Hi, everyone. We're gonna get right into it. All right. Okay? Good. All right. Well, it's my pleasure to introduce, Bert Nappier, EVP and CFO of Genuine Parts Company. Thank you for joining us- Thanks for having me. - today. Great to see you. Good to see you, too. Could we launch right into U.S. Automotive? Sure. And I promise I'm gonna ask about industrials, I swear. It's not just gonna be autos. Can you talk about the recent trends that you're seeing in the U.S., how DIFM is trending relative to DIY, and how we should think about the market share opportunity in this space? Yeah, sure. A lot, lots to unpack there, but, look, again, thanks for having us. U.S. Automotive, probably the question of the day. I talked about it a lot this morning on our one-on-one. I'll start with a kind of broader picture, I guess. Mm-hmm. Industry fundamentals, when you think about the U.S. auto space. So we start from a place where good fundamentals across the board, for everyone. So age of car has ticked up for 6 consecutive years to 12.5 years. That's a good thing for the aftermarket. You think about the miles driven being up, so a little north of 2% year to date, another good thing. More opportunities for repair when we're driving cars more. Think also about inventory of new cars. That's been tight, continues to be tight. The price of a new car is a bit of a deterrent. So again, staying in your own car and fixing your car is probably the most economical way to stay on the road. Think about the acquisition cost of a new car, used cars, with rates pretty high right now to get an auto loan. I was reading a piece a couple of weeks ago, I think 30% up on monthly payment, just on the rate alone, and so that's about $100 a month, and that could be a big deterrent as well. And so the backdrop, we think, has stayed consistent and stayed positive as we look ahead. We also operate the U.S. automotive and the global automotive business, for that matter, in a break-fix environment. So there's a need, you have to fix it, you have to get back on the road, so we benefit from that to some degree. One other thing that's shaped the industry, I think, for the last at least 18 months has been inflation. I'm sure we'll talk about that a little bit more later, but the backdrop for the industry is that everyone and all the players benefited greatly from inflation a year ago. So with that set up, big price lift a year ago, with inflation cooling off, that creates a tougher comp for everyone as we move through 2023. Those backdrops are interesting as you think about what the opportunities are. For our U.S. automotive business, we've had a bit of a choppy year. Started the year with a tough Q1 with some weather impacts that abated as we moved into Q2. Q2, I wouldn't point to any one factor as we looked at Q2 in terms of performance, but again, a choppy kind of look across the spectrum. Consumer is clearly getting a little bit more cautious as we've moved through the year. I think the second half will bring a little bit more of that. But, when we think about where we're headed, we're really excited, despite some of the choppy performance with what we're doing in the space. One of our bright spots is gross margin expansion, so we've got a lot of opportunity to continue to focus there. We had a 10 basis point improvement in gross margin in the Q2, and so the work of our sourcing and pricing teams has been exceptional in driving that bright spot. We got a new leader with Randy Breaux. Yep. So, bringing our Motion playbook across to U.S. Automotive, we're excited about that. Randy is a proven leader, 40 years in distribution, commercially focused. And so while we didn't have all the potential we thought we could show in Q2, we've got some really nice things to point to as we look ahead. Taking some cost actions, as you would when you've had a choppy performance to tighten the belt. And we're making investments, like we talked about at Investor Day, in modernizing that business, and we think those are gonna pay dividends as well. In terms of strength of DIFM, that is our source of strength, and so the commercial side of our business is where we grew up. About 80% of our U.S. Automotive business is on the commercial side. So that's our source of strength, and that's actually where we see the industry in terms of growth moving forward. So we start from a place of strength, and we grow into a place of strength with that footprint. So we think that's the place to be. The driver there is complexity of car. I don't know how many of you have newer cars with all the new technology, and we think that's gonna push folks away from DIY and back into DIFM. That's complexity of car and all the technology and sensors and calibration work that needs to be done, and we're right there to serve that need. The last part of your question, give it to me again. DIFM- Oh, gosh. Market share opportunity. Market share opportunity. Mm-hmm. We lean into that in terms of market share opportunities. I think as we