The paragraph is the introductory section of the Genuine Parts Company's First Quarter 2025 Earnings Conference Call. It is conducted by an operator who introduces Tim Walsh, the Senior Director of Investor Relations. Walsh welcomes participants and introduces key company executives, including the CEO and CFO, who will share insights on the company's earnings. The call includes a webcast, a replay option, and a slide presentation available on the company's website. The discussion will involve non-GAAP financial measures and forward-looking statements, with potential discrepancies explained in SEC filings. An opportunity for a question-and-answer session will follow the prepared remarks.

In the first quarter 2025 earnings call, Will Stengel praised the dedication of the 63,000 GPC employees and acknowledged the challenges posed by external factors like tariffs, trade, and geopolitics. Despite these headwinds and a cautious demand environment, the company focuses on excellent customer service and strategic initiatives to improve operations. Stengel highlighted the company's adaptability and commitment to positive change, citing a recent event celebrating NAPA's 100-year anniversary as a testament to its leadership in the automotive aftermarket industry and dedication to future service excellence.

The paragraph discusses various initiatives the company has undertaken to enhance customer experience, including the rollout of the modernized e-commerce platform, NAPA ProLink, developed with Google for commercial customers. This platform offers improved functionality and has resulted in positive customer feedback and mid-single-digit growth in NAPA B2B e-sales for 2025. The first-quarter financial performance highlights include total sales of $5.9 billion, a 1.4% increase from the previous year, mainly driven by acquisitions and growth in the industrial sector, despite a drawback from one less selling day. Gross margin improved by 120 basis points due to acquisitions and strategic initiatives. The paragraph concludes by noting the solid progress in productivity initiatives to manage expenses.

In the first quarter, global industrial sales remained largely unchanged at $2.2 billion compared to the previous year, with a slight decline in comparable sales due to one less selling day. Despite sluggish market conditions, there was sequential improvement from the fourth quarter, driven by increased customer activity and sales initiatives. Average daily sales were positive each month of the quarter, with growth seen in certain end markets like pulp and paper, while others like iron and steel remained pressured. Nine out of 14 markets showed improvement from the previous quarter. National account customers outperformed, and local MRO accounts and value-added services showed improvement over last year. Segment EBITDA was $279 million, up slightly, reflecting progress in profitable growth and supply chain initiatives despite a soft market. Industrial activity metrics like PMI showed early-year momentum but slipped in March.

The paragraph discusses the performance of a global automotive segment in the first quarter. Sales increased by 2.5%, although comparable sales slightly decreased by 0.8%, mainly due to one less selling day, which affected growth by 90 basis points. The segment's EBITDA was $285 million, accounting for 7.8% of sales, a decrease of 110 basis points from the previous year. The U.S. saw a 4% rise in total sales but a 3% decline in comparable sales, impacted by the one less selling day, affecting growth by 160 basis points. Average daily sales were positive throughout the quarter, especially in March. Company-owned stores saw slight growth in comparable sales, while independent purchases decreased slightly. Sales to commercial customers increased marginally, but sales to retail customers dropped by mid-single-digits. Non-discretionary repair categories experienced low growth, maintenance and service categories remained stable, while discretionary categories, accounting for 15% of sales, decreased by mid-single-digits.

The paragraph discusses a company's recent acquisitions and sales performance across different regions. They acquired 44 stores and are smoothly integrating recent purchases like MPEC and Walker, positively impacting EBITDA margins. In Canada, sales rose by 5% in local currency, with a 4% increase in comparable sales, despite a challenging economy. In Europe, total sales grew by 3%, though comparable sales remained flat. Growth in Asia Pacific was strong, with total sales up 12% driven by organic initiatives and acquisitions. The company credits its strategic initiatives, like supply chain upgrades, for driving future growth, and sees its global presence as a competitive advantage in navigating the market.

