GPC - Earnings call transcript Q3 2018

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Operator

Greetings, and welcome to the Genuine Parts Company Third Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sid Jones, Senior Vice President, Investor Relations. sir. you, Thank

begin. You may

Sid Jones

the and and the thank call us morning, Chief and outlook for discuss Paul Officer. here Donahue, Financial our Yancey, you Parts Company our for President for current Genuine and conference Executive earnings today year. third I'm our with Officer; Good Chief results joining full Carol quarter to and XXXX EVP

the be financial involve accounting referred several under section that begin could during from differ in this factors be call statements businesses. no earnings forward-looking regarding measures, issued morning, also website. this company the which Investors call company measures any The certain include to its materially the obligation generally reconciliation press we results call. made of morning's may Before latest discussion of this filings, the these advised our assumes to the due The which non-GAAP to important Today's reported today's provided actual in our update principles. morning, may statements during including forward-looking as statements also in is is release this company's SEC of please press described results A accepted release. company's forward-looking may any and posted

over Now let call me turn to Paul. the

Paul Donahue

Vice we'll call Financial full outlook will and President highlights year. third time our our our Thank overall performance be released the with across our our our welcome current Chief to call. morning. provide a and XXXX After financial third the Carol Officer, today, few on to business. our you the will that, you, make questions. the we taking to then on and Executive results We us Sid, quarter results. XXXX appreciate Yancey, remarks conference your Earlier open I cover this an for quarter update and

quarter. in entered with record the positive quarter earnings having second just and we the sales reported So third momentum,

X.X% over worth in comp our delivered the has was fourth of our excluding also the $X.XX, share and XXXX. and quarter improved Net X% of proposed momentum comp strong impact merger This also quarter our this Hurricane at to from strongest spin X.X% unfortunate one few transaction leaders, up in Group GPC increase noting, effect agreement of the the producing quarter. XX%. X.X% sales fee, agreement Tim quarter million It’s key Products earnings earnings was per Our the and into $XX was the income while teams the we the cost up off our challenges, of and was second capital per quarter teams presented XX.X% also our encouraging of earnings a the acquisition quarter. the sales increase. by with with working This the was a in our first carried businesses $XXX Breen, a of total rate million this XX% Essendant, to performance, and share and $X.XX, passing team adjusted Alliance margin, quarter, and net performance all million, recently growth and our challenges. focused The $XXX increase improving Despite the of the our sales business Automotive income of impact up position. net of impacted stayed operating Business Florence sales termination our and net third was total the these other Group, comp terminated strategic the adjusted associates delivered favorable $X.X of driven related billion, since and acquisitions termination as

increase This Automotive segment quarter, sales increase. second first the the has including in a quarter comp business the our third increase a with in overview quarter. X% Group. our X% Automotive X.X% Global off sales and the XX.X% Total were in improved kick will from We up

our primarily pleased driven to results. the which U.S. comps, are we improving are steadily see So Automotive by

the and automotive came comp on Our up warmer-than-average for X%. as largest hot the from our which comp improved segment, reported the of division. of total an and the sales from temperatures first increase sales our also likely execution the reflects performance Automotive benefited approximately best since as We'll sales This third X.X% core aftermarket delivered sales X.X% parts sales much improvement our the continued quarter maintenance the of up U.S. translation first has the acquisitions, in the quarter Automotive U.S. our business failure the conditions were sales a second underlying we plan a the for well quarter, comp is of X.X%. and our in our in ongoing our and for the colder also This XXXX. review demand. of QX. in U.S. with currency much This net improved in increased Sales we unfavorable heels winter, grow of increase foreign U.S. for year's operations slight summer quarter the of The strengthening steady

our we significant X.X% NAPA NAPA, by our of trends sales driven retail a Our by sales, commercial the growth commercial the sales. commercial to accounts. for by encouraged This sales our sales continued is which and to two for in This AutoCare the the years, in up and and are with program were positive was segment customers, these QX first time quarter. both increased retail was for outpaced fueled the strengthening

we forward, stronger our sales growth customers. of the in the our are improving third quarter, our strength overall sales further Account optimistic for ahead. the both will quarters the Major lagged for in while Account we conditions believe and Major Looking commercial drive growth And AutoCare

Rewards our now retail our member of strong, impact now the retail store store reflects to X.X this segment hours initiatives Turning growth Program, our expanded business, NAPA impact in such as project. positive million and

stores. now have to our company-owned independently-owned and the have rollout stores focus impact retail to shifted completed our initiative We of the our

our XX% to represents which We expect our retail XX% growth these total segment, further of automotive strategic sales. sales initiatives to U.S. for drive