looked over the last two years, we're pleased with what we've done on share growth. As we look ahead, because of our positioning in DIFM, we think there's plenty of opportunity. We're a 7% player in a $200 billion market, globally, 7% share in the U.S. If you take the Big Four together, 30%-35% market share. So you can tell it's a highly fragmented space, and with the strength of the NAPA brand, the quality of the parts, we've got a lot of room to grow going forward, particularly when you think about our footprint with 24,000 locations between our stores and our NAPA AutoCare centers. Then just kind of wrapping up the conversation, U.S. Automotive is a question that we get a lot is just about pricing. You know- Sure. a competitor publicly, you know, said how much pricing they were taking in a certain aspect of commercial, and it's been talked about ever since. Yeah. Could you maybe talk a little bit about what you're seeing with regards to the pricing environment and how you see that playing out? Sure. Yeah, look, I mean, we have great competitors. We respect, respect our competitors, and we all keep each other honest and keep everybody on their toes, which is great. From my perspective, the environment's very rational. I think it's always been competitive. It will remain competitive, but there's no irrational behavior that we're seeing in the marketplace. Everybody's running their own strategy, though, and their different playbooks. We have different models, we have different concentrations of retail and commercial, and that drives different strategies. For us, we think the place to play, and we talked about this in our Investor Day in March, is investment and capability. Mm-hmm. And so in a world where AI and data analytics and intelligence is driving a lot more decisions, as it should, our investments and capability to look into the pricing spectrum, have that data, move away from anecdotal pricing moves, and take the rich data set we have from all of the new tools we're building, where we can see by geography, we can see by category. We supplement that with the intel from the field, which is still relevant, and then we can take actions to either move up or down. It's not always about investing a price to move down. It could be investments and capability just to make you smarter and take the opportunities where you see them, but also react in terms of opportunities where a particular category, you might wanna be a little bit more competitive, a particular market or geography. So we love the blend of what we're doing, and that's evident in margin expansion. We've had a nice year in terms of gross margin expansion, particularly in Q2. So I think the investments we're making are really paying some dividends across the long term. But it's a competitive space. It's gonna stay that way, but I think everybody's playing well in the space and staying rational as we, as we look at it. Okay, great. And we have some questions about, you know, some of the investments you're making that we'll, we'll get to next, but I wanted to be sure we talked about European automotive. I think the big initiative there has been rolling out the NAPA-branded products across Europe, and I know it's something that you've been very enthusiastic about. Yeah. Could you maybe talk to us about why that is so important? Why do you think it's working, and what kind of sales and margin lift do you see as a result? Yeah. Look, we're differentiated, so for those of you that follow the space, we're a little unique in the fact that we are global with a European business. Great business there, Australasia, Canada, to supplement the U.S., and so we'd like that diversification of our portfolio and our businesses. Europe's a great business. We have a great team there. They're executing at a very high level, 15% growth in Q2, 11% comp for the quarter, and that's coming on the back of a few things. NAPA rollout, which has gone very well. $0-$300 million in three years. We'll do $400 million in sales this year. So the adoption in the market for a NAPA-branded product, which probably had some questions on the front end, has been very well received. Mm-hmm. It comes with the same things we think about in the U.S. in terms of quality, availability. That space wanted that, and we're seeing that in our sales of, of the reaction. The margin lift is, is nice. Gross margin lift's about 500 basis points, and so we're very pleased with the profitability and the execution of our teams across those markets. The other thing that's great about Europe is it's continuing to grow and expand. So we've expanded into Spain and Portugal last year, with another addition in Spain over the summer, into the fifth largest car park, and so continuing to extend a leadership position across that space. There's a lot of opportunity to continue to roll out that NAPA brand. Okay. Moving on to industrial, I think, you've surprised the market a little bit, in terms of your outperformance there. Could you maybe talk