The Genuine Parts Company held an earnings conference call to discuss their second quarter 2023 results. Sidney Jones, Senior Vice President of Investor Relations, welcomed attendees and introduced Paul Donahue, Chairman and Chief Executive Officer, Will Stengel, President and Chief Operating Officer, Bert Nappier, Executive Vice President and Chief Financial Officer, and Tim Walsh, Senior Director, Investor Relations. The call may include non-GAAP financial measures, and forward-looking statements, with Paul Donahue's remarks to follow. The company reported record sales and double-digit adjusted earnings growth.

In the second quarter, GPC had total sales of $5.9 billion, an increase of 5.6%, and total company segment margin of 10.4%. Earnings per share was $2.44, an increase of 10.9%. GPC has a strong balance sheet and is generating solid cash flow to support growth initiatives. The Industrial segment is performing well with strong market share and diverse products, services and end markets.

Motion is taking advantage of reshoring opportunities and the growth of domestic manufacturing industries, as well as focusing on productivity and efficiency to drive margin expansion. The automotive aftermarket is experiencing favorable trends such as increased miles driven and aging vehicle fleets, and Motion's international automotive businesses are seeing strong mid-single to double-digit growth. Motion is raising their outlook for 2023 earnings per share, and investing to strengthen their business while returning capital to shareholders. They have also recently completed the first phase of their implementation of the Workday HR platform in North America.

Paul thanked GPC's 58,000 employees for their hard work and dedication before handing the call over to Will. Will thanked GPC's global team and supplier partners for their commitment to serving customers. He highlighted the company's foundational priorities- talent and culture, sales effectiveness, technology, supply chain and emerging technology, and M&A strategy- and congratulated Kevin Herron on his retirement and Randy Breaux on his promotion to Group President, GPC North America.

GPC has appointed a new leader to their team, and their two business segments have seen strong growth in the second quarter. Global Industrial's total sales increased 5.9%, and Motion's sales were up across all product categories and industries. Motion has also seen an increase in average daily sales across its e-commerce platform, and Industrial segment profit was up 190 basis points year-over-year. The success of these initiatives is attributed to excellent operating rigor and disciplined execution of strategic initiatives.

Motion North America has exceeded its 3-year $50 million synergy commitment ahead of schedule and Global Automotive sales increased 5.4% in the second quarter. The US automotive sales grew 2% with comparable sales growth up 1%. Cost actions implemented at US Automotive have led to an increased benefit in the second half of the year and early trends in July are encouraging.

In the second quarter, the East and West regions saw a recovery in sales due to the strength of core categories such as filters, batteries and fluids. Sales to both commercial and retail customers were positive with fleet and government customers seeing high single-digit growth. In Canada, sales grew 6% in local currency with double-digit growth in categories such as heating and cooling, paint and body and tools and equipment. In Europe, sales grew 15% in local currency and 11% in comparable sales, driven by initiatives to increase market share. Overall, each region saw mid-single-digit to double-digit growth.

The GPC team achieved strong second quarter results, and remain confident in their plans for continued growth despite a dynamic environment. They are leveraging their scale in Europe and their strategic investments in the Asia Pac market to deliver EUR 400 million in sales of NAPA-branded products in 2023. They are strategically acquiring small automotive store groups to capture market share and create shareholder value.

GPC achieved a record quarterly sales performance in the second quarter of 2023, with revenues increasing by 5.6% or $313 million to $5.9 billion. This was driven by a 4.9% improvement in comparable sales, 1.8% contribution from acquisitions, and a 0.9% unfavorable impact of foreign currency. Gross margin was 36.1%, a 110 basis point improvement from the second quarter last year, due to pricing and sourcing initiatives. For the full year, GPC now expects gross margin rate to improve 30 to 50 basis points from 2022.

In the second quarter, total operating and non-operating expenses were up 9% from adjusted expenses in 2022, at 28.4% of sales. This resulted in a year-over-year deleverage in SG&A of 80 basis points, primarily due to investments in wages and benefits for team members, increased spending in technology, and charges related to cost improvement actions. Despite this, segment profit was up 11.8%, and segment profit margin increased by 60 basis points, for the sixth consecutive quarter of margin expansion. However, margins in the Global Automotive segment were lower due to pressure in the U.S. Automotive business.

GPC has achieved 12 consecutive quarters of double-digit adjusted earnings growth and generated $457 million in cash from operations for the first 6 months of 2023. The company has $2 billion in available liquidity and a debt to adjusted EBITDA of 1.6x. Capital allocation priorities include investments in the business and the return of capital to shareholders through dividends and share repurchases. During 2023, GPC has invested $205 million in capital expenditures, including $117 million in the second quarter.

The company has invested $106 million in acquisitions year-to-date and returned $395 million to shareholders in the form of dividends and share repurchases. They are raising their diluted earnings per share guidance to a range of $9.15 to $9.30, with total sales growth for 2023 expected to be in the range of 4% to 6%. They also expect cash from operations in a range of $1.3 billion to $1.4 billion and free cash flow in a range of $900 million to $1 billion, with CapEx of $375 million to $400 million for the full year.

GPC reported positive results from the first half of the year, with their teams demonstrating their agility and focus on customer service. They are confident in their teams' ability to execute and drive solid results, as well as their unique value proposition. They also announced that Sid Jones, Head of Investor Relations, will be retiring after 33 years of service and will be replaced by Tim Walsh. Lastly, they are now open to questions from the operator.

