalog and search, but also inside of a facility, are really compelling.

So we're excited about the future. I think the benefits come through multiple prisms and split between the 2 business units and set us up for even further success as we move into 2027 and beyond.

That's good stuff. Look forward to hearing more detail about that at the Analyst Day for sure. And I guess just a quick follow-up. On the guidance, just you mentioned the baseline assumption is pretty flattish market growth. Any shape to the year there? Is the assumption negative first half, slight positive back half or just pretty ratable?

Yes. No, I think it's a great question, and it's a good chance to give you a little color on the shape of the year. I think we'll expect earnings growth to accelerate sequentially as we move through the quarters. The first quarter, first half will be a bit more muted. I've mentioned a few times European market conditions, and I think we're being prudent on very modest expectations for the independent owners given the exit levels on both areas as we came out of 2025.

Flat market growth throughout the year. We're not planning for an acceleration in market conditions throughout 2026, even though we've had a little positive reading here in January on PMI. We started the year last year with 2 positive readings, and so I think we're just being smart about lessons learned there. And we'll be watching gross margin rate very closely. It's an important part of our profit profile. And so we're moving through a year in which we're lapping tariff benefits and normalization of the tariff landscape, and so we'll be watching that closely.

The interest expense headwind I mentioned for 2026 is weighted more in the first half of the year. And so we'll be thinking about that as well as we shape out the year. But having said all that, we're very confident in our full year guidance, and we're focused on driving benefits and additional benefits wherever we can.

Ladies and gentlemen, we have time for one more question. And our last question will be from Kate McShane at Goldman Sachs.

It's just kind of a housekeeping question at the end of this call. But just with regards to growth in [ service ] and maintenance and discretionary. I know you gave numbers for the year. But we just wondered if you could talk to how it performed -- how each category performed in Q4? And what your expectation is with -- if any, if there was deferral in the back half of this year, what that looks like into '26?

Say the last part again, Kate? You cut out just a little bit on our end, sorry.

Sorry, sorry. Just about any kind of deferral that you may have seen towards the end of '25, if you -- '26, and when it would be in '26 you could make up some of that deferral?

Yes, Kate. Yes, in terms of nondiscretionary repair, that was, call it, mid-single digits for the fourth quarter. So that's been pretty consistently improving as we've gone through the year. I would say the same for maintenance and service. And actually, in the fourth quarter, the discretionary part of the business was also kind of mid-single digits as well. So for the full year, you had nondiscretionary repair of mid-singles, maintenance and service kind of going from low to mid-singles and then discretionary going from flat to slightly up, as we look at the math for the full year.

So I think that those trends probably continue to improve as we go through into 2026. I would tell you, customers are still looking for value as we look at all of our assortment strategies and where we're seeing good traction. There's obviously people emphasizing our value lines and some of the assortment that we have below the better and best line. So I think all those trends will continue into 2026. That lineup with this concept that Bert's talking about, which is kind of a flattish volume market, slightly down with some price benefit to be kind of neutral overall for the market in 2026.

Thank you. This does conclude today's Q&A. I would now like to turn the call back over to Will Stengel, CEO. Please go ahead.

Thank you, everybody, for joining us today. We look forward to updating you on the transaction and our progress as we move through the quarter on the April earnings call. Thanks again for being with us, and thank you for your support.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Okay. No stranger to the Gabelli Auto Symposium. I think one of -- maybe the only company that's been here for all 49 is Genuine Parts, best known for the NAPA brand located in Atlanta, Georgia. It's the premier North American distributor of consumables for the auto aftermarket.

With us today are the company's CEO, Will Stengel; and CFO, Bert Nappier, but 140 million shares or so, about a $17 billion equity cap, about -- I can't even read my own writing anymore, $3.5 billion of net debt, about $21 billion total enterprise value. So Eddie's going to lead Q&A. But thank you all for being here for 49 and then looking forward to seeing you at 50. Welcome Will.

Just to clarify, I have not been here for every 49, but our firm has. Thanks for having us.

Thank you for being here. 49 is impressive. So you recently reported third quarter results and updated and narrowed your outlook for 2025. Can you just quickly touch on the results and your updated outlook?

Yes, we had a really strong third quarter performance. I think it was best represented by a quarter where we controlled what we could control and did what we said we were going to do. So we had 5% top line growth. We had very strong gross margin performance, up 60 basis points. We had 10% growth in adjusted EBITDA versus prior year and we had 5% earnings growth. I think if you actually peel back the underlying facts, we saw really strong sequential trends in our NAPA business, both in terms of our company-owned store performance as well as just improvement versus prior quarter. We also had a very respectable strength in our Motion business, growing 5%. Our Motion business is in our industrial side of the house. And in a flat market, 5% is really strong performance. So really good cost control, good discipline. And because of the strong quarter, we were able to update our outlook for the balance of the year, which I'll let Bert talk about.

Yes. So I think if you guys have followed us all year. You've heard us talk about the fact that our original guide for the year included an expectation for a more significant more robust upside in the second half, accelerating recovery across the balance of the year. We narrowed our range. And really, that's because we saw the opportunity for the upside for the rest of the year had really not materialized in the third quarter just based on the back of macro and market conditions. But within that, we had a lot of positive trends. And so when we take the upside of the $0.25 away and narrow the range to $7.50 to $7.75, we're still going to have a really solid fourth quarter. We raised our revenue outlook for the year just based on current trends, which we see being stable and steady, and it gave us an ability to give a little bit more positive outlook on the top line.

We're going to have continued gross margin expansion in the fourth quarter. That will moderate from where it has been through the course of the year. For most of this year, we've been getting the benefit of some acquisitions from a year ago that have now fully hit their anniversary. So we'll see the gross margin continue to expand, but at a little slower clip.

One of the most important things that I think we can point to is we're going to get some leverage within SG&A here in the fourth quarter. And this is on the back of really the tough gritty work we've been doing on our restructuring, improving our business, improving our productivity in our operations. And that's going to give us from the Q3 kind of flat year-over-year to some leverage in the fourth quarter. And we're excited about the work we're doing and the stuff we've done in that space.

And then finally, I just rounded out with we updated our interest expense outlook for the rest of the year just on the back of trends. And so that created just a little bit more pressure. And the net-net of that is another good quarter, but a little narrower range for the full year.

You just touched on it briefly there, but you guys are in year 2 of a restructuring and taking some cost actions. Can you just talk about some of the progress there and why you guys are taking these actions?

Yes. Look, I mean, when we look back 2 years ago, we really saw an outlook in which the market demand, the market environment was probably going to be a little flattish. I think that's what we've experienced. Cost inflation certainly was pressured 2 years ago. And we really stepped back and decided that in the spirit of controlling what we can control, it was time to do a little bit of a restructuring of the business to drive some efficiency and productivity. And that's been across multiple dimensions.

That's been consolidating facilities. It's being smarter about workforce, being disciplined about how we do work and maybe changing the nature of the work and upskilling folks. And really thinking about every little pocket we can find to invest and put the business on the right platform going forward, knowing that we're going to always have cost pressure. And so we have to continue to find a way to reinvent ourselves and think about the way we'll do work in the future. And the result of that was we had about a $0.20 benefit in the third quarter from the restructuring actions. We'll see $200 million of annualized run rate benefits starting in 2026.

And so we really think that the work we're doing has been important to keeping the business where it needs to be, but it's also built new muscles inside of GPC in which all of our teammates are focused on being disciplined and thinking about how to do things smarter, faster and better as we go forward. And so not only has it been important to just delivering a better result, it's also been important and instilling a way of thinking across our business that I think is in a healthy behavior as we look ahead.

I might add just a couple of thoughts. One would be this type of operating discipline is really important in this inflationary environment that we live in. The other point that I would say is as our markets recover, the cost structure improvements that we've made will be super helpful as we think about levering the business as we move forward with volume. Our Motion business is a great example. We've been very, very disciplined in a low -- extended low-growth environment around cost, and that's a business model where if you put some volume through the top line on both sides of our business, but certainly, Motion, it creates really nice leverage. So we're looking forward to when our markets cooperate a little bit more with us.