to how much of that has been by design and how much you've changed the portfolio there? And how do you see the onshoring of manufacturing impact your outlook for the segment? Well, it's all by design, of course. Of course it is. It's pretty great. Yes. No, look, we love that business, too. Great leadership team, great execution. The Industrial business has a lot of runway. They've had a good year, 6% comp growth in the Q2, 12.5% margin. They benefit from a lot of things. First and foremost, a very well-executed, diversified portfolio, so they sit in 14. They serve 14 verticals, 14 different markets, industries. We're not over-concentrated in any one industry, so we're protected from not being doubled down in a single place where you might move with that industry. So you have a nice buffering within your book of business with those 14 verticals. We've grown thoughtfully, added a vertical around EV. We think about EV often on the auto side as an opportunity. It's a big opportunity for industrial. As manufacturers continue to build new EV plants, the tag-along battery facilities and retrofitting ICE facilities, Motion, those are, those are Motion customers. So we're excited about that space. When you put that with a really smart acquisition from KDG a year ago, which also brought new capabilities in some growth areas like, automation and conveyance, that taken together gives industrial a nice runway on the top line. Again, fragmented market, $150 billion addressable market. We have a 6% share, and we're the largest player. And so we have a lot of opportunities besides the scale to take more share, but also execution of new strategies. And when you put that together, we're gonna have a great year. Nice, strong expansion of margin this year, as we look ahead, and then we're marching to a 12% 2025 target for that business in terms of operating margin. And that kind of leads to our next question. I think what we took away from your Analyst Day earlier this year is both for the automotive and the industrial business, that you're focused on providing customers with value-added solutions. I think that's always been in your DNA, but it seems like you are doing a lot more here to gain that increased wallet share and win business. So can you help us understand where we are in terms of this initiative, and how early on we are? And can you quantify how much of a lift you've seen so far in sales, both on the automotive and industrial side? Well, they're very early innings, so Industrial Day, but—or, sorry, Investor Day was the debut- Mm-hmm -of a lot of these new initiatives. So I'd say very, very early innings in terms of how we think about where we are. The investments we're making in technology really center around supply chain, modernizing our supply chain. We're able to do that through a new kind of host of ways of looking at the business. That's a lot about efficiency inside of a DC. This is not new technology; it's just new to GPC. So we're not leaning into new concepts that haven't been tried and tested before. But in automation of a DC, when you bring in the robotics and you bring in automated pick and pack, is a game changer in terms of efficiency, reducing your reliance upon a workforce that's sometimes hard to find and has high turnover. You get the benefit on the labor side, you get the benefit on the efficiency side. So as we think about adding automation to DCs, that's just one example. When we think about the other investments in technology, it's the ways we work. Working with our customers, modernizing payment platforms and technology around payment, just being easier to do business with, and that's a, that's a part of our investment on tech. The other side of it will be some of the things we just talked about on pricing, investing in analytics and data. One place we haven't talked about is making those investments and managing our supply chain and our lead times for inventory. So we've got a lot more data now where we can look into the supply chain, look into the inventory lead time, shorten those cycles, particularly as supply chains have gotten healthier, and that's allowed us to be smarter about carrying long-tailed inventory and smarter about having the fast-moving inventory where we need it. It's a working capital benefit as well. So these investments we're making across multiple prisms, early innings, they were factored into our targets for 2025, and a big part of our lift in terms of gross margin and on SG&A as we move ahead to getting to double-digit margins overall. Okay, and you mentioned in supply chain. You know, can you talk about a little bit with regards to your in-stocks and inventory currently? And we talked a little bit about, you know, what you're doing from the data analytics and AI side to better forecast that. But, is that something that we, we could be seeing sooner is helping you now? We are seeing supply chains being a lot healthier than they were a year ago, and so that's a big help. That's helped in