The paragraph highlights the company's efforts and strengths, emphasizing a skilled team, investment in business analysis tools, and a history of financial stability. The speaker thanks shareholders, customers, suppliers, and teammates before handing over to Bert Nappier. Nappier discusses the first quarter performance, noting it met expectations despite external challenges, and focuses on adjusted results excluding global restructuring and acquisition costs. The first quarter saw $69 million in pre-tax adjustments impacting earnings, which were down due to fewer selling days, lower pension income, higher depreciation and interest expenses, and currency issues. Adjusted EPS was $1.75, a 21% decline year-over-year. New tariffs had little financial impact on Q1, and the conversation turns to sales details.

In the first quarter, GPC sales rose by 1.4%, driven by a 300 basis point benefit from acquisitions, although negatively affected by foreign currency impacts and a decrease in comparable sales. Total and comparable sales both suffered a 110 basis point decrease due to one less selling day. Their gross margin improved to 37.1%, a 120 basis point increase from the previous year, mainly due to acquisitions and favorable vendor rebates. However, they anticipate slower gross margin expansion in future quarters. Adjusted SG&A expenses increased by 170 basis points year-over-year but showed sequential improvement. The SG&A growth included $80 million from acquisitions, which will diminish as synergies are realized. Core SG&A rose by $40 million (2.5%), with efforts to control this growth ongoing. Rent and salary increases accounted for approximately $45 million of the core SG&A rise. The company is focused on improving its cost structure to achieve expected leverage in SG&A.

Over the past year, the company has undertaken significant cost restructuring efforts, which are progressing well. In the first quarter, $55 million was spent on restructuring, yielding $27 million in cost savings and a benefit of $0.14 per share. Despite an 8.1% total adjusted EBITDA margin, down 80 basis points from the previous year due to fewer selling days and cost inflation, the company benefited from acquisitions and restructuring. Cash from operations decreased by $41 million, and free cash flow fell by approximately $160 million, affected by working capital challenges related to inventory investments. Approximately $120 million was invested in capital expenditures and $75 million in strategic acquisitions, with $135 million returned to shareholders through dividends. The company reaffirmed its 2025 outlook, expecting full-year diluted EPS between $6.95 and $7.45 and adjusted diluted EPS between $7.75 and $8.25, excluding a forthcoming non-cash charge from a U.S. pension plan termination.

The paragraph outlines the company's 2025 financial outlook, highlighting key challenges such as a loss of pension income, increased depreciation and interest expenses, and foreign exchange impacts, which cumulatively pose a $1 EPS headwind compared to 2024. The outlook assumes stable foreign currency rates and excludes potential tariff effects, as U.S. policies remain unpredictable. The company acknowledges the complexity of the external environment, especially in the year's second half, and emphasizes the importance of understanding the assumptions behind their projections. Factors considered include revenue impacts, market conditions, supply chain adjustments, and cost increases related to tariffs, including potential inflationary effects on salaries and rent.

The paragraph discusses the company's decision to exclude potential tariff impacts from their outlook due to the uncertainty surrounding the U.S. administration's plans. Although market conditions are soft, there hasn't been a significant downturn despite the tariff environment. First quarter earnings met expectations, and the company anticipates first-half earnings to decline by 15% to 20%, with second-half earnings expected to rise by the same margin. The second-quarter forecast predicts a 15% to 20% decrease in adjusted earnings compared to the previous year, influenced by lower pension income, higher expenses, and negative foreign currency impacts. Looking to 2025, the company is cautiously optimistic about improving market conditions but acknowledges uncertainty, modeling various scenarios amid limited data, including at least two potential downside scenarios.

The paragraph outlines two potential scenarios regarding the tariff environment's impact on the company's financial performance. In the first scenario, clarity emerges within 90 days, but persisting uncertainty could delay recovery, positioning the company at the lower end of its 2025 guidance range. In the second, prolonged tariff issues could prevent a recovery in the second half of the year, making current guidance challenging to achieve. The company's guidance anticipates 2% to 4% sales growth in 2025, with expected benefits from M&A, strategic initiatives, and inflation, partly offset by factors like fewer selling days and foreign exchange headwinds. Gross margins are expected to improve by 40 to 60 basis points, driven by strategic sourcing and pricing, while SG&A is expected to de-leverage between 20 to 40 basis points due to cost pressures and acquisitions, albeit mitigated by restructuring efforts.