Staying on the cost side, can you just talk to trade policies and tariffs and how that's impacting you guys?

Look, I think the tariff situation has finally found a bit of stability in terms of just the day-to-day mechanics. I know there are a lot of things that are still happening in the external tariff environment. And so I would never claim to say that, that's stable or has found its footing, particularly with the Supreme Court review coming up. But in terms of how we're operating, I think we did a nice thing at the beginning of the year. We had the resources to do this. We set up a command center.

We're looking at the tariff situation globally. We've got a team in Atlanta that focuses on it every single day. And while it remains dynamic, I think what we found is that -- and as we said in our earnings call, the benefit to the top line has been low single digit, and the cost impact that we're feeling in cost of goods sold has been low single digit.

And that's because I think we've been super disciplined about how we think about passing costs through, making sure we're doing the right thing for our customers and keeping them at the center of this conversation. And the advantage we have in this space is our size and scale. And our size and scale has allowed us to partner with our suppliers to keep the cost side of it manageable and fair. And so I think when we think about like are we still competitive? Of course, we are.

And are we managing to this in the right way? I think we are. But the size and scale of our business really gives us an advantage. And I think as we looked at the rest of the year, it's part of why we were able to have some confidence in raising our sales outlook for the year and that we felt like the tariff situation has found stability in the sense of what's happening in the market day to day, putting the political and reviews and all of those things to the side, which we would never claim to predict or judge the outcome of. I do think some of that getting settled and sorted out here in the fourth quarter will be helpful for just the overall sentiment as we turn into 2026.

I do think the tariff overhang is impacting consumer and customer on some level and thinking about decisions they're making to spend or invest. And getting some of that, I think leveled out here in the fourth quarter will help as we turn into 2026.

I might just emphasize the point about scale matters in these types of situations in these markets where we can bring to bear, not just sophistication, but a level of data and analytics to our customers in particular. And I can think of numerous situations where we're sitting down with customers and being very transparent about here's your buy with us. These are the potential impacts from tariffs. These are your choices around that assortment and working very closely with them. So I think having the scale and the resources to be engaged that way with our customers in these markets will pay us back as we move forward.

So the consumer is seeing some pressure on higher interest rates, higher cost of living. Can you just touch on how you guys have been able to keep that steady demand and whether -- include with these inflationary prices, if you're seeing any concerns with the elasticity?

Yes, I think we've been pretty consistent with our themes that our business, certainly in NAPA. If you think about our independent owners really a proxy for small business. And they've been adjusting over the last couple of years to the new realities, whether it's interest rates, tariffs, et cetera. And so I would say they're sequentially improved throughout 2025 relative to 2024, largely driven just by the fact that they've come to grips with the new normal. And -- number one.

Number two, the intention in which we're working with our customers to help them be successful. There's no doubt that the average consumer is feeling stretched. The good news about our business is it's nondiscretionary. So while there might be deferred maintenance, that maintenance ultimately needs to occur. And so we like the position that we're in. We're focused on making sure our customers are being helped to the extent that they need help. And as the market gets better, we're going to be in a great position.

Okay. well, as you go down this kind of journey looking at your footprint and talk about the relationship between the -- your independent stores and company-owned? And how do you evaluate what's best for GPC and NAPA going forward?

Yes. I think the brilliance of the NAPA operating model, which celebrates 100 years. So it's had some success over a long extended period of time was that the independent owner model is very effective at covering the small town in U.S.A. rural markets. And so I think we've been very clear that the independent owner model is a really important part of our history and our future. We have been intentional about getting more targeted in specific markets where we wanted to upgrade or modernize our local store footprint, and that could include either opening new company-owned stores or in some instances, buying our independent owners in those specific markets.

We did 2 large transactions last year with our MPEC and Walker that fit our strategic road map. They were great transactions for us, and we've done a really nice job integrating that. We will have -- we will always have a mix of company-owned stores and independent owners as we move forward. The good news is if you look at the variation of performance, whether you're talking company-owned stores or independent-owned stores. is there's great entitlement on both sides of the business, meaning we've got some really attractive profitable stores, company-owned and independent owners. And our channel is how do we replicate and quartile up to get someone better performing, and that's the work that we're doing. It comes with inventory, pricing, talent work, supply chain work, all of the areas of investment that we have been putting into the business for both company-owned and independent owned stores, we think, is going to make a difference over the long term.

I just want to follow up on the elasticity question. This has been a topic that a lot of people are asking in your -- within your sector. So I guess -- so as you've raised prices as a result of tariffs, I mean, are you seeing any type of like effects, so to say, on elasticity. Then the second question, are you done -- I mean, are the tariffs now reflected in your pricing? Or will you have to continue to adjust pricing through the balance of '25 into '26?

Well, I would say on the -- let's take the latter question first. I'd say as we kind of shared in our guide here a couple of weeks ago, I don't think we're in an environment where we're going to see an acceleration from our perspective of raising prices. I think it's all kind of leveled out. We've had several months of experience with supplier requests for price increases. Those are moderating out on both sides of our business, so industrial and automotive. And I think we found that kind of low single-digit level of environment. Same on the pricing side. We think the market accepts the low single-digit and it's been pretty leveled out as well. So I wouldn't see it going any further.

And that sort of then leads into the question about elasticity. We haven't seen appreciable impact one way or the other from the receptiveness of the market to it. So I wouldn't say that they're pushing back. Nobody loves price increases. And so I think it's a market in which Will just point it out, they're break-fix markets, and we benefit from that. whether it needs to be fixed now or it will ultimately need to be fixed because you've deferred it. And so I think everybody has experienced similar market reactions to the price increases.

I mean the last time -- if we just isolate the automotive aftermarket, the last time elasticity was really tested at a very high level was [indiscernible] inflation at the end of 2022, in which the aftermarket was experiencing double-digit levels of price increase, and we didn't see any demand destruction at that point. So I think we're living in the right zone and making sure that most importantly, we take care of our customers through this cycle.

The only other thing I would add is the importance of assortment strategy and -- meaning the good, better, best. And so in markets like this, going back to the scale matters, the sophistication of the large distributor partner that's got an assortment at different price points and different value propositions is really important.

And there's no better example than the work that we've done in our European business with the NAPA brand, which was really the introduction of the proprietary brand for our business. It's helpful for our customers. And as a result, that will be a EUR 500 million business here by the end of the year from essentially 0, 3 or 4 years ago.

So the work that we're doing around category management, pricing strategy, data analytics, assortment strategy to give customers choices even though we operate in a break-fix business, I think, is also super helpful.

Yes. Just a couple of quick one-on-ones on accounting.

I'll give it to Bert then.

You have a basket of parts -- assume constant -- volume constant mix in '25, '26. What do you think, the part prices will go up? And are the gross margins being able to maintain given competitive [indiscernible]. And then obviously, the next question and then the one after that.

I'll give them all to Bert.

LIFO accounting in U.S. come on, how was the drag? How did you handle that one?

Look, so I think -- back to my comment a minute ago, I think where we found ourselves as we exited the third quarter and entered the fourth quarter from a pricing perspective. And I shared some views on this in the call as well. I think this is where we exit 2025 and enter 2026. So to your example of the basket, I would say that we're not going to see an appreciable increase.

But you got a number? Like 1%, 2%?

No, I'm not going to get out in front of [indiscernible] 2026.

Now let's go to the strategic question. The strategic question is Moses. You have a shareholder that wants you to play Moses. And can you bring us up to date on the notion of separating Motion -- not Moses, Motion. I had the wrong word.

We do have a new shareholder, and I would describe our relationship as very constructive. As you mentioned to me in the hallway, every good business is always analyzing itself. And so that statement holds for us. We have no update for everybody today on our thoughts there, but we will continue to do that work and look forward to giving everybody an update in 2026.