So and on by its operation the our in are impact U.S. our the encouraged Automotive summary, in operating ongoing results. positive sales we for improvement environment

in As call, will the quarter's reasons. continue ahead in trend several for last we this believe mentioned quarters

seeing pattern. to are of shift positive for and due weather in normalized demand return parts failure the maintenance We

expect aging The We automotive miles strong, number growing the remained spot for of vehicles tailwind driven in the and, the fundamental aftermarket stabilize among and XXXX a sweet XXXX. consumers. become drivers a increasing aftermarket ultimately, with and fleet further and to in long-term

NAPA the sales. these well businesses acquisitions We of the discussed of a in Most We acquisition Parts, for Auto in the Parts on the recently, X. network, Hastings are the enhanced also $XX ongoing Auto we we Smith addition annual Detroit Sanel our our Auto NAPA presence and welcome leadership which us. and overall October will performing area, NAPA expect expansion in our to contribute to group to Detroit Hastings joined Hastings Previously sales. further group footprint team. the approximately Metro to million area significantly four announced store and contribute and

see acquisitions growth our important footprint. tuck-in store accretive Our opportunities we remain our U.S. an additional part strategy, expand to of and

presence. sales key automotive sales American North including our operations Canada, revenues account Now international in These In Canadian total We'll core increase, comp at acquisitions turn Mexico, Canada we drive to automotive growth lead total XX% our sales a collective Australasia. and X% to our of further and NAPA operation. for in X.X% expand up Mexico. with and sales single mid-single solid up Europe to delivered our low digits increase. Canada, were our a with adding continue businesses execution automotive sales initiatives, tuck-in let's while Total the also of digits off our strategic

growth We continue look Mexico Canada to move in as for and forward. further we

operate and Automotive Turning strongest sales its Germany footprint four the with grew and Poland. UK. Alliance Germany to all digits were business well European positive France, UK, continues in regions, to Group, the low mid-single results the across in across this and to Comp

locations Additionally, and XX QX, additional XX the headquartered team network. leading ongoing to further there. our XX. parts first acquisition locations a acquisitions the is European with seven TMS robust company-owned bolt-on for August to in on distributor Spares, locations several in England provides our Carlisle, which expands automotive its with including in in stores England, from TMS drive Motor acquisitions. strong U.K. sales growth resulted continues TMS, strategy in closed AAG's Scotland, footprint adds AAG and

in team. expect million strategic to $XX extend annual we We and are a generate TMS pleased to sales, the approximately this acquisition welcome to warm

quarter. Hennig battery announced revenues Platinum the also we We International the to in annual leading continued in and is fourth AAG's on AAG and the the by Subject in full to want the and U.K. revenues we solid fundamental Hennig other the and acquisitions TMS battery continue and towards of automotive and of the our on growth approvals, primarily acquisition we in Wrapping position to expect $XX the our AAG's previously potential Group Group Germany is addition pipeline TMS currently the of to markets industry businesses, underlying U.K. both closing Platinum estimated family. of close Platinum serving supported parts, to We Manchester, later announced vehicle The the million. market acquisition in annual to up core distributor, of to branches expected these of of with Platinum XX are locations October welcome headquartered commercial supplier Germany. of light-duty final both the estimated the AAG industry welcome serve. relatively strengthens They nine the economic England. generate value-added from across leading a one million. work focus $XXX Netherlands. across X is acquisition overview, European and regulatory teams

we our GPC. of the deliver team as the our remain by will pleased We continue see one-year are also with this the acquisition, AAG and for to are we European for on confident we operations plans, approach and the integration encouraged opportunities progress anniversary continued

growth comp and Our and initiatives The solid in on our local mid-single growing drive third performance. initiatives mid-single to currency plans sales quarter. quarter. in posted with operations a to sales enhance in up executing were while another grow accretive and while up Total sales acquisitions, overall digits its service combination the New to continues operating digits of capabilities customer also to team Asia-Pac and low Zealand were sales Australia core

quarters improved ahead. plans strong growth being September U.S. to the our of the results Asia-Pac's solid average of of comp In U.S. summary, to year. economic in business the growth. sales strong continued the The expect sales our We quarter with aftermarket post strengthen, daily and fundamental finish to our to strongest with enabled another month continues quarter generate backdrop combined team

ongoing Our solid and of with acquisitions. European operations the core growth added performed well benefit