William Stengel and Elizabeth Suzuki discussed the performance of the U.S. Automotive group in the quarter, and Herbert Nappier commented on the Industrial business. Christopher Horvers asked about the U.S. NAPA comps, to which William Stengel responded that April and May saw low single-digit growth, but June was down.

In June, U.S. Automotive saw a flattish performance, but July has seen an improvement due to extreme heat. Fleet and government segments have seen growth in the quarter, as well as filters, batteries, and fluids. Heating and cooling categories didn't perform as well due to the weather patterns. Gross margin has been a great piece of execution, and the team is investing in the business for the long-term.

The team had a successful quarter, with strong double-digit growth in Europe and Asia Pacific, Australia, and New Zealand. The fundamentals of the automotive industry are still rock solid, with miles driven and gas prices moderating. Gross margin for the second quarter was impressive at 36.1%, with no offsets from inflation or mix. The team is doing a great job with sourcing and inventory management in a difficult economic environment.

The company does not believe there has been any share shifts in the U.S. auto market despite some strong results from competitors. They attribute the slowdown to weather and have specific strategies in place to manage categories. They review analytics weekly and monthly and are proud of the work the teams are doing.

William Stengel reported that there was no significant difference in growth rates across the company's 5 regions. Scot Ciccarelli asked if the 1% comp could be attributed to geographic differences, to which Stengel replied that there was no material difference. Herbert Nappier then explained that the increase in corporate expense was due to a stock comp true-up and cost actions, and that further information on this could be found in the 10-Q.

At the beginning of the year, the company transferred some functions into the corporate environment, such as cyber security, finance, and product liability cases and litigation, which resulted in a benefit year-to-date. The corporate expense line is up this year due to the transfers, but the company is still targeting the expense to be around 1% of revenue. The cost transfers have had a negligible effect on the segment level, but have had a larger impact on the corporate expense line. William Stengel was unable to answer a question regarding the biggest opportunity for industrial or auto in the U.S. in the next 2-3 years.

Herbert Nappier discussed inflation in the second quarter of the year, which was in line with their original expectations. Inflation was low single digits for GPC, mid-single digits in auto, and low single digits for industrial. They are also seeing mid-single digit inflationary pressure on operating expenses, particularly in wages, which they are managing through taking actions to offset it.

Paul Donahue comments on the competitive pricing landscape in GPC's markets, noting that it is still rational and that the company focuses on ensuring inventory availability, the right people in the right markets, and the right store footprint to cover strategic markets in order to grow profitably. Inflation and wages are expected to continue to moderate throughout 2023, with auto prices ticking down from high single digits to low single digits and industrial prices bouncing along low single digits for the year. GPC expects to close out the year in the aggregate from a mid-single digit to a low single-digit.

The U.S. automotive business has been successful in terms of gross margin performance, which is due to the teams working together globally and sharing their learnings. Inflation in the U.S. auto business is still in the mid-single digits.

William Stengel states that the 1 comp does not translate into negative 4 units due to differences between retail transactions and do-it-yourself transactions. The AutoCare business performed to expectations, and the major accounts business had some areas of strength and opportunity. The company stores and jobbers had similar performances, with the DIY/do-it-for-me mix being the only difference. Lastly, industrial numbers continue to come through.

Herbert Nappier explains that GPC is pleased with their first half performance, allowing them to raise their outlook for the year by $0.20 to the $9.15 to $9.30. This guidance delivers EPS growth with a midpoint of 10.6%, putting them in a position to expect their third consecutive year of double-digit earnings growth. GPC is keeping an eye on the choppy macro environment, inflation, monetary policy, interest rates, and the political landscape, but are confident in their own business due to strong industry fundamentals and cash flows that allow them to invest in their business.

Sidney Jones recently celebrated his 83rd quarter leading the company and was congratulated by Daniel Imbro. In response to Imbro's question about the strategy behind promoting Randy to the new responsibility of running both Motion and Auto under singular leadership, William Stengel explained that it is both a personnel decision and a reflection of running the businesses closer together, with early positive internal response.

Randy has been a successful leader at Motion and brings a lot of experience and expertise to the NAPA business. The businesses will remain separate, but the One GPC team will allow for more efficient and faster progress. Paul Donahue adds that the leadership team at U.S. Automotive is strong and has been improved by the new talent Kevin has brought in.

Herbert Nappier discussed the automotive guidance, noting that the international automotive side will continue to outpace the U.S. and that FX rates could provide a slight benefit. He also mentioned that the U.S. automotive business has potential, but they are being conservative in their outlook for the second half. Finally, he highlighted the industrial side, which has had a great first half.

On the previous quarterly conference call, Will mentioned that the U.S. auto business had accelerated from the 3% level in the first quarter of April. Herbert Nappier then clarified that they expect 4% to 6% growth in automotive for the next two quarters, with international on the higher end and U.S. automotive on the lower end.

William Stengel and Seth Basham discussed the performance of the major accounts segment, which is where the most price competition is. Stengel noted that discussions about price are nothing new, but that they are now bringing a fresh perspective to make sure their value proposition is appreciated. He also mentioned that they are doing work with smaller regional "major accounts" to drive value with their capabilities. Paul Donahue concluded the session by expressing pride in their team and how they have been able to operate in a challenging environment.

Genuine Parts Company thanks everyone for their interest and will be hosting another call on October 19th to report on their results. The conference has now concluded and attendees may disconnect.

This summary was generated with AI and may contain some inaccuracies.