The company anticipates incurring restructuring expenses of $150 million to $180 million in 2025, with expected benefits of $100 million to $125 million. By 2026, annualized cost savings from 2024 and 2025 restructuring and cost actions are projected to reach $200 million. Sales growth is expected in both the automotive and industrial segments, with respective EBITDA margins either stable or modestly increasing. The company forecasts generating $1.2 billion to $1.4 billion in cash from operations and $800 million to $1 billion in free cash flow. The robust balance sheet supports confidence amid external uncertainties, such as tariff challenges. Capital expenditure and M&A plans remain consistent with previous expectations. Despite a complex external environment, the company is optimistic about its strategic investments and remains focused on agility and serving global customers.

In the paragraph, Bret Jordan from Jeffreys asks about inflation impacts on both the motion and automotive businesses. Will Stengel responds that inflation was slightly less than expected, with a minor benefit to the top line but more impact on SG&A costs, particularly in salaries, wages, and rent. He notes that global monetary policy is helping normalize inflation. Bret Jordan also inquires about performance in the European automotive market, to which Will Stengel expresses satisfaction, highlighting strong growth in NAPA branded products and indicating that their market share is stable or slightly better compared to the market.

The paragraph discusses the company's strategy and progress in expanding its store count in North America, particularly through acquisitions. They have been adding 40 to 45 stores in the recent quarter, following significant acquisitions last year that expanded their footprint. The independent owner model remains crucial to their operations, especially in local and rural markets. Moving forward, the company plans to continue supporting independent owners while slowing the pace of new store acquisitions by 2025, noting that 2024 was an exceptionally active year for acquisitions.

The paragraph discusses a company's focus on improving store operations and sales excellence to enhance customer service and inventory efficiency. Despite making progress, they remain unsatisfied and aim for further improvements. Gregory Melich queries about potential improvements regarding tariffs, and Will Stengel responds by highlighting discussions about both potential downsides and upsides. He suggests that if disruptions are resolved quickly, the company may see a more positive second half with possible benefits, not currently accounted for, alongside a flexible guidance range.

In the paragraph, the speakers express a cautious "wait and see" approach towards the current business climate, noting that the first quarter met expectations and April started well, but uncertainty persists. Bert Nappier highlights that historically, during inflationary periods, their industry successfully adjusts prices while maintaining service. He notes sequential improvements in the industrial sector and is cautiously optimistic about a potential recovery in the second half of the year. The emphasis is on remaining flexible to adapt to changes. Gregory Melich congratulates them, and the discussion then moves to a question from Christopher Horvers of JPMorgan.

Christian Carlino asks about the driving factors behind an increase in comparable sales for motion-related projects and whether customers are delaying or accelerating capital projects amid uncertainty and tariffs. Will Stengel responds, indicating that the performance at motion exceeded internal expectations. He highlights an encouraging trend with capital-related projects, stronger corporate and smaller local MRO business, and an overall positive sentiment in the industrial economy due to anticipated lower rates and election certainty by 2025. Stengel mentions the de-stocking in the industrial sector over recent years and suggests that customers are now focusing on replenishing necessary parts and solutions for a healthy economy. Motion is well-positioned to benefit from these trends as they progress through 2025.

The paragraph discusses trends in the NAPA business amidst competitive changes and the impact on market dynamics. It notes that market strength varies, with the Midwest and Mid-Atlantic regions showing strong performance due to strategic acquisitions, while the West experienced moderate growth despite customer disruptions. Regarding independent store owners, the speaker observed sequential improvement at the end of the previous year, although the start of the current year was inconsistent due to factors like weather. However, strength returned by the end of March and continued into April.

The paragraph discusses the impact of tariffs on a company's cost of goods. Michael Lasser from UBS Securities asks about the cost impact if the current tariff regime remains unchanged. Bert Nappier responds, highlighting the complexity of tariff applications on goods. He explains that a single SKU could have multiple tariff permutations, illustrating the challenge in estimating precise cost impacts. Nappier indicates that the company has been analyzing these variables as the tariff landscape evolves, providing context to how tariffs might affect their costs.