Australasia, businesses plan. performing Our in and remaining international Canada, to are all automotive Mexico

our scale the size build and to around we continue as We globe. expand automotive operations

indicators to since Further business this sales benefiting for the let's electrical up for in gains So of specialty especially marketplace, operations low group billion X% products Purchasing across strong major the Sunrise, each posted third to favorable quarters strength Company and and industries this business strong, U.S. we remains Parts including HSC strength acquisition Group. turn in industrial extraction as showing plus all increases. XXXX. October pattern in X, a including double-digit The active of strongest exports. the well. and the solid environment and the components This power builds the of growth ongoing factors leading oil to and broad X% of with comp the were and with and sales This X% quarter gas allied previous and of extend full-service HSC industry-specific Managers our like Mexico. These rig steel, expected industrial benefit Industrial On now and such were the Industrial is operations. welcome further Southeastern XX U.S. pneumatic positive We'd offering footprint of distributor, industrial the generate from growth production, counts comp the Index, sales industrial industrial Canada broad warm product continued in estimated X.X% Total U.S., Serra across Motion's is of on HSC to annual further as to the our comps impact and marketplace. $X.X consistent our to sales the hydraulic, of in X% the John our of and Supply Florida. XX fourth a five comps Hydraulic industries serve were the top announced locations, sales include initiatives product. the operates Iron supporting Industrial's additional systems. revenue fluid major HSC sales is each and the a with achieved team in economic of quarter sales primarily product the for over growth our fluid-powered a we reflects and and the quarter up $XX enhances chemicals acquisitions. groups, million.

business by encouraged results far the thus are the We the Industrial in strong in year.

plans to this support Looking and segment extended growth forward, to we has strength quarters acquisitive expect growth combined drive and with industrial core still our both cycle, strong the the in initiatives results ahead. for which

company also in This pleased investment in remain fiscal distribution Australian-based strong with industrial we wrapped just We XXXX. with team Inenco, our up the partnered first quarter. a

strategic we currently While in Australasia, a they with not Inenco, lines in a up base and strong XX% XXXX. we in only increase hold supplier well to investment like markets Motion's look also Their investment have strategic give will Indonesia Singapore. and our but us in

friend seasoned are this have executives, we especially has future certain and of missed. Tim XX, On by be stepped very the Breaux Breen, loss that growth up such And Kevin and forward. saddened we resilience team, reflect be we proud would Randy He Motion following a we of demonstrated and as we passing, truly CEO loss and sudden and Tim the lead Group Industries. we the As talented of the Storer, colleague. know Motion proud August the performance our in team. good Industrial President are very hands team we announced both capable is very his the Motion Tim's deeply and to on move prospects, will all of Industrial are and of

to turn Products of first total room the office for the Business was X.X% increase growth of the comp sales the encouraging, since our sales million, quarter supply And third this core sales comp XXXX. driven FPS, This our and let's quarter. for facilities supplies, product category. reflects So Group. up Richards, reported S.P. segment more categories: The our and in safety technology in now sales marks and $XXX of break positive three the by improvement third increase

As our business SPR agreement acquisition mentioned merger Essendant's to GPC was in the proposal April, Essendant from and as agreement, it September. would merge best Directors defined our in agreement. with definitive proceed Board determined Despite a competing whereby efforts off proposal with earlier, superior in this announced that Essendant, of spin Staples with was terminated April the the

termination opportunity Essendant relationships a paid dealers believe that business its with further to disagree industry this to deepen consolidation, terminated the continue determination, circumstances, continue was business. S.P. growth GPC there is and fee. channel, and both independent GPC where these merger and this these Considering with in and when operate the will we invest agreement customer and with While Richards opportunities was SPR $XX for million we'll to appropriate. with significant other We grow and –

of Finally, we Richards. all our to extend S.P. associates thanks our at

truly to our done customers. on Our exceptional of of that what a team, focused important, Rick led by service has and providing is Toppin, terrific all staying is job

consolidated pleased and and our as of in business progress third for we summary on and the We through into XXXX. of a to the build and XXXX. year operations results our show to quarter results quarter of were positive report on fourth continue is these trends the improved that move So segment will sales

that, to with hand her Carol remarks. So Carol? I’ll over for it

Carol Yancey

Thank you, Paul.