stocking levels in our locations across the board, which has helped in terms of sales. At the same time, we're having an ability to reduce some of those safety stocks that people kept, so there's a working capital benefit to it. We just talked about the lead time. Mm-hmm. So looking into the cycle and, for example, talk to the Motion folks and they'll say: Okay, well, we might have a high-end, slow-moving part that in the old world, we sold it and we'd replace it tomorrow, and it's not gonna sell again for 45 weeks. Well, we're being really thoughtful about when we restock that. Mm-hmm. And using this new data to say, "Well, let's not carry it for 43 weeks. If we're gonna sell it in 45, let's be really thoughtful about when we restock that." So that's being smarter. But in general, supply chain's much healthier. We're seeing costs come down on ocean freight. We're seeing freight costs come down on DC to store. All of that is factored into how we're thinking about the year in terms of guidance. But I think all of... When you put all of that together, we're really in a much better place for our customers in terms of stocking levels and then how we're managing the inventory on a day-to-day basis. Okay. Then if we can switch gears to M&A. Yeah. Just how do you view the current M&A market, and in particular, your pipeline of acquisition targets? Yeah. So M&A is a big part of our growth algorithm. As we gave 2025 targets, 6%-7% on the top line, we said we'd get a point from M&A. So it's always a part of the GPC story. We have a very robust pipeline of opportunities, both on the automotive and industrial side, so we're pretty balanced in that regard of how we look at the two businesses. We like the opportunities that are coming. The space is still probably a little inflated in terms of expectations on the seller side. And so that's why we always have to stay disciplined and go back to the things that we focus on. We've been very disciplined in this space. We think about really three prisms as you look at M&A: strategic fit, cultural fit, and the financials. In an environment where we still see inflated expectations, you have to stick to your principles, and really make sure you're looking through a disciplined prism. Strategy will be, does it fit a geography we'd like to expand into, add a capability? On the cultural side, culture is really important. It gets lost in some of these conversations, but when two cultures don't mesh, it makes an integration sometimes impossible, and you'll never get at the third part of the equation, which is the financials. And we're very disciplined in thinking about accretion, ROIC, and what it means to the business going forward. We love this acquisition we just did in Spain over the summer. It hit all the right marks, in terms of expansion of geography, cultural fit, financials. While the environment has got a lot of activity in it and there's good pipelines, nothing really actionable here in the near term, particularly as we wait to see inflated seller expectations kind of cool down a bit. Mm-hmm. And that leads us to your balance sheet. The leverage ratio we last checked was about 1.8 times, just below your target range of two to 2.5. How comfortable are you with current debt, debt levels, and how should we think about your willingness to take on more debt, either just in a higher inflation-higher interest rate environment or to fund acquisitions? Yeah, look, we love where we are because it gives us a tremendous amount of dry powder. We can act on this pipeline that we just talked about. Mm-hmm. So as the opportunity starts to crystallize and, and come into focus and becomes real, we're not inhibited by trying to figure out how to fund it. So we have that dry powder. We're certainly willing to take on, a debt to fund a great acquisition. We saw that, with KDG. We've made a really smart acquisition. It's gone really well in terms of execution, synergies a year earlier than we thought, in terms of two years versus three years, and the ability to pay that leverage back down. So we were just above two after the, the debt we took on to fund KDG. We're now back to 1.8. We have a stated goal to stay between two and 2.5 times. That gives us the runway we're looking for, but we're certainly willing to lean in, and take on debt to fund the right and smart acquisitions, and we'll continue to do that. Even with rates a little higher, we factor that into our business case and how we think about things. And I think, you know, there'll be things along the way that with this dry powder, we'll be able to act on, and maybe give us a little bit of an advantage. Okay. Going back to our automotive discussion before, you know, the question that we keep getting, no matter who it is, is just on EVs. And just I thought you did a good job at your Analyst Day, kind of showing us how you can be helpful if things were to pick up- Yeah -with regards to EV demand. So can you talk about how you're thinking about the arc of when we can start