Just staying with Motion now that we're talking about the other part of the [indiscernible] doesn't part. Maybe talk about some of the trends that you're seeing across the verticals there and maybe some of the challenges or opportunities that are ahead to both drive top and bottom line on the industrial side of the business.

Yes. So for folks that aren't as familiar with our Motion business, so about a $8 billion or $9 billion business, it's about 50% of Genuine Parts Company's profit. And the customer in this business is the maintenance/engineer/[indiscernible] that we're break fixing work on the automotive side of the business. We're doing that same work inside of a factory. So when line 1 goes down, Motion gets called to be helpful to solve the problem.

So it's the same operating model in terms of inventory availability, making sure that you understand your customers and then timely delivery to get that factory back up and running. About 80% of that business is what I just described, what we call MRO, break fix, and about 20% of that business is more capital project like, meaning the factory is trying to figure out how to enhance or reconfigure a line, and so they're going to take the line down and then reimagine it. And we work with them from a capital standpoint.

On the capital side of the business, as you would suspect, that business has been sluggish and choppy over the last couple of years. As folks have navigated a PMI that's been under 50% for the better part of 3 years. On the MRO side of the business, I would say that is a part of our Motion business, where we've really earned an outsized portion of the market. Our last quarter was a perfect example where we're growing in excess of the market, which is the proxy that we talk a lot about internally. So 14 different end markets. If you think about the exposure that we have in Motion, meaning building products, distribution centers, et cetera. Each vertical has its own story associated with where we are in the economic cycle, which is the beauty of the diversification of the business.

But as I said in my opening comments, we posted a 5% top line in that business. It's got some same SKU inflation, very strong gross margin performance over an extended period of time and really good operating discipline. So when the market recovers, there will be very bright days ahead for the Motion business.

And just with Motion and maybe tying in NAPA, sourcing relative to supply chains, relative to tariffs. How has that changed over the course of the last 24 months or so? And what's the outlook for, first of all, your ability to pass on any incremental cost at Motion relative to your core automotive operations?

Yes, I would say -- I would put sourcing into the topic that I described with assortment planning. So we call it category management, which is the combination of your sourcing -- strategic sourcing work as well as your pricing strategies. And that has been a very intentional focus for our business over the last handful of years. And so we're really optimistic that the work that we're doing that's required in a market like this where you've got strategic partnerships with your strategic suppliers and having a very good commercial discussion about how we can compete effectively in the market, and it ties back to the point I keep making, which is scale matters. Most of our suppliers, Motion and/or Global Automotive is a very significant large customer. And so we're able to have those types of strategic discussions as the markets evolve.

Talk about rights of repair and what that means for NAPA?

I think it's a really important topic. I sit on -- I'm a Board member on the Care Board. So I'm on a monthly call on this topic. I was just in D.C. last month. So it's a critically important area of focus for the industry. I'm cautiously optimistic. It feels like we take a couple of steps forward. I think in all things, politics, you take 2 steps forward, 1 step back. But it's a fight that we've got to win. And I think we've got the right industry strength behind it, and it certainly got the focus of the industry. So it's something that we got to keep in front of us.

If we stick to the bodies of water now, if we hop over the pond to Europe, you mentioned it as sort of a watch point on your last call. Maybe just walk us through a little bit more color there, if you can, by market or price and volume, just so we can kind of understand what's going on there.

Yes. I would say, as you would suspect, the European market is choppy. Our exposure at Genuine Parts companies predominantly in Germany, the U.K. and France. We've got a business in Spain, Benelux area, but the majority of our exposure is in the big 3. The political instabilities are of consideration, social reform impact on local inflation, local wages. So it's not a new dynamic that we're operating in, but I would describe it as choppy.

The good news is we're #1 or #2 in each of the markets in which we operate. We have those scale advantages. This NAPA brand in Europe is a very significant differentiator where we can come to the help and defense of a customer who's looking for an alternative to Tier 1. So large markets attractive. We've got a very effective M&A bolt-on strategy over there, small deals that are highly accretive that allow us to dense in local markets. So we've got the long -- the right long-term strategy. We made very significant investments in our supply chain and technology over there, that I would argue not many in the market can replicate. So we feel good about what we're doing, but we're just going to weather the storm a little bit with good hard execution.

Is the storm creating opportunities for consolidation? I know you mentioned bolt-ons, but is this sort of an opportunity to do something bigger?

It's -- I don't know about something bigger, but we've been very consistent with our bolt-on M&A strategy over there through the cycle for exactly the reason you alluded to, which it does create opportunities for some of the smaller players who realize that perhaps they can't compete effectively in a choppy market. And so we've got a lot of success talking to those types of targets.

It's Michael Lasser. How would you characterize the need for investment in both segments of your business, both on the Motion side, which does seem to be gaining share as well as the auto side, which seems to be moving with the market? And how do you see that unfolding over the next couple of years?

Well, I don't know that I would make it so specific to the segments. I would maybe raise it up just a little bit. I think the biggest opportunities that we have to invest in both sides and in both segments are around supply chain and IT. And we've talked about this before. We talked about this at our Investor Day in 2022, in which we looked back and when you're in a supply chain distribution business, that's the way you differentiate. And over a long period of time, the decade leading into that Investor Day, we've seen the business invest somewhere around 1% of revenue and CapEx.

And as we talked about, we've raised that to 2%, and we've lived in that ZIP code for the last few years. And that's the right level of investment to modernize. And we think that the modernization of our supply chain on both sides has been important to keep us on our front foot and stay competitive. And we've done that at both Motion and across the Global Automotive business. A lot of this has to do with DCs and modernizing DCs. And we've talked about the ones we've done internationally, whether it's U.K. or France, you think about a new DC in Auckland. Those DCs are leaning into the best of everything.

And it's the automation. It's the ability to consolidate older DCs, get some efficiency around headcount, working capital, and so there's a lot of goodness that comes from that, and we're starting to turn our attention back to the U.S. NAPA business with some investments across that DC landscape as well. So I think how do we see it rolling forward on the supply chain side is that we're going to continue to lean into making sure that our supply chain allows us to have the right part at the right time, at the right place for our customer and rearchitecting how that looks.

On the IT side, I think it's a host of investments that are going to really push the business forward. And again, this is applicable to both sides of the house. You can start with the Poland Tech Center that we stood up 3 years ago. And that's an operation that builds technology for the entirety of GPC. It's a differentiated model, and it's built one for the use of all, and we're starting to lean into common technology stack in a DC regardless of whether it's an automotive or an industrial DC. We're also looking at store technology and modernizing store technology across the NAPA business, it's payment technology and making sure that we're easy to do business with from a payment perspective.

And then most importantly, I think the investments we've made in searching catalog are also really important to being successful. My mechanic that looks up a part wants to find it immediately and know that it's the right fitment and that we have the right assortment and we can get it to them quickly. And I think the investments that we've made in that space are also important to being successful. So I see both of those prisms being a place where we continue to lean into, and we talked about this a little bit yesterday with a smaller group that, that 2% of revenue is going to be a good proxy for how to think about where we'll invest as we look ahead. And we certainly have a lot of great opportunities. We're certainly not constrained in any way by where we need to invest or what we can invest in.

Will and Bert. I'm very excited for what you've spoken about today, some of the opportunities ahead and certainly wish you well on behalf of Gabelli Organization. Thank you again for being here for the 49th year, and we look forward to seeing here again.

We hope we're invited back. Thank you very much.

Appreciate it. Thank you.

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 other 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 pronounced in the third quarter relative to the second quarter. In 2025, we've performed in line with our expectations for the last 3 quarters and are narrowing and updating our guidance range for the remainder of the year. Bert will share additional color on the impact of tariffs and financial considerations as we push to close the year. We'll remain agile and focused on what we can control.

Turning to our results by business segment. During the third quarter, total sales for Global Industrial were $2.3 billion, an increase of approximately 5% versus the same period in the prior year, with comparable sales up approximately 4%. Sales inflation during the third quarter was approximately 3%. We're encouraged by the sequential improvement in the third quarter sales performance and believe we're performing in excess of the market growth.

