Genuine Parts Company 2026 Q3 Earnings Call

Please go ahead, sir. Thank you, and good morning, everyone.

Welcome to Genuine Parts Company's third quarter 2026 earnings call. Joining us on the call today are Will Stengel, Chairman and Chief Executive Officer, Court Carruthers, Chief Executive Officer-elect, and Bert Nappier, Executive Vice President and Chief Financial and Operating 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 20, 2026. If we are 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 will turn it over to Will.

Thank you, Tim. Good morning, everyone, and thank you for joining our third quarter 2026 earnings call. I want to begin by recognizing our team members around the world for their exceptional teamwork and disciplined execution against a challenging macroeconomic backdrop. Our teams are managing the business well as we simultaneously advance the important work to create two standalone public companies. Our commitment to serving customers remains a daily priority and a key driver of our performance. This morning, I will review our third quarter results by segment and share an update on the planned separation, which remains on track for completion in the first quarter of 2027. Following my remarks, you will hear from Court on his early observations from his first six weeks, and Bert will close with an update on our financial performance during the quarter and provide color on our outlook.

We delivered a solid third quarter in line with our expectations, supported by focused execution across our businesses. While the global operating environment remains dynamic with geopolitical uncertainty in the Middle East, persistent cost inflation, and a cautious consumer, our teams continue to be agile and operate the business with discipline. Turning to our financial results, a few highlights for the third quarter include total GPC sales of $6.5 billion, an increase of over $250 million, or up approximately 4% compared to the third quarter of 2025. Gross margin expansion of 70 basis points, in line with our expectations, driven by strategic pricing and sourcing initiatives. Segment EBITDA in industrial increased approximately 11% versus prior year to 13.2% of sales.

An adjusted earnings per share of $2.07, an increase of approximately 5% versus 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 $140 million, or up 6% versus the same period in the prior year, with comparable sales up 5.5%. During the quarter, the benefit from price inflation was approximately 2%. From a cadence perspective, all three months of the quarter were similar on an average daily sales basis, growing mid to high single digits versus last year, with September being the strongest month of the quarter. Motion delivered another strong quarter with continued growth across large corporate accounts, small to medium-sized local customers, and its value-added solutions offerings.

We are encouraged by the industrial market backdrop and the current level of customer activity, including nine consecutive PMI readings over 50 and solid performance year to date. Following a prolonged period of industrial market contraction, deferred maintenance and delayed investments are beginning to be addressed by customers. We believe data center and AI infrastructure investment is also having a positive impact on the broader manufacturing economy. Looking at the performance across our diversified end markets, we saw growth in 12 of our 14 end markets we track, which is up from 11 in the second quarter and seven in the same period of the prior year. During the quarter, we saw notable growth in equipment and machinery, which was up high single digits.

We also saw mid single digit to double-digit growth in food products, iron and steel, automotive, fabricated metals, D.C. and logistics, oil and gas extraction, and equipment rental and leasing. This growth was slightly offset by softer demand in lumber and wood, and rubber and plastics. Motion has the diversified scale, unique value proposition, and One Motion Invoice customer approach to differentiate itself from the competition in a highly fragmented market. By solving customers' problems with technical industry and technology expertise and becoming deeply familiar with and embedded in customers' operations, Motion delivers differentiated solutions that create customer loyalty and recurring profitable growth. An action bias and service culture across the Motion team is a key to this success.

Our core break fix MRO business, which accounts for approximately 80% of Motion sales, was up approximately 5% during the quarter. The remaining 20% of Motion sales, which originates from more capital-intensive projects, was up nearly 10%. Larger customer orders and capital project activity were solid in the quarter. Industrial segment EBITDA in the third quarter was $317 million, up approximately 11% and 13.2% of sales, which represents a 60 basis point increase from the same period last year. The strong results were driven by our multiyear sales effectiveness, pricing, and sourcing initiatives, combined with disciplined cost management as we continue to invest to support long-term growth. As we look ahead, we are encouraged by the momentum across Motion. Despite a dynamic environment, Motion is positioned well to benefit from attractive near and long-term industrial manufacturing trends.

Core MRO demand remains healthy, capital-intensive project activity continues to strengthen, and our strategic initiatives are delivering tangible benefits with exciting runway for continued performance. We look forward to sharing more on the business, our initiatives, capital allocation priorities, and financial outlook at Motion's Investor Day on December 9. Moving now to our Automotive segments. In North America Automotive, total sales in the third quarter increased approximately 2%, with comparable sales also increasing approximately 2%. The team continues to execute against our strategic priorities while managing a cautious consumer backdrop and ongoing inflationary pressures, both of which have been impacted by the conflict in the Middle East. During the quarter, North America Automotive segment EBITDA was $194 million, or 7.6% of sales.

Our profit continues to benefit from our strategic initiatives, operating cost discipline, and restructuring actions, which was more than offset by pressure from cost inflation in healthcare, rent, and freight. Bert will share more on the specific impact of higher fuel costs in his comments. Within North America, total sales in the U.S. were up approximately 1.5% for the quarter, with comparable sales up approximately 2%. Price contribution was approximately 2.5%. From a cadence perspective, average daily sales were up low single digits in July and August and slightly positive in September. Consumers remain under pressure from higher fuel prices, persistent inflation, and the recent interest rate increase. Despite the softer environment, sales performance at our company-owned stores was solid. In the third quarter, comparable sales at our company-owned stores increased approximately 3.5%, with commercial up approximately 5%.

Independent same-store purchases were up slightly versus the same period of the prior year and have shown sequential improvement on a two-year stack through the year. We continue to execute company-owned store initiatives well, and enhancements to our commercial segments like major accounts and AutoCare are building momentum. We are also pleased with our independent owner initiatives, with our top quartile owners growing at comparable levels to our company-owned stores. We held sessions with hundreds of owners during the quarter, and the tone is positive with good alignment on our go-forward priorities. 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 3% in the third 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 four customer segments, with particular strength in other wholesale and fleet and government customers. We were pleased to go live on time and on budget with a new distribution center in eastern Pennsylvania in the third quarter. This modern facility is the first of its kind in the NAPA network that is heavily automated with robotics to drive productivity and service in the local markets. The operational metrics are on track, and the NAPA supply chain team is building momentum with another planned building go live in 2026. In Canada, our team continues to execute well despite ongoing softer market conditions.