to see the EV impact to your business, and what are some of the ways you're taking advantage of that? Yeah. Well, I think first, you'll see the impact of EV in industrial. I talked about that a few minutes ago. Yeah. You'll see that ripple through on the industrial side first, and I think that gets missed sometimes when you think about GPC, about that, the strength of the industrial business. But turning back to the automotive side, I think it's important to frame the context, and we can use the U.S. as an example. Right now, there's about 280 million cars on the road in the U.S., depending on who you ask, but we'll just use that number. And then in terms of EV, 2%-3% on the road. So it's a small space right now. If you fast-forward and go to 2030, you'll see 300 million cars on the road, depending on who you talk to, 6%-8% EV. And so having the right context for how you think about the opportunity is important. Not a huge one. It's gonna grow, but it's still not gonna be huge even in 2030. Now, having said that, we don't want to be standing around in 2030 and have missed the boat. And so I think what we're doing is being really surgical, really smart, measured investment in the space, and we've been doing it for some time. We think that we're the leader in the space, frankly. And again, I'll go back to this diversified portfolio of businesses that we have, the fact that we're global and the fact that Europe is actually well ahead of most places in EV, and that's where we're actually testing some concepts. Now, in many of our stores, we're stocking EV parts, so we're already there in that space and having that availability, which is important, and having that solution. One thing we think about, too, in trying to be innovative is, what does the workshop of the future look like? What does that repair opportunity look like in the future? And where you have choice today in terms of your ICE vehicle, and you can go to a Napa AutoCare, you could go back to the dealer, you could go to your local repair shop. We have a lot of choice when we think about our ICE vehicles. How many EVs in the room? How many people have EVs in the room? That measures up to my small sample there of 2%-3%. You're kind of beholden to your manufacturer in most cases, and that experience, I think, is pretty choppy. And in doing that, you don't have the same choice that you have with ICE. The concept that we're rolling out in Europe, which is a great market to test it, is NexDrive powered by NAPA. So this is taking an existing facility, so CFOs love this because it's capital light, and going in and certifying the workshop to work on EVs. Adding the technology, the diagnostics, the training, the expertise, there's specialized safety requirements to work on an EV, so you keep yourself safe and not electrocuted. And all of those things get added to the equation, and then we're able to offer that service. We've got about 150 locations in Europe now, moving to 400, and then we're letting the trend follow our business kind of as the sun moves. So with Canada increasing its prominence with EV, we're moving NexDrive to Canada. So we've got two great markets where we're testing this new concept, and then as the U.S. matures, we'll be able to bring it here. So again, measured, thoughtful, surgical investment, not pushing all of my chips in the middle of the table- Mm-hmm -in terms of capital allocation, but also not acting like this isn't coming towards us. Mm-hmm. Okay, thank you. We're asking four questions to all the companies presenting. Nothing too offbeat. First is just the health of the consumer. Mm. How do you see your consumer going into 2024? Will they be facing more headwinds or less headwinds versus 2023? That's a tough one to call in terms of more or less. Mm-hmm. There's a lot out there to digest. When I think about the consumer, we certainly see a more cautious consumer, for sure. And that impacts us when you think about automotive. That consumer is the one that's taking a car into a mechanic, and the mechanic is then making the choice to use NAPA. So, the consumer for us is a little one step removed, but still we see and feel the pressures. You think about- We talked about auto loans and the cost of an auto loan. You talk about mortgage rates right now and the pressure there, the inflationary impact on everyday purchases, particularly in the grocery store. All of those things are stacking up. I think you've got student loan payments restarting here in the fall. That's another, another consideration. And so I don't know that those are more or less- Mm-hmm -than 2023 versus 2024. From my perspective, we're being very prudent as we're starting to think about 2024, so we're entering the business planning cycle for next year right now. And I think we're approaching it with the same eyes wide open prudence that we did as we started planning for 2023. Mm-hmm. There's a lot weighing on the consumer. At the same time, we benefit from being in two segments that are