GENUINE PARTS CO Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Expressed gratitude to over 63,000 teammates; 81% were highly engaged in the latest survey.
• 2024 financial highlights: Total sales $23.5 billion (+1.7% vs 2023), adjusted gross margin up 70 basis points, operating cash flow $1.3 billion, $45M cost savings in 2024, returned ~$700M to shareholders.
• Investments in talent, technology, and data; 100+ acquisitions in 2024.
• Global Industrial: Core MRO flat, corporate accounts grew, 4 out of 14 end markets grew; Motion expanded inventory by 60,000 SKUs, improved inventory efficiency.
• Global Automotive: Sales up 4%, EBITDA margin down; invested in supply chain, launched new tool offering, MPEC and Walker integrations ongoing; NAPA in Europe grew NAPA branded sales 16% to €500M.

Segment Performance

• Global Industrial: In 2024, total sales were $8.7 billion, a decrease of 1.4% compared to 2023 with comparable sales down 2%. Core MRO and maintenance (80% of sales) was essentially flat, corporate account customers (45% of sales) had low single-digit growth. 20% of sales from capital-intensive projects was down mid- to high single digits.
• Global Automotive: 2024 total sales were $14.8 billion, an increase of approximately 4% compared to 2023. Global Automotive segment EBITDA was $1.3 billion, 8.7% of sales, a decrease of 70 basis points versus 2023.

Guidance

• 2025 diluted EPS expected $6.95-$7.45, adjusted diluted EPS $7.75-$8.25.
• Total sales growth 2%-4% for 2025; automotive segment comparable sales flat to up 2%, EBITDA margin flat to up 10 bps; industrial segment total sales growth 2%-4%, EBITDA margin up 20-40 bps.
• Expect cash flow from operations $1.2B-$1.4B, free cash flow $800M-$1B; CapEx $400M-$450M; M&A deployment $300M-$350M.
• Restructuring efforts to incur $150M-$180M in 2025 with $100M-$125M benefit, aiming for $200M annualized savings by 2026.

Risks

• Macro conditions: High interest rates, persistent cost inflation, foreign currency fluctuations.
• Tariff uncertainties: Impact on supply chain and profitability, though prepared with diversified supply chain.
• Market conditions: Weak industrial and European markets affecting segments.

Question and Answer

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

A: Some are quick wins, some longer efforts. Proud of progress, working with independent owners, making good progress on company-owned stores, and feel good about the team. Each month getting better, looking forward to continuing progress.

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

A: Weak environment persists through first half, expecting second half to improve. Fourth quarter started with hurricane disruption, then better weather in December, but weather was a push when considering both factors.

Q: One of the key debates on the Genuine Parts investment case, is this idea of market share, and why has the company's North American business, not only in the automotive business, but also seemingly on the industrial side, been losing market share? Is it service, is it availability, or some other factors?

A: Canadian operations perform well. Disagree on losing market share; investing in inventory, supply chain, talent. MPEC and Walker acquisitions, supply chain technology investments. Earning fair share by taking care of customers and enjoying improving fundamentals.

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

A: DCs performing well; changes in operations teams to centralize functions, enabling consistent processes. Metrics standardized across network, no major fill rate issues, just leveling up across the network.