During the quarter, industrial activities metrics like industrial production and PMI remained soft since the trade and tariff uncertainty started in March. We've seen PMI below 50 for the last 7 months although there's been some sequential improvement with the most recent reading slightly below 50.

Despite the market conditions, we're bullish on the outlook for Motion as their size and scale, competitive positioning and customer value proposition or differentiators. We see emerging industrial opportunities develop like onshoring as trade policies shift and our motion team is taking advantage of those opportunities as they present themselves.

Looking at the performance across our end markets, we saw growth in 7 of our 14 end markets, which is up from 5 in the second quarter with strength in iron and steel, food products and fabricated metals. We're also pleased with the traction with our data center initiative, which continues to build momentum. This growth was partially offset by softer demand in pulp and paper, lumber and wood and oil and gas.

Our core MRO and maintenance business, which accounts for approximately 80% of Motion sales was up mid-single digits during the quarter with shared strength in both our small and medium-sized and corporate account businesses. In 2025, our corporate account customer renewal rate is 98%, and we've won over 30 new contract relationships year-to-date. The remaining 20% of Motion sales, which originates for more capital-intensive projects, was up slightly during the quarter as customers continue to selectively pursue larger projects.

However, customer sentiment continues to improve, and our large dollar order backlog has increased sequentially throughout the year now up approximately 20% versus the start of the year. Switching to industrial profit. During the third quarter, segment EBITDA was approximately $285 million and 12.6% of sales representing a 30 basis point increase from the same period last year. The Motion team continues to operate with discipline as they both manage a sluggish demand environment and offset pressure from inflation in costs.

Motion's organization and cost structure is set up for the eventual rebound in industrial demand, and we would expect to see good operating leverage once the market influx. Turning to the Global Automotive segment. Sales in the third quarter increased approximately 5% with comparable sales growth up approximately 2%. During the quarter, the automotive segment saw inflation in pricing of approximately 2%. Global Automotive segment EBITDA in the third quarter was $335 million, which was 8.4% of sales, representing a 10 basis point increase from the same period last year.

The improvement year-over-year reflects stronger top line growth as well as benefits from restructuring and cost actions to offset ongoing inflationary cost pressures from wages, health care, rent and freight. Now let's turn to our automotive business performance by geography. Starting in the U.S., total sales for the third quarter were up approximately 4% with comparable sales up approximately 2%. We saw quarterly sequential improvement in sales growth from both our company-owned and independently owned stores with comps for our company-owned stores up approximately 4% and independent purchases up approximately 1%.

Our focus on operating better company-owned stores is a key priority and advancing very well. As an additional and important data point, when we look at the comparable sales performance of NAPA to the end customer, which includes our company-owned store sales as well as the sales out from the independent owned stores to the end customer. The total NAPA system delivered end customer sales growth of approximately 3%. This metric also sequentially improved from the second quarter, which was approximately 1%. We're also pleased with the sequential improvement in the buying behavior of our independent owners, but we'll remain diligent to ensure we're partnering with owners in a challenging market.

We do this with defined initiatives that help our owners manage their operations and be more successful. We believe the work we're doing to better partner with our independents is having a positive impact and this effort will remain a high priority for the team going forward. By customer type, comparable sales to our commercial customers were up low to mid-single digits while sales to our retail customers decreased low single digits.

We saw sequential improvement with Auto Care and major accounts, which were both up mid- to high single digits. Our priority is to earn more share of wallet with our auto care and major account customers, and the team is building solid momentum. Looking at our product categories, we've seen sequential improvement in both our nondiscretionary repair and maintenance and service categories, which were both up mid-single digits in the third quarter.

In these categories, which account for approximately 85% of our U.S. automotive business, we continue to see brake/fix demand fundamentals despite higher prices driven by tariffs. Discretionary categories were again flat driven by specific category initiatives in our tool and equipment offering. Customers are using discretion and looking for value, however, deferred maintenance will ultimately need to be addressed.

Additionally, we continue to strengthen our relative footprint in strategic priority markets acquiring over 85 locations from independent owners and competitors in the U.S. year-to-date. Turning to Canada. Total sales increased approximately 3% in local currency versus the same period last year, with comparable sales increasing approximately 2%. Both our automotive and heavy-duty businesses are performing well with heavy-duty outperforming in the quarter. The economic conditions in Canada have weakened through the course of the year, but our team continues to outperform the market.

We're pleased to share we've signed a definitive agreement to acquire Benson Auto Parts one of the largest independent aftermarket players in Canada, operating approximately 85 stores in Ontario and Quebec. This is an attractive strategic transaction that adds talent store footprint in priority markets and a diversified product offering to better serve our customers in Canada. We expect the transaction to close in the fourth quarter and is subject to customary closing conditions.

In Europe, total sales were flat in local currency with comparable sales down approximately 2%, consistent with what we saw in the second quarter. These results were below our expectations. The team continues to navigate a soft market that has moderated further in the second half versus our expectation. The team is managing inflationary cost pressures with a fluid political landscape.

Despite this, we believe we're performing in line with the market with strength driven by the NAPA brand and key account customer growth offset by generally cautious spending and deferred maintenance. Rounding out automotive, our team in Asia Pacific continues to post solid results and win market share. Our team delivered another quarter of double-digit growth in local currency driven by both organic initiatives and contributions from acquisitions.

Total sales increased approximately 10% with comparable sales growth of approximately 5%. Both trade and retail businesses put up strong numbers during the quarter with retail continuing a strong run of standout performance. Retail sales were up again high single digits in the quarter, and showing strength relative to the competition in all other local retail segments. Our in-flight initiatives are working well and the local team is energized to build on the strong momentum. It's also appropriate to formally comment on the recent press coverage associated with First brands.

Genuine Parts Company has a commercial relationship with First brands, predominantly across our global automotive business. Our relationship represents approximately 3% of global automotive sales. We're coordinated as a global GPC team and engaged in ongoing discussions with first brands to partner as they navigate their situation. Service levels, product availability and brand quality currently remains strong and alternate sources of products are expected to be available if needed. There was no negative impact to our third quarter performance.

Before I close, I want to briefly touch on our operational and strategic review announced in September as part of our Board evolution and in-flight strategic planning process. We continue to make good progress on the internal work and are on track to provide an update in 2026 at an Investor Day as we previously disclosed. We're turning over all stones and asking hard questions as we analyze how to differentiate in an evolving landscape. This involves an assessment of both our operational plans and our business structure.

We're excited about the value creation potential of Genuine Parts Company and looking forward to providing an update next year. In closing, as we look at our performance year-to-date, our results have been in line with our expectations despite less favorable market conditions versus our expectations to start the year. We're focused on what we can control and working to finish 2025 strong.

Our operating discipline and actions to proactively manage the business in an inflationary environment, have been appropriate and our strategic initiatives and investments are making a positive difference in our ability to better serve customers. The near and long-term fundamentals of our markets are attractive, and we're well positioned to build on our momentum. Thank you to our shareholders, customers, owners and supplier partners for your continued trust and support.

I want to reaffirm my sincere gratitude to our GPC teammates for your tireless effort and commitment to serving our customers. I'll now turn the call over to Bert.

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 70 basis points. We delivered sequential improvement in comparable sales growth at both U.S. Auto and Industrial, with industrial comparable sales growing approximately 4% year-over-year, despite PMI remaining in contractionary territory throughout the quarter.

For the quarter, our gross margin was 37.4%, an increase of 60 basis points from last year. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic sourcing and pricing initiatives. As expected, the benefit to gross margin expansion from acquisitions in the quarter was more muted as we have now cycled the 1-year anniversary of both the MTech and Walker transactions.