XXXX. information provide We will will key financial updated our of outlook begin review a then with for and we our

basis, third up a XX.X% excludes quarter the a in currency and or sales unfavorable total X% which Our were on foreign comp up X% acquisitions translation.

the AAG strong the higher of the acquisitions. and Consistent was which to gross primarily other with increase margin quarter associated last first half compares for margin with XXXX, gross Our XX.XX%, this XX.XX% third year. reflects

profitability. and core a our globally benefited U.S. business gross around Automotive also and sophisticated ongoing and see businesses; In addition, Industrial from customer and margins increase to remain initiatives, improved both businesses. more our including The analytic the product has key margins flexible enhancing strategies; several and in incentives. capabilities investment continue We through focused supplier in across supplier slight our digital in pricing negotiations, improved Industrial we on

competitiveness We markets in quarters businesses the serve. XXXX. Business environment Products initiatives in the more the and gross has across been growing in The our ahead these we margin support thus despite Industrial current expect to inflationary our far rates pricing

the continue initial quarter, the and this the we third our balance of We would see segment signs inflation saw in into the over expect to also regulation. of in and year to Automotive trend due the current tariff XXXX

XX% While our recent list the tariff something impact the as goods of minimal fairly tariffs and teams subject has we are most managing extensive is with through move that to nine months, the suppliers forward. our the been of

as any We far. increases customers along our have to continue to pass to thus we expect

price supplier up up X.X% were XXXX cumulative Our up in the Automotive, months X.X% in of X.X% in Office. nine through increases and Industrial

Our due SG&A and XX.XX% for sales. of stronger and expenses first from third primarily the $X.XX core quarter our This billion, represents has improved which were quarters growth. sales other the second to

continue addition, these as and from making cost-saving teams to In our experience while rising and and costs areas in are initiatives. addressing freight our factors ongoing payroll, we delivery, plans progress on pressure such

we add quarter to million is attempted the termination net a $X.X costs off included the benefit million and with S.P. transaction SG&A third of $XX and associated spin impact Richards, fee. related favorable our of Finally, which would to transaction AAG that a other

the discuss will results we Now segment. by

XXXX. on relates our the quarter X% margin growth increase reflects which revenue compared of with expansion quarterly profit quarter to leverage XX%, to first was operating for Automotive since the The in the is margin comparable Our X.X% prior XXXX. up sales margin the in And billion, X.X% XX% was of in margin first up million is and operating the U.S. third $XXX the third quarter our operating improved $X.X year. our of from

in for ahead. expansion optimistic further quarters the are We

QX X% quarter, XXXX. Industrial in were strong from a Our increase the of billion sales $X.X

comp since $XXX our up we at compared from X.X% and increase. start gross expansion The sales the for XXXX, see is consistently of forward. X.X% point strong outlook margin continued on margin with and million due strength, as last Industrial move another based the to expect of quarter business the XX to profit of operating expenses X% Industrial we XX% further is operating expansion been solid has Our our basis to year, on and margin increase leverage

X%. their year. revenue XX% Products $XXX the million up Business X% margin from operating prior is profit Our of and was operating for $XX million, down Their

the product So quarter Business unfavorable mix said, despite shifts. customer challenging this continues positive this be and further leverage, in total for lack sales initiatives group that and the we since of margin. for XXXX, the and by business expense Products better of to to leverage improve growth first third With comp an place Group the to plans positive and pressured stabilize expenses industry the have our and revenues conditions

our total report compared operating expansion. to we initiatives profit Our increase, sales on up margin improvement, operating to the We in will guidance margin cross performance third year, interest $X.XX some currency expect $X.XX. the to on And million primarily is while to is well This expense from quarter in as interest and to to the further execute from of profit due the previous in of year. and range our deliver quarter. X.X% the This is down debt our $XXX to was as the continue was last of we expense XX% XXXX, best to XX% $XX net in interest pleased X.X% net strategies. of decrease lower the million $XX and million beneficial our for be had

an amortization $XX to Our for due quarter, to the amortization million third the primarily from million expense year, was which last $XX related AAG. is increase total

