The operator introduces the Genuine Parts Company Second Quarter 2024 Earnings Conference Call and outlines the format of the call. Tim Walsh, Senior Director of Investor Relations, introduces the speakers and mentions that a supplemental slide presentation and webcast will be available. He also reminds listeners that the call may include non-GAAP financial measures and forward-looking statements, which could differ from actual results.

The company will not update any forward-looking statements made during the call. The CEO, Will Stengel, has recently taken over and emphasizes the importance of the company's culture and building high-performing teams. He also mentions the need to continuously evolve and take advantage of opportunities.

The company has streamlined its focus to two core businesses and believes that size and scale provide an advantage. They have a defined plan and are focused on executing it with the help of their global organization. They have identified five key priorities and have a disciplined approach to acquisitions. The company is continuously striving for improvement and is grateful for the hard work of their employees. They are optimistic about the future and thank their employees for their dedication in serving customers.

In the second quarter, GPC saw a 1% increase in total sales, with a strong focus on strategic sourcing and pricing initiatives. They also acquired a large NAPA independent owner, expanding their presence in priority markets. However, the results were below expectations due to weak customer demand in industrial, softness in Europe, and choppy demand in the US automotive aftermarket. These factors, along with higher interest rates, geopolitical uncertainty, and inflation, resulted in flat adjusted earnings. The industrial segment saw a 1% decrease in sales due to lagging industrial production activity.

In the second quarter, the monthly PMI readings reverted back to contraction territory, with average daily sales being softer in April and relatively flat in May and June. The higher interest rate environment and election uncertainty are also affecting larger capital spending decisions. Motion's results across its end markets were mixed, with some showing positive growth and others experiencing weakness. However, Motion's corporate account customer base continues to perform well. Industrial segment profit was down 2%, while global automotive segment sales increased by 2% but had a decrease in comparable store sales.

In the second quarter, the company's global automotive sales showed positive growth, with inflation remaining low. However, there were challenges in the sales environment and higher costs due to inflation. In Europe, there was moderate demand and a focus on serving customers and strategic initiatives. The NAPA brand expansion and bolt-on acquisitions also had a positive impact. In the AsiaPac region, sales growth was lower compared to the same period last year.

In the second quarter, both commercial and retail sales increased, with retail showing stronger growth. Despite a challenging macro environment, the company's teams are performing well and exceeding market growth. In Canada, sales increased 1% in local currency, with a slight decrease in comparable sales. In the US, automotive sales increased 0.5%, with comparable sales decreasing 1.5%. The overall results were boosted by the company's acquisition in May. Sales to commercial and do-it-yourself customers were slightly down, with commercial sales outpacing do-it-yourself. The company is seeing more normalized buying behavior from independent store owners and is implementing initiatives to continue growth in the US automotive business.

The company saw improvements in inventory and customer service during the second quarter, and is focused on continuous improvement. They are also working on owning more stores in selected markets and have acquired 242 NAPA stores. However, they have adjusted their outlook for sales and earnings for the second half of the year due to a softer economic backdrop. Despite this, the company's initiatives and prospects remain strong.

The automotive and industrial sectors are performing well, with NAPA's core business serving the commercial customer and Motion being well diversified across multiple end markets. The company is well positioned to take advantage of economic improvements and has a strong leadership team. The previous CEO, Paul Donahue, is credited with transforming the company and expanding its global footprint.

The speaker praises the outgoing CEO for his leadership during a pandemic and for driving the company's growth and strategic investments. The current CEO discusses the company's second quarter results, which were impacted by market conditions and increased expenses, leading to flat adjusted earnings. He also mentions the company's ongoing restructuring program and recent acquisition.

In the second quarter, the company incurred $62 million in costs related to restructuring and MPEC integration. Total sales increased by 0.8%, with acquisitions contributing 2.2% and a decrease in comparable sales and unfavorable currency impact offsetting it. Gross margin expanded by 50 basis points due to strategic sourcing and pricing initiatives, technology investments, and acquisitions in the US automotive business. Adjusted operating and non-operating expenses increased by 80 basis points, driven by factors such as increased salaries and wages, inflationary cost pressure, and technology investments.

In 2024, interest expenses and costs from acquired businesses continue to be a challenge for the company, but they are partially offset by cost savings from a restructuring program. The company's segment profit margin decreased due to slower sales growth and associated costs. Adjusted net income for the second quarter was in line with the previous year, excluding non-recurring expenses. The company generated strong cash flow in the first half of 2024 and closed the quarter with $2 billion in available liquidity. The company's debt to adjusted EBITDA ratio was lower than their targeted range.

In 2024, the company has invested $260 million in capital expenditures and $580 million in strategic acquisitions, including the acquisition of MPEC. This acquisition is expected to be accretive and the company's global restructuring initiative is on track. They have incurred $120 million in costs related to restructuring and expect to see a benefit of $20-40 million in 2024 and $45-90 million annually. The company has updated its outlook for the remainder of 2024, expecting diluted earnings per share to be in the range of $8.55 to $8.75 and adjusted diluted earnings per share to be in the range of $9.30 to $9.50, slightly higher than 2023.

The company has revised its outlook for 2024 due to the uncertain macro environment, with sales growth now expected to be 1-3%. This is lower than the previous 3-5% outlook, with a 1% contribution from inflation. The automotive segment is expected to have flat to 2% comparable sales growth, while the industrial segment is expected to have flat to 2% total sales growth. The reduced outlook is due to softer market conditions in the second half, as shown by third-party data and trends in the second quarter. The industrial sector is still experiencing a downturn, and the original outlook assumed an improvement in the second half with easing interest rates. However, recent events such as Hurricane Beryl, the July 4th holiday, and the CrowdStrike outage have impacted sales.