Turning to our costs. Our SG&A as a percentage of sales for the third quarter was 28.8%, flat versus the prior year and demonstrates continued improvement in the rate of deleverage across the business through the course of 2025. On an adjusted basis, SG&A grew year-over-year in absolute dollars by $88 million, driven by a few key factors. First, approximately $40 million in SG&A growth from acquisitions, however, our acquisitions continue to have a positive impact to net operating profit margin.

Second, approximately $45 million or 2.7% growth in core SG&A. The growth of our core SG&A continues to be primarily due to inflation-driven increases in salaries and wages and rent. The growth of our core SG&A was mitigated by a $36 million benefit in the quarter related to our restructuring and cost initiatives as they work to mitigate cost inflation.

For the quarter, total adjusted EBITDA margin was 8.4%, up 40 basis points year-over-year. Both our automotive and industrial segments expanded EBITDA margins for the quarter as sales growth, gross margin expansion and the benefits of our restructuring program more than offset core SG&A inflation.

Turning to our cash flows. For the first 9 months of 2025, we generated approximately $510 million in cash from operations and $160 million of free cash flow. Our year-to-date operating cash flow in 2025 has been impacted by a few key factors: lower year-over-year earnings of approximately $100 million, accelerated tax payments of $90 million and higher interest payments of $50 million.

The remaining year-over-year decrease is driven by working capital changes associated with the commercial activity that was occurring in the first half of 2024, in connection with inventory investments made at NAPA. This activity and the associated build of accounts payable and receipt of supplier incentives did not repeat in 2025, creating a tough year-over-year comparison.

This headwind was concentrated in the first half of the year and our cash generation accelerated in the third quarter. In 2025, we have invested approximately $350 million in CapEx as we continue to invest to modernize our supply chain and create a better customer experience with our investments in IT. Our investments in supply chain modernization with our new DCs and our international businesses, alongside enhancements to our search and catalog capabilities are driving enhanced productivity and returns.

We have also invested $182 million year-to-date in the form of strategic acquisitions, and we are excited about the continued expansion of our market-leading business in Canada with the Benson acquisition. We continue to make good progress on our long-term strategic investments to properly grow our business with discipline and a strong focus on returns from these investments.

And finally, through the first 9 months of 2025, we've returned $421 million to our shareholders through our dividend. Now turning to our outlook. As we detailed in our press release this morning, we are updating our outlook for 2025. For the full year, we expect diluted earnings per share, which includes the expenses related to our restructuring efforts to be in the range of $6.55 to $6.80 and our adjusted diluted earnings per share to be in the range of $7.50 to $7.75, narrowing our outlook from our previous range of $7.50 to $8. While we delivered third quarter results that were in line with our expectations, market conditions through the third quarter did not improve.

The narrowing of our guidance range is based on our expectation that current market conditions persist for the remainder of 2025 and remain relatively consistent with what we experienced in the third quarter. With respect to the full year, our outlook for 2025 includes the expected year-over-year headwinds from a loss of pension income as well as higher depreciation and interest expense.

Collectively, these headwinds produce approximately $1 of EPS headwind in 2025 when compared to 2024. Our outlook also assumes foreign currency rates at current levels. In addition, as we've previously communicated, our outlook for GAAP diluted earnings per share currently excludes the charge we now expect to record in the fourth quarter with the termination of our U.S. pension plan.

The onetime noncash charge that would be recognized at settlement will be equal to the accumulated actuarial losses recorded on our balance sheet, which we currently estimate to be in a range of $650 million to $750 million. There are multiple variables that impact the charge, which will be finalized on/or before December 31, 2025. As a reminder, our U.S. pension plan is overfunded and terminating the plan has been a long-term derisking strategy to further strengthen our balance sheet. We will share the final details when we report our fourth quarter earnings in February.

Let me share a few additional considerations to frame our outlook. Our updated revenue guidance assumes total GPC sales growth in the range of 3% to 4% for 2025, up from our previous outlook of 1% to 3%. We are raising our outlook given our year-to-date results and recent momentum. By business segment, we are now guiding to the following: total sales growth of approximately 4% to 5% for the Automotive segment and total sales growth of approximately 2% to 3% for the Industrial segment. These updates reflect our expectations for continued solid revenue growth in the fourth quarter.

In addition, in the fourth quarter, we expect to continue to expand gross margin. However, the rate of our margin expansion will moderate as expected as we've moved past the anniversary of our acquisitions in the U.S. NAPA business. We expect SG&A leverage in the fourth quarter, building on the improvement we've experienced sequentially through 2025, driven by our ongoing cost and restructuring actions. For 2025, we expect to incur restructuring expenses in the range of $180 million to $210 million and an expected benefit of $110 million to $135 million.

When fully annualized in 2026, we expect our 2024 and 2025 restructuring efforts and cost actions to deliver over $200 million of cost savings. We remain on track to deliver our targeted benefits. Our outlook also includes expected interest expense of approximately $160 million in 2025. Collectively, these factors lead to our expectations for continued earnings growth in the fourth quarter.

As we progress through the quarter, we will continue to watch the fluid tariff environment, customer sentiment, industrial demand activity and overall market conditions, particularly in Europe. Lastly, we expect to generate cash from operations in a range of $1.1 billion to $1.3 billion and free cash flow of $700 million to $900 million, with the narrowing of our outlook range around earnings, we would anticipate being at the lower end of these ranges.

In closing, the external environment remains dynamic, marked by a fluid tariff landscape, heightened cost inflation, stagnant market conditions and a cautious customer. As we look to finish 2025 strong, our focus remains on operating with agility and discipline while consistently delivering excellent service to our customers around the world. We remain confident in the supportive underlying fundamentals of our businesses and the strategic investments supporting our long-term growth.

Thank you, and we will now turn it back to the operator for your questions.

[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?

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 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 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 Navin 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 Crackle 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 now, and then I'll give you a little bit more color on it. Look, we see the first brand 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 I 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 industry 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 to 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 Scott Ciccarelli with Tourist 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, Scott, I wouldn't say they're working down their inventories. I think there -- 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.

I think I would just add to that, Scott, 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 Scott, 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 is 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, you 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 chart the ...

I said it 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, 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 one 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 assumed for the rest of the year on the tariff front with respect to revenue. I think the watch point on the top line is the European market conditions, which we'll continue to watch closely. And so that's really kind of how we're thinking about the revenue.

When we think about gross margin expansion to Greg's earlier question, it will moderate in the fourth quarter from the third quarter. We're lapping the benefit of those acquisitions. And the reality is we're experiencing some higher cost of goods sold from the tariffs, which I mentioned earlier. And so we'll be working through that through the fourth quarter as well. On SG&A, while we're still feeling cost inflation, we've done some great work on our cost structure over the last 2 years, and we're going to continue to lean into that.

And we have an expectation for some leverage in the fourth quarter from all the hard work we've done. When you take the net sum of that, we will see earnings growth in the fourth quarter as we balance the solid revenue growth I just talked about, moderated gross margin some SG&A leverage and all of that momentum we've had here in the third quarter. But we did give you a little bit more interest expense in Q4, and that's just based on the trending out of the year.

So with that, the net sum of it all puts us in the EPS range that we shared with you today. And if I really kind of think about where that upside was coming from, it was on the expectation earlier in the year of a more robust trading environment.

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, 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 Luke 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 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.

RECONNECT

Hi, everybody. It's my pleasure to introduce Genuine Parts Company. Today, we have with us Will Stengel, President and Chief Executive Officer; and we have Bert Nappier, who's been Executive Vice President and Chief Financial Officer since May 2022. Thank you so much for joining us today.

Thanks for having us.

Nice to have you here.

Its great to be here.

Before we get into our discussion, you did put out a press release this morning announcing Board refreshment and a cooperative relationship with Elliott Management as one of your largest investors. Wanted to maybe start the conversation with that.

Yes. We did issue a press release this morning. There were really 3 elements of the release and in no particular order, maybe I'll give a little bit of context.

