GENUINE PARTS CO Q1 FY2025 earnings call

Key Managerial Messages

• Began by thanking over 63,000 teammates for their dedication and commitment. Noted that the company had a solid quarter but was operating in a dynamic external environment with factors like tariffs, trade, geopolitics, inflation, and interest rates impacting. Focused on providing excellent customer service and executing on strategic initiatives.
• Highlighted the NAPA National Ownership Workshop event celebrating NAPA’s 100-year anniversary, where details of in-flight work on talent, culture, sales effectiveness, operational excellence, and technology initiatives were shared. Mentioned the modernized e-commerce platform NAPA ProLink, built in partnership with Google, which had positive customer feedback.
• Discussed first quarter performance: total GPC sales were $5.9 billion, up 1.4% versus the prior year; gross margin expanded by 120 basis points versus the same period last year; and progress on productivity initiatives to manage and optimize expenses

Global Industrial Segment:

• Total sales in the first quarter were $2.2 billion, approximately flat compared to the prior year, with comparable sales decreasing by less than 1%. The one less selling day negatively impacted global industrial sales by 150 basis points. Nine out of 14 end markets saw sequential improvement from the fourth quarter. Segment EBITDA was approximately $279 million, which was 12.7% of sales, representing a 10 basis point increase from the same period last year.

Global Automotive Segment:

• Sales in the first quarter increased by 2.5%, with comparable sales decreasing by 0.8% in line with expectations. The one less selling day negatively impacted sales and comparable sales growth by an estimated 90 basis points. Global Automotive segment EBITDA in the first quarter was $285 million, which was 7.8% of sales, a 110 basis point decrease from the same period last year.
• U.S.: Total sales were up approximately 4%, while comparable sales declined approximately 3%. The one less selling day negatively impacted sales and comparable sales growth by approximately 160 basis points. Company-owned stores comparable sales were up low-single-digits, while independent purchases were down low-single-digits. Sales to commercial customers were up low-single-digits, and sales to retail customers decreased mid-single-digits.
• Canada: Total sales increased approximately 5% in local currency, with comparable sales increasing approximately 4%.
• Europe: Total sales increased approximately 3% in local currency, with comparable sales essentially flat. The team continued to expand the NAPA brand and win key accounts.
• Asia Pac: Total sales increased approximately 12% in local currency, with comparable sales growth of approximately 3%, driven by organic initiatives and contributions from recent acquisitions

Forward-Looking Guidance

• Reaffirmed the 2025 outlook: diluted earnings per share (EPS) is expected to be in the range of $6.95 to $7.45, and adjusted diluted EPS is expected to be in the range of $7.75 to $8.25. This outlook excludes the one-time non-cash charge expected from the U.S. pension plan termination.
• Total sales growth for 2025 is expected to be in the range of 2% to 4%. The outlook assumes market growth will be roughly flat, with a benefit from inflation of approximately 1%, a benefit from M&A carryover, and about a point of growth from strategic initiatives, partially offset by one less selling day in the first quarter and a point of headwind from foreign exchange.
• Gross margin is expected to expand by 40 to 60 basis points full-year, driven by strategic sourcing and pricing initiatives and benefits from independent store acquisitions in the U.S. Automotive. SG&A is expected to de-leverage between 20 and 40 basis points.
• Automotive segment: Total sales growth is expected to be 2% to 4%, with comparable sales growth in the flat to up 2% range, and EBITDA margin flat to up 10 basis points. Industrial segment: Total sales growth is expected to be 2% to 4%, with comparable sales growth in the 1% to 3% range, and EBITDA margin expected to expand by approximately 20 to 40 basis points year-over-year

Risks

• Tariffs, trade, and geopolitics are impacting the operating landscape, which could affect revenue, product costs, supply chains, and SG&A costs. Uncertainty around the U.S. administration's tariff policies adds to the risk.
• Soft market conditions persisting could impact profitability and growth despite the company's strategic initiatives

Q: Did you talk a little bit about what you saw for inflation in the first quarter in both motion and the automotive business?

A: Yes, inflation came in line with expectations, a little less than a point across both businesses. On the top line, there was a little benefit, but more impact was felt on SG&A costs, particularly in salaries and wages and a bit in rent.

Q: A question on Europe automotive. Extra day you would have been you were comping up a bit but you described the market as soft. Are you seeing share gain over there? Is this you know leverage of the private label program?

A: We're pleased with performance in Europe. Seeing nice outside growth in NAPA branded products. Share is in line with the market to slightly better. Doing work on cost structure in Europe to harmonize and optimize geographies.

Q: Hi, thanks. Good morning, guys. I wanted to follow-up on just level set us on where we are with the North American auto, you bought in more independence. I know you have a strategy to get to, I guess, half, just sort of where are we on that?

A: We continued momentum with adding store count, including 40-45 stores through the quarter. Last year was a big effort with acquisitions of MPEC and Walker. Independent owner model is important, and we'll continue the strategy.

Q: Good morning. Thank you so much for taking my question. Understanding that there's a lot of uncertainty in the tariff situation. But if you put aside both the potential top line impact, as well as your mitigation efforts, you simply size the cost impact to your cost of goods?

A: It's a tough question. The application of a tariff to a single good is complex. We've been studying this, and one particular SKU had nine possible tariff permutations, with a net result of about 30%. The complexity of applying tariffs to tens of thousands of SKUs makes forecasting difficult.

Q: Hey, good morning guys. Thanks for taking the questions. I fully appreciate the uncertainty. I guess, just to beat a dead horse on pricing and tariffs I understand there's the pause, there's the major tariffs that are we're all kind of sitting, you know waiting about, but we've seen tariffs go into effect. We've seen price increase announcements from multiple vendors to deal with the earlier March tariffs.

A: In every year, we have ongoing discussions with suppliers about price changes. The impact in the first quarter was immaterial. We're actively working on managing gross margin rate, gross profit dollars, and same SKU inflation, but waiting for more news to unfold.

Q: Great, Thanks for taking my questions. Just to -- sorry to ask another tariff question, but if you could remind us how much of your automotive business is outside of the U.S. and if you would find that relatively immune to the kind of tariff volatility that we're talking about today?

A: APAC automotive business is about 10%, Europe's about 15%. These offshore businesses are not directly impacted by the U.S. tariff situation. They are well positioned with diversified supplier bases and strong performance.