In 2024, the company expects the industrial backdrop to improve later in the year, but it will not significantly impact their revenues. Market conditions in Europe and the US automotive business are moderating. The company expects a slight increase in gross margin due to strategic sourcing and pricing initiatives and recent acquisitions. SG&A is expected to deleverage more than previously predicted. The company expects flat global automotive segment margin and a slight increase in global industrial segment margin. They also anticipate corporate expenses to be 1.5% to 2% of sales. The company is confident in their cash flow and expects cash from operations to be $1.3 billion to $1.5 billion with free cash flow of $800 million to $1 billion. Capital expenditures are expected to be approximately $500 million or 2% of revenue.

The company is expecting growth in 2024 due to investments in supply chain modernization and potential M&A opportunities. They are also taking actions to ensure long-term profitability in a challenging market. The CEO believes that the lower sales growth is market-driven and not specific to their business. They are confident in their businesses and will continue to invest with a long-term focus. The company has seen sequential improvement in independent buying behavior and is working on initiatives to improve inventory strategies and service excellence for both company-owned and independent-owned stores.

The company has seen sequential improvement throughout the year and expects this trend to continue. The European market has shown some softness, particularly in the UK and France, but overall the business is performing well and winning market share. The company's pricing strategy has also helped boost gross margins for its auto business.

The speaker discusses the company's pricing strategies and how they are more holistic than just raising prices. They mention category management, which involves balancing pricing and sourcing at the SKU level. The company is being thoughtful about being competitive in the market and using data analytics to compete and win. They also mention that the gross margin improvement in the quarter was mostly due to acquisitions, and that they are seeing benefits from category management and sourcing rather than just raising prices.

The company is shifting towards a hybrid model of owning some stores and continuing to work with independent owners. This will allow them to recapture some of the margin they were previously sharing, have more control over pricing and inventory, and benefit from streamlining back office processes and leveraging technology. They will also no longer need to use small stocking and offsite locations that independent owners had.

The company has seen positive results in their P&L due to the acquisition of a new business. They are pleased with the integration process and execution. In terms of customer segments, there has been strength in the auto care and fleet sectors, but challenges in the major account business. The company is being cautious and strategic in managing this major account book of business.

The company has seen positive trends in all expected categories due to recent weather and successful inventory management. The category managers and sales teams are doing a great job. The industrial guide for the back half of the year assumes a low single-digit sales growth acceleration, but this is based on a previous expectation of stronger industrial production stimulated by interest rates. However, the company has updated its outlook due to softer market conditions in Q2.

The company expects industrial production to continue to lag in the third quarter and possibly into the fourth quarter. They had originally predicted growth in the second half of the year, but now believe it will be delayed due to low PMI and interest rate cuts. They anticipate low single-digit growth in the rest of the year, with potential improvement in 2025. They are also focusing on increasing sales intensity and renewing corporate accounts.

The company is focused on the right things in the Motion business, despite the market being unstable. They expect sales growth once customers start spending. The feedback from customers is that there is uncertainty and high interest rates, which is affecting capital projects. However, they are still winning and renewing contracts. The US NAPA market showed improvement in May due to better weather and the MPEC acquisition. It is difficult to predict future trends due to the current macro environment.

During a conference call, Greg Melich from Evercore ISI asks a question about the company's performance in July. Bert Nappier, the speaker, responds by saying that July has been a mixed month so far due to various factors such as Hurricane Beryl, industrial production shutdowns, and a CrowdStrike outage. He also mentions that it is too early to compare July to April, which was a tough month for the company. Will Stengel, another speaker, adds that despite the challenges, the company is confident in the work they are doing and the overall tone of their meetings is positive.

The speaker acknowledges the tough market but believes that the specific initiatives at NAPA and Motion are the right actions to take. They hope for a market recovery soon. When asked about consumer behavior, the speaker mentions the possibility of trade-downs and deferrals, but this is not reflected in the data. They also mention adjusting assortment logic and hearing anecdotal evidence of consumers only doing necessary purchases. The speaker believes they are well-positioned in the market and have received positive feedback from suppliers. They do not focus on gaining market share but are focused on continuous improvement.

The speaker, Bert Nappier, responds to a question about the company's expectations for the rest of the year. He mentions factors that will contribute to a decrease in earnings in the third quarter, including lower sales and increased expenses. He also mentions that there is uncertainty in forecasting due to various external factors, but the company's current guidance takes everything into account.

The speaker is responding to a question about the company's recent increase in mergers and acquisitions of company-owned stores. They state that the 1% target for sales growth in 2023 is still a good benchmark, but it may fluctuate in any given year. They also mention that there is no stated goal for acquiring independent stores, but they will continue to be opportunistic and focus on target markets, particularly urban areas. The speaker also emphasizes the importance of independent owners in their ecosystem.

In the paragraph, the speaker discusses the strength of their relationships with independent owners and their plans for future acquisitions. They mention their recent acquisition of MPEC and the progress they have made in increasing their market share with independent owners. They also mention that the independent owner will always have a role in their operating model and that they value those relationships. The speaker also mentions that the acquisition of independent owners contributed to a 30 basis point improvement in gross margin and that this contributed to their decision to lift their guidance for gross margin.

Will Stengel, the CEO of a company, recently discussed the benefits of acquisitions and the company's overall success. He also mentioned their focus on being more selective with new business and making sure it is beneficial for both the company and their customers. One key area of focus is the modernization of their supply chain, which will actually help optimize inventory rather than requiring more. Examples of this include consolidating multiple facilities into one in Australia and Europe.

The speaker discusses the benefits of modernizing the supply chain, such as increased efficiency and shorter lead times. They also mention that the Motion side of the company is implementing fulfillment centers. They briefly mention regional disparities, but state that it is not a major issue. The call concludes.

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