So first and foremost, the Board refreshment activity. Actually, if you study Genuine Parts Company over the last 3 or 4 years, we've been very intentional about evolving our Board. About 3 years ago, we had a very detailed succession planning, skills matrix exercise that the board engaged on. And we had 4 directors becoming retirement eligible in April of this year. And so while we had some news today, it's really been a long-standing effort of the Board to add capabilities and evolve as our directors retired.

So we're announcing today, John Holder and Robin Loudermilk, are retiring. They've been great stewards of the company, great contributors to the business, 15 years of service each. And so we thank them for their contributions to the business. We're also announcing Matt Carey and Court Carruthers, who are great professionals that if you think about our skills matrix exercise that we did 3 or 4 years ago, they fit really nicely into that. Court brings a great perspective on all things, industrial distribution amongst other things.

Matt Carey, a world-class CIO from Home Depot, Walmart, eBay, been in transformational things technology. So he brings a great perspective and most importantly, they're great culture fits in the Board. So from a Board refreshment perspective, that was our news. We also announced our contemplation and plan to have an Investor Day in 2026. Also, if you kind of take a step back and think about that news, it makes a bunch of sense about 3 years ago, March of 2023, we did our first ever Investor Day at Genuine Parts Company and we laid out a 3-year vision.

And so logically, as we come into 2026, it will be a great opportunity for us to share our perspective of the business. I would tell you there's a lot of ongoing ordinary course activity as it relates to operating reviews, strategic reviews this year, we actually changed our internal processes. We do annual planning every year, strategic planning every year and pulled forward a big body of work early in the year associated with thinking about really how good can this business be?

So what is the entitlement for each one of our businesses around the world? And what does it mean from an investment capital standpoint? What does it mean from a return on investment? And then also, how do all those pieces fit together strategically as a -- from a business mix perspective. So -- that work has been ongoing. We're deep in it. We would expect to be continuing to do that work as we proceed through the balance of the year and then share our findings and our perspectives next year at an Investor Day.

And then lastly, of course, we've got news associated with Elliot. Elliot has been a great partner over the last 4 to 6 months. We've been in constant discussion. And we're very much aligned. I think they appreciate the in-flight work. I think they appreciate the traction and the progress that we've made as a business over the last 2 to 3 years. I think they support the investments that we're putting into the business, but they have the same questions that we do, which is how good can this business be? And I think we both are fully aligned that we think it can be even better than it is today and there's a lot of value to unlock.

So we're doing that work. It's been cooperative. It's been constructive, highly professional, and we really appreciate their support.

Great. We'll get to, I think, some of the bigger longer-term picture questions in a little bit. But one topic that we keep getting asked quite a bit about when it comes to your business, but most of the companies that we cover is tariffs. And so we thought we could start there.

Auto part retail traditionally has very strong pricing power. And I think for a while, the thought was, well, tariffs will come and you guys will just pass it through. But it does seem like there may be industry-wide is a little bit more tentativeness about how much you can pass through, whether it be because of how much inflation there's been, just how much inflation there could be. How are you viewing the elasticity response to anything that might happen with prices?

Yes. I think it's a great question. It's a common question, which is how do you make sense of all things tariffs, maybe some of the facts for the business.

So about $15 billion in purchases globally for Genuine Parts Company. A simple way to think about it is if you think about our tariff exposed purchases from China, as an example. So U.S., China, it's about 7% of total $15 billion. So in the aggregate, for total company, obviously, something that is important for us to figure out, but not a material issue for us.

That's just China. Obviously, the world has evolved. So other than China, there are tariff considerations and that's where I think a lot of the complexity has come. I do think we're in a different moment than perhaps 2 or 3 years ago where we had a lot of ability with same SKU inflation with a rebounding customer coming out of pandemic. And I think the global economy is just in a different place. And so part of the calculus is, first of all, understanding the ever-changing fact associated with tariff, yes, no and how much? And then also, how do we make sure that we do right by our customers.

We operate in a rational pricing industry on both sides of our business. And to your point, we operate in a break-fix business where it's all about the service and the solution that you deliver to your customer and then you get into a discussion around price. So I think those 2 elements maybe make us a little bit different, but it's complicated. And we've commented on our earnings call, we have a global command center set up and they're meeting 3 or 4 times a week. And literally, it's -- does this tariff still apply, which SKUs does it apply to? Who's calling the vendor?

So it's created in significant administrative effort. And I couldn't be prouder of the team. I mean this is one of those situations where the global scale of Genuine Parts Company really matters. These long-standing relationships with suppliers. I was with some suppliers at an off-site and we spend a lot of time talking about how the world was going to unfold. And at the end of the day, it comes down to being able to communicate effectively with strategic partners because they're as confused as anybody, including us.

So I think it's effective communication, having the right team on the field with the right hustle, the tools in place to navigate it and then never losing sight of making sure that we're taking care of our customers and delivering great service so that we can help them be successful.

And you do operate in kind of a slower turn inventory business. Have you started to see some of those costs start to flow through? Have you had to take some price? And ultimately, how much price do you think you'll have to pass through?

Yes. Look, I think on that point, we talked about this in our earnings release. The price that we felt so far that we shared in the call, and it continues to be the case, lives in that low single-digit range. And so when we think about Will's point about how are we being fair and really making sure we take care of customer, we've mirrored that on the top line.

So we're talking about a low single digit in the aggregate for all the GPC cost increase, and then we're assuming a low single-digit price increase for the balance of 2025. So I think they're both pretty evenly balanced. As Will said, the dynamic remains shifting and uncertain, and we keep having different movements and different patterns, whether it's steel derivative tariff or the Trump administration challenge to the ruling and now there's a potential Supreme Court review, those give the command center more data to work with almost every single day.

So where can it go from here? Look, I mean, I think if you look at the fourth quarter of 2022, when the same SKU inflation in the aftermarket was pushing on double digits. That's the last time elasticity was tested at that level. And that right now seems to be the high watermark. But as Will pointed out, that was with a different consumer who had a lot more stimulus money coming out of the pandemic. Can we go that high this time? I don't know. I think we'll have to wait to see what the landscape brings from a GPC perspective, we're going to continue to stay focused on the customer and making sure we do the right thing by them. And if we're getting an increase, we're trying to manage it and make sure that we get a little bit of price, too and look to the rest of the year, as we've said that this could be a slight net benefit for us as we think about the totality of the tariff equation.

So maybe we can move on to the U.S. Automotive business. Could you talk maybe about some of the trends that you're seeing? What's driving the stronger commercial business? What's maybe pressuring the retail business and how you think about demand overall?

Yes. I would start with just a recognition of the U.S. Automotive team. I mean there is a lot of really, really good work happening at U.S. Automotive. Its been a multiyear effort, and we're starting to see some of the early signs of those efforts paying us back.

One in particular is associated with our kind of independent owner and store -- company-owned store operations. And I think on the independent owner to your point earlier about just how is small business and the consumer feeling it's a tough market out there. I mean if it's a tough market for a global organization, it's really tough market for a small business owner. And so we continue to make really nice progress with working with them to help them be successful, whether it's inventory, whether it's running better stores, whether it's acquiring new stores, whether it's pricing strategies.

So we've been very intentional working with that stakeholder group at U.S. Automotive to help them navigate this really tough market and that will be a journey that we continue to stay on. The independent owners is a really important part of our U.S. Automotive go-to-market strategy. Great relationships. They're great operators. They bring very real kind of competitive intensity to local rural markets. So we're going to continue to lean in to make sure that those folks are successful.

On the company-owned store side, we've done a lot of work there up to and including, as an example, realigning our teams, our executive leadership team so that we have dedicated focus on running better stores. And we're starting to see really nice progress there. So as it relates to just kind of U.S. Automotive, I think the environment is choppy, the market is sluggish and it's all about delivering great service to customers that ultimately wins relative to others.

Within your commercial business, I think the Auto Care and major accounts customer segments have been stronger in recent quarters. I know, again, there's been a lot of work being done. Could you maybe talk about some of the bigger drivers of strength there?