repair-oriented. And so we have that benefit of, on one side, knowing the consumer is a little bit more cautious, on the other side, knowing that in many cases it's not a discretionary fix. Mm-hmm. In terms of how they think about the business. So it gives it a little bit of a floor as we model what's ahead. So, more to come, but I think in general, we're probably thinking about it the same way we did entering 2023, with maybe a slight bend more to being a little bit more cautious. And then what about, as part B of this question, with how do the consumers trade up versus trade down? Can you remind us what you've seen with regards to trading up or down in 2023, and how you expect it to play out in 2024? Yeah, through the end of the Q2, we had not seen any, you know, real prominent trend to call out. Mm-hmm. The great thing about both of our businesses is we provide the cons- we meet the consumer where they are. So on the automotive side, our assortment includes a good, better, best, so you can match up what you want to choose as your repair part with where your pocketbook is, and that's true for industrial. We have Tier 1, Tier 2 parts, which allows an industrial to kind of apply that same logic. So regardless of how we think about where we are, in terms of trade up, trade down, I would say that we attack it with a assortment and an inventory and a book of business that allows us to meet them wherever they're gonna be as they're in 2024. Okay. Our second question's on share of wallet, which we don't really have to spend much time on, since there is a defensiveness to your, to your business. So I'll move on to pricing. Just now that inflation seems to have peaked, how are you thinking about pricing into 2024? And how do you think of the, the traffic and pricing dynamic versus- Mm. Maybe what we saw in 2023? Yeah. So, you know, I don't want to give too much away to 2024 just yet, but I would just color 2024 in the sense that the industry, when you think about automotive, through cycles, if you look back at the history books, hasn't given a lot of price back. So, with that as a backdrop, I don't think we would be modeling anything different than what in historical patterns and industry trends have been when you think about automotive. On the industrial side, a little less impacted by inflation. The inflationary impact in industrial has been very de minimis, low single digits, and so not a lot to factor in there. Certainly, we're coming out of a period, as I talked about earlier, where last year, the automotive side of the business benefited greatly from price, and we're seeing that tick down through the course of the year and cool off a bit, right in line with our expectations, quite frankly. And so, as you look at where that heads and how you think about the levers, then if price is coming down, then I think we're gonna get to a more normalized environment in 2024, where we're gonna be back to one to two price benefit. And it's gonna put a, an emphasis on the growth part, which is units, and units need to grow. And how do units grow? Well, units grow because you have great availability, and you're meeting the installer market where they need to be, and you've got the right part in the right place at the right time. And so I think it's just gonna add an emphasis on growing units, growing units by taking share, and that comes back to part availability. Okay, thank you. And then the last question is about destocking, which, again, doesn't totally apply, but if you could maybe just level set from an inventory standpoint, in stock, if you're satisfied, I think, with the inventory levels at your business. Well, no CFO is ever gonna tell you they're satisfied with inventory levels. Relative. It's a relative question. Yeah. Yeah, no, I got you. Look, we- Back to the point I just made about availability- Mm-hmm. I think for us, that part availability, particularly on the automotive side, but also on the industrial, when you're getting called and there's a situation with a customer and it's nondiscretionary and they need to get whatever is broken fixed, you want that great availability. And so the work we're doing, that we talked about earlier in terms of managing lead times and supply chain, is benefiting us to getting the right part in the right place at the right time. We're being a lot smarter about the fast-moving SKUs and making sure that we've got those in the markets exactly where we need them at the right time. Also being smarter about managing the long tail and the slow-moving pieces. And so that's an optimization effort that we're pursuing through technology and through, you know, brute force, too. DIO is always an opportunity for us to manage better. But in general, I would say continuous focus, continuous improvement, really with a bend towards making sure that we've got the right availability, as we look at our customer bases on both segments. Okay. Well, thank you for joining us today. Thank you. Great to be here. Very helpful. Thank you.