The paragraph discusses the impact of a specific tariff application, resulting in a net effect of about 30%. It emphasizes that this is only one data point and highlights the broader complexities and forecasting challenges involved. The paragraph outlines various factors affecting business, such as SKU price inflation, cost of goods sold, demand fluctuations, and operating costs including salaries and freight. It also mentions the effect on ongoing capital projects, illustrating the intricate and variable landscape businesses must navigate beyond just analyzing tariffs.

The paragraph discusses the complexity of Genuine Parts Company’s global supply chain due to its diversified sourcing, with 70% of purchases from the U.S. and Europe and 14% from China. While this diversification offers advantages, it also adds to the complexity, especially concerning tariffs and trade relations. Michael Lasser seeks clarification on how tariffs impact costs, while Bert Nappier explains that applying a simple percentage rule of thumb is not feasible due to the complexity of assessing costs across thousands of SKUs and various countries of origin.

The paragraph discusses the uncertainty and challenges faced in forecasting downside scenarios due to shifting global tariffs, particularly involving China, Mexico, and Canada, and how this impacts business resiliency. The speaker emphasizes a "wait and see" approach while being transparent and providing insights to help model the business through various scenarios, drawing on lessons from COVID-19. Michael Lasser acknowledges this approach with humor and asks about independent entities' strategies in this environment, specifically if they are stockpiling inventory in anticipation of potential cost increases.

The paragraph features a discussion between an unnamed speaker (referred to in the questions as Michael and Will Stengel) about how various business owners are responding to tariffs and potential price increases. Will Stengel states that the reaction of owners to tariffs varies depending on their individual situations. He notes that they haven't observed a significant rush to stock up on products due to tariffs and that their strategy hasn't changed much in the past 90 days. Stengel emphasizes their ongoing efforts to support owners by providing analytics and inventory guidance. The conversation underscores the challenges small businesses and corporations face in navigating the evolving tariff landscape, with the assurance that they aim to help owners remain successful. Chris Dankert from Loop Capital then asks a follow-up question about the impact of tariffs and price increases from vendors.

The paragraph discusses the impact of price increases announced by suppliers. Will Stengel explains that annual discussions with suppliers about price changes are a standard process, typically involving 90-day negotiations. This year, there have been more of these discussions due to current global conditions. Some price increases are already in effect, but it's unclear if they are tariff-related. The company is proactively managing its business to protect gross margins and inflation on the same SKUs, rather than waiting to see how the situation develops. Bert Nappier adds that these activities have already impacted the company's first-quarter performance.

The paragraph discusses the financial outlook and strategy of a company, noting that while the impact in the first quarter was minimal, they are waiting for more data over the next 90 days to update their forecasts, especially regarding tariffs. It addresses their cash flow issues, mentioning a decline due to investments in inventory, including acquisitions like MPEC and Walker, to prepare for market rebound and ensure they meet customer demands effectively.

In the paragraph, the speaker provides an update on their business activities and financial outlook. They have ensured their independent owners are stocked and ready for the spring season and have launched a new tool program at NAPA. The use of cash in the first quarter was largely tied to inventory, but they do not expect a significant cash outflow for inventory in the second quarter. They have reiterated their full-year cash flow outlook and are confident in their cash generation for the year. Additionally, during a Q&A session, a question was asked about the impact of tariffs on their automotive business outside the U.S. It was clarified that 10% of their automotive business is in the Asia-Pacific region and 15% in Europe, which are the parts of their business outside the United States.

The paragraph discusses the impact of U.S. tariffs on the APAC and European businesses, indicating that while there might be indirect effects, there is no direct impact on their trading lanes with China. Both regions are performing well, aided by diversification in the supplier base and global scale. The U.S. auto business, despite a generally flat market, aims for share gains and has been achieving modest growth. The conversation concludes with no further questions, transitioning to closing remarks from Will Stengel.

In this concluding statement of a conference call, Will Stengel from Genuine Parts Company thanks participants for their interest and mentions that an update will be provided in July. The operator also thanks everyone for their participation and concludes the call, asking attendees to disconnect their lines.

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