Yes. So the NAPA strength is obviously do it for me. So about 80% of the businesses do it for me, major accounts and our Auto Care repair technicians are kind of the core areas of focus there. And I think that strength is a function, as I just said, of very intentional actions around making sure that we've got the right service levels for those customers making sure that we're able to be an easy partner for major accounts around the country. And those sound like simple thoughts, but there's a lot of work required to mobilize the field around those 2 channels. And as I said, we're seeing some nice success. And we'll continue to stay focused on it.

And another area of success or at least improvement has been in the discretionary part of your business. I think it's been a long time that we've heard really any kind of green shoots in discretionary and auto part retail in general. But last quarter, discretionary was flat for you guys. And you attributed some of it to the changes you're making in tools and equipment. Could you talk a little bit more about that?

Yes. It's a great data point. It kind of is consistent with this idea of self-help. So that discretionary part of the market has been choppy at best over the last couple of years. And for us and for our business, we made a strategic choice to really lean into these tools and equipment, hand tools and service tools, in particular, specifically for our core customer, which is the repair technician and so we've done a lot of work over the last couple of years to roll out this new product to attack a pretty big market where we've got a leadership position but see a lot of white space, and so that's been a driver of kind of helping yourself in a market that's not helping you as it relates to this discretionary category. I'm not sure I'm ready to say that discretionary is back, but I am proud to say that the work that we're doing to offset a choppy market is having the positive effect.

And I would just add, Kate, that on that point, there is a big opportunity with that core customer the mechanic over their lifetime will spend $100,000 of investment in tools for their trade. And the other thing about our Carlisle tool rollout is that it's a global rollout. And so all of our automotive businesses around the globe benefit from this particular offering versus it being a NAPA specific offering in the U.S.

So it's a nice opportunity for us to leverage size and scale in the global automotive footprint and take advantage of that and roll it out globally.

The other work that you've been doing, you have mentioned when you're speaking about the independents that for traditional small business, the environment has been tough. And now it's been about a year since you acquired 2 of the largest independent platforms. I know the rest of the independent owner base is much more fragmented. So how should we think about the pace of the independent acquisitions going forward? And is there a longer-term mix the company is targeting?

Yes. Look, I'll start with the longer-term mix, and we've been saying this for some time. We're thinking about a high watermark of 50-50 when Will and I got here a few years ago, it was more 25-75, and we've made some material movement in that over the last few years getting to a 35-65 mix at this point.

The 50-50 is the high watermark, though, it's not meant to be that we're just marching to that number. The pivot that we've made is really about commercial strategy. It's not really through the prism of there's a line of independence waiting to be acquired, and we're just moving through the line. We really thought about -- and we do this a lot, and you guys have seen in all the transformation we've done over the last few years, asking ourselves tough questions and then taking very positive steps to move the business forward, and this is another one. And this is how we thought about 2023 and some of the challenges that we experienced in the business. And it was asking the really hard question of a 100-year-old business, does this model really continue to work? And the answer to that is yes. Categorically, yes. Our independent owners are great business folks. They're great partners to NAPA, and they will continue to be. But in certain markets in the U.S., we feel like it's in our best interest, and we're better advantaged and positioned to be in full commercial control of the transaction.

So the way we think about this transition is market by market, not so much person by person. And as we go to be stronger in those markets. If we ended up at 42 and not 50, but we satisfied our commercial objectives, then that would be the endpoint. And so -- and rolling out and pivoting to this new strategy as we did last year, it just became really nice that the first 2 things that happened in the conversation was that our 2 largest independent owners had a desire to make some transitions. And that obviously created a big capital allocation last year relative to how the go-forward works from here the independent owner that's available for us to acquire.

And remember, it's got to be a willing buyer and a willing seller and it's got to meet our commercial criteria is much smaller. And so that's why you've seen the pace of capital allocation in 2025 pull back. We've targeted about $300 million in M&A for the year. That's more of a bolt-on mentality versus taking advantage of a big strategic opportunity. And so we'll see that pace, I think, stay here in 2025 and it should stay from a NAPA perspective with respect to the acquisition of independent owners in a pretty steady state moving forward just given the relative size of what's left to acquire.

The Walker and MPEC acquisitions have gone really, really well. We're on track. The integrations have gone well. We have dedicated teams focused on the integration of the 2 businesses. They have different needs, so they have different integration playbooks. But most importantly, it gave us 180 stores in the MPEC acquisition, 85 stores in the Walker acquisition. Great strongholds across the Midwest and the Eastern part of the U.S. and great footprint of stores with great opportunities for both market penetration and continued financial performance.

So we're excited about what we're doing on that front and excited about where those opportunities lead us and the continued transformation of the NAPA business as we look ahead.

If we can move over to European automotive. The European business has been under a little bit of pressure although we had our European equity strategist sitting with us yesterday, and she sounds a little bit more bullish on what Europe could look like in the next year or so. Could you maybe talk about some of the headwinds you're facing there? What countries have been experiencing this pressure? And Again, it seems more macro related than anything else. So how are you trying to offset these headwinds.

Our European business is doing a really nice job. It's the same theme, which is we're controlling what we can control and making the business better. It is a tough market. I think it's just the underlying market a lot of the same thematics from the U.S., uncertain geopolitical, et cetera. So I think the backdrop is challenged.

I'm hopeful that it continues to improve. I think the business is winning relative to the market and others. And a large portion of that is driven by this very unique positioning we have associated with the NAPA brand over in Europe, which really was the first of its kind as the proprietary brand choice for the European market, which was historically a Tier 1 market. And so in challenging times, to have a value choice relative to others, I think, is a differentiator.

So we're leaning into that. It's about 15% of revenue. today, as part of our strategic planning, we're going to challenge the team to understand how big that can be. It's obviously attractive margin mix lever for us over in Europe. And we're really focused on the same themes around the world, which is making sure supply chain service is excellent. We've made some big investments in France, in the U.K., in Spain, in Germany.

So the European team has been the benefactor of some capital that we fully expect to start to ramp up and deliver returns as we move forward. But -- they're doing a really nice job. It's a tough market. We're in roughly less than 10 countries: France, Germany, U.K. are kind of our big 3. We entered the Spanish market a few years ago and have done really good work there to dramatically change the profitability of the business, and we're now the largest player in Spain and Portugal. So really good body of work and just navigating a tough market.

Yes. And the dynamic of the European customer adopting a private brand -- you mentioned it was a nice value option for them. But why do you think it took so much time for a private brand to work? And what do you think is unique about NAPA?

Well, I think it takes really strong leadership from our leader over there in Europe to manage all the different geographies and get people aligned and get situated with vendors. I mean it's a big program.

So Five years ago, it was zero. This year, we'll do over EUR 0.5 billion of revenue from branded products. So it took a little bit of time to get it right. and then you're seeing really nice adoption. And each country has their own cadence and opportunity to accelerate. And so it's filling in the filter program that's not fully rolled out in Germany, but it's in the U.K. So the playbooks there now, and now we're just going to lean into it.

And Kate, I would just add to that, like the headwind to start was the fact that the European landscape really has a mentality of leaning into the OEM.

Right.

And I think this is where we were so uniquely positioned because we have the NAPA brand and what it stands for, that it allowed us, and we might have been the only one to be able to penetrate that market the way we have -- behind everything Will talked about with the leadership team to take that private label and the NAPA brand that stands for 100 years -- 100 years this May of quality and expertise. And the way that the brand was built in the U.S. and then take that to Europe. I think that gave us a unique advantage vis-a-vis anything else that might have happened and allowed us to take a bit of a risk when you had a mentality from a European consumer perspective, I'm very loyal to the OEM and introduce this and then have the success we've had. I think it just speaks to a combination of different factors that really leans back into all the transformation work we've been doing over the last few years.

And just one thing I'm curious about, and then we can move on to industrial. I know there's been a lot of success in introducing good, better, best when it comes to private label. Is that something that you're doing in Europe as well that's to come?

Yes. I mean, in essence, the NAPA brand is the good, better. So the best would be the Tier 1 OE and then the NAPA is across the line logic probably fills in from there depending on the product category.

Moving on to industrial. We wanted to first ask about the MRO maintenance part of the industrial business, the majority of your sales that at 80%, and you've been very stable in that business. Can you talk about your offering there, the value that motion provides and maybe some feedback about what you are hearing from customers in this more tentative choppy environment?

Yes. So just as a reminder for everybody, so the customer of motion is the factory floor repair, maintenance, procurement expert, who's trying to keep that factory up and running. And so if you go back to where we started, I mean, this is a break-fix business model where the cost of having the bottling plant line #1 down is a lot more meaningful than the $50 widget that we've got available to them immediately to fix the problem and the expertise to understand that it takes the $50 widget.

So it's a great business model. We're hearing the same on whether it's capital planning decisions on the factory floor? Or hey, I've got a budget of $100 and maybe I don't spend all of the budget of this month because I'm waiting to see. I mean those are just kind of the natural discussions that you would expect people to have with us in these times. Having said that, I was recently in the field with some Motion customers. And the most compelling data point I can share with you is our Motion employee, of which there's 30 Motion associates in the plant working every day.

Our Motion employee led the tour of the plant with 2 of our customers' employees there for the executive team that was coming through. So while we're having those back and forth discussions about, geez, it seems like a choppy market. I mean those are happening literally every minute because we're in with these customers. We understand the factories better than they do or as well as they do, and we're the solution partner in a time of need. And so while the market obviously has been disappointing, PMI came out sequentially improved, but below 50. I think this is just a timing thing. And if you actually study the data in the recovery cycles above 50 for PMI, it creates a very attractive 2 or 3-year run where you're an expansion period and this Motion business is just absolutely poised to perform really, really well. They're doing a great job already, but with a little market help, brighter days ahead for sure.

Great. I wanted to be sure to ask a couple of questions around the balance sheet. The company ended Q2 with a leverage of around 2.5x, which is at the higher end of your 2x to 2.5x range. How comfortable are you with that current leverage? And should we expect to see a focus on deleveraging in the near term?

Well, we're comfortable because we like the range of 2x to 2.5x. We're floating in a little higher end of the range right now. And that's really why you saw it as we started this year, talk about pulling back on share repurchases. So we've made some choices around capital allocation to pull back there and focus on taking some debt off the balance sheet as we move through the year. And so that remains our focus for 2025.

We'd like to end the year with a net reduction in debt, which will help on the leverage side. And look, we've got earnings growth expected in the second half of 2025, which obviously helps to some extent, too. So I love the ability that we have to turn dials to meet the needs of the business. The balance sheet gives us that flexibility. We can pivot to pursue an M&A opportunity if needed. And in this particular moment, we think the best thing for us to do is continue to support the dividend due to CapEx we've talked about, the bolt-on M&A we've talked about and then this particular 2025 season of focus to take some debt down.

We are asking 5 questions of every company that sits with us on stage. So we wanted to go through those quickly. We've touched on some of them already, but your expectations for the environment in the second half of '25 versus the first half of '25, do you expect things to be the same, better or worse?

I think when we -- earlier this year, we had expected kind of a more material ramp second half. Our latest earnings call, we moderated that based on the world around us. So relative to original expectations, it's moderated. But I would say that we're cautiously hopeful is my favorite phrase, that it gets sequentially better in the second half. And some of the conversations with customers and people want to do the work, they just want clarity and I'm encouraged that we'll have more clarity second half than we did first half.

And then fully acknowledging you haven't given guidance for '26. Do you have a view on the health of the consumer into '26 versus maybe what we saw in '25?

Cautiously hope. I'll add a little bit to that. I'll build on the point around clarity. I think everybody would like to have some clarity and clarity doesn't mean that tariffs go away or this or that. It just means that we finally get ourselves into a position where everybody understands the rules of the road and look, the setup was really nice going into 2025.

You got to the end of 2024. We had an election. It cleared out some of the uncertainty. Everybody knew who the President was going to be in general policy and all of that. And I'll just use our Motion industrial business as an example, as we started 2025, PMI climbed above 50. It sat there in February. And then a whole new set of facts came forward in March and April with tariffs and the actions on trade and then that pulled the sentiment back down. If we could go through this season through the second half of '25 and in particular here, September through the end of the year. And we had some clarity on interest rates we get cuts, we don't.

We're not guessing and assuming what might happen this month or December or any period in between. And the same thing with tariffs. So if we assume that we get some clarity around China, no more delays. We know the framework. We get past whatever legal challenges are going to be or not be over the next month, all of that starts to lock into place. I think you could see a case that sets up just like we set up for 2025, coming out of 2024.

We get that cleared out and maybe things from a sentiment and consumer perspective start to change, and we see that momentum kicker we've been looking for. And that's a really kind of nice setup for GPC given all the work we've done and the investment we've made in the business and the transformation actions we've taken, the cost we've taken out of the business, if we could get a little bit better backdrop, I think the '26 profile would look different.

I was going to make the same point, which is -- this is -- these have been moments over the last 5 years where the best thing you can do as a business is help yourself and run at pace, invest thoughtfully for the medium and long term and make the business better and when the market comes, it will come. And we -- because of the hard work that we've done in the interim will be a beneficiary from market growth.

So that's what we're going to focus on. And I think this team at Genuine Parts Company over the recent past has developed a lot of capability and muscles around navigating ambiguous macro environments. And I'm really proud of the work that we're doing, and I know that '26 will be a good year for us.

A couple of other questions we had, inventory. What are your expectations for inventory growth into the second half?

Look, I mean it's the most important thing for our business, the investment inventory that we make because it's inventory availability, both for the automotive and the industrial side. It's that break fix that happens and when the call comes, you have to have the part. We've made significant investment in inventory over the last 18 months, getting NAPA really strong and on its front foot and being even more solidly footed on the motion side, while at the same time being smart.

So we're using data and analytics and AI to tell us how to change business rules around replenishment. So we're getting deeper in the fast moving and taking data to allow us to maybe slow down a replenishment on something we now know is not going to sell again for 13 months and pay in the old world with GPC, we would have had buy it or sell it by it next day. And so I think that is a capability we've built that's allowing us to be much smarter and stay right on top of the inventory point because it's the thing that drives the sales in the business.

What is your expectation for some of the nontariff margin drivers like freight, wages and materials into '26, do you see them being same, better or worse?

Yes. Look, I don't want to give '26 guide just yet. But on freight, wages and rent, those are our big 3 expenses outside of anything else we might have to consider from a cost of goods sold perspective. Look, it's a little early to tell. I think some of the comments I made just a minute ago could help moderate some of the increases we've seen in those.

So if we got some of that resolved here in the back half of '25, we could come down off of the kind of the 3, 3.5 range that some of those have been sitting in for us and what we've experienced in 2025. But we'll just have to wait and see. But it's our key focus for sure what's going to happen on wages, what are we feeling on freight and what are feeling on rent. Rent is a little tougher one because all of us are going through a cycle of renewals that are happening post-COVID when we were probably more advantaged than the landlord and now that dynamic flipping around a little bit. And it's understood and planned for, but they're also feeling a different cost profile in the post-COVID environment.

Wages and freight tend to be a function of the market. And so if we look at the market, we can sort of see the markers for where those might end up and the expectation on that side.

And then our last question is just about the competitive landscape and consolidation. Do you think market share consolidation in your industry will speed up, slow down or be the same in '26?

I think it will speed up, honestly. Our philosophy is in tough markets, large serial acquirers usually benefit and I think on all of our businesses, we're kind of an acquirer of choice. And so we're obviously here to do M&A thoughtful, smart M&A and interest rates down and I think that's conducive as well. So we're going to stay really disciplined on it, but I think it creates a really nice opportunity for us.

Okay. Thank you for joining us. Appreciate it.

Thanks, Kate.