$XX full million year we the expect $XX amortization be XXXX, to of in to million. For range

we amortization On quarter, to $XX the approximately combined to and full $XXX of and in was year, expense basis, for be depreciation a depreciation million million. expect for we depreciation total to the to million range million $XXX Our continue $XXX the $XXX million. expect of

we corporate with which associated quarter, our quarter. the was costs, termination benefit $XX expense, represents that and the favorable $X for third net of million which fee in line, other million recorded includes other transaction approximate the an The

and costs other is and initiatives. due and a expense Excluding costs from $XX quarter payroll ongoing third were that XXXX, this year, which pressures, $X benefit incurred in last including corporate and primarily of variable security to incentive our and the adjusted for minority million investments pay, or increased million the in interest was transaction increase IT

previous expense year, For corporate guidance $XXX expect the million. be million of $XXX the $XXX million costs. full in $XXX currently million excluding transaction-related to compares This our we range our range, to of to to

tax XX.X%, mainly tax to quarter for the year the from was XX.X% due tax the prior the Our in the down rate benefit rate U.S. reform. of third significantly

we rate Looking tax provisional to rate anticipate continue XX% forward, we XXXX, tax higher we fourth quarter finalize a tax for reform expect and a as our adjustment.

discussion the a of sheet, to and turn strong condition. let’s now excellent in balance which So remains

Our impact to our accounts it the September. up AAG of quarter, quality increase This the primarily year remain receivable up in and $X.X billion increase less XX% but acquisitions, greater X% primarily of from day with relates third comp the the is receivables. is X% sales collection of currency. pleased prior one our excluding foreign We than and for

of acquisitions inventory Our is $X.X was up year foreign X% September as X% our September well billion, other currency. as last AAG, excluding from at down and which XX

will businesses inventory investment improve appropriate this to the as to Our to move forward. we teams levels and in key the levels core our continue continue manage

foreign Our with payable excluding AP-to-inventory The XX. XX% reflects suppliers, our and and September X% payment ratio $X total of benefit certain to improved other XXX% and billion payables net at XX increase XX, is currency. up AAG, up year acquisitions improved at prior in in XXX% September from accounts of terms the June at the over

payables our managing flows. especially impact our positive and are on trade with cash in We our its pleased progress

reflects in down June debt fourth $X.X September of billion is from of but year XX. the at from of billion increase $X.X is September AAG The XXXX. September, acquisition last the total up XX last $X.X quarter Our billion borrowings our from for

rate on at our stands average in maturity, vary debt Our X%. total currently interest and debt the arrangement

support current AAG we growth have a comfortable to such balance the capacity and sheet structure for our our which Australia, investments serves acquisitions strategic with and and to strong financial as in including Group our believe create and value large initiatives, significant shareholders. We’re debt Inenco

summary, in of sheet strength our the a key So balance company. is

cash which improved generated improved months in $XXX nine our from much to XXXX, capital income last to cash in operations has Turning and the year have million position. from the working flows, in we the increase net the for due

Our believe cash, cash flows ongoing of continue serves the we value. our support for which priorities maximize to shareholder to use our

For XXXX, we are to from million million to increasing free $XXX our to projected cash $X.X from billion. of operations we $XXX to guidance range, billion flow cash of in $X the million. previous $XXX Likewise, $X billion up to the expect be our range

reinvestment Our for remain the and strategic repurchases share our dividend, priorities cash acquisitions. in businesses,

the to increased of our dividend, represents paid XXnd dividends year XXXX our consecutive shareholders. Regarding

dividend in certain Our capital savings. facility from which million planning the million the for increase planned million, $XXX in expenditures far for for productivity in we’re annual XXXX range we with for We’ve and in investments represents technology, invested AAG $XXX X% XXXX. capital tax of have and a $XX our $X.XX to the year, thus of XXXX, and accounts of impact association that expenditures

and long our program active XX.X in million expect we have term. and be over shares we repurchase, available for the repurchase Regarding to program, authorized share the

an the is best attractive to that believe to stock our our dividend, the return and combined provides with shareholders. continue investment, We

of X% initiatives, and foreseeable XXXX sales that our performance guidance on guidance we’re for conditions to and XX% to is represents X% Plus our for plus plus total expect plus guidance for XX%. acquisitions of XX% Based which X% increase our minus be an So minus growth to plans XX% sales turn from plus acquisitions Business By XX% for X%. we guidance is benefit from future, excludes the market has plus and XX%. XX%, to sales growth sales the the the an plus total the growth for to previously. segment, see the Products, any plus announced range far now expecting plus previous an increase the Industrial increase And to XX% plus prior to and X% plus of – segment, we X% XXXX, down thus the which for currently let’s in business, down of to the from in to from which to decrease including a this X% improved X% the total our plus XXXX. to previous of Automotive of future guidance

currently quarter. $X.XX adjusted EPS On to per costs change represents fourth side, months, performance reflects our range incurred be any for we earnings through $X.XX. a expect the of share of the previous during our to as and small the from nine earnings as year the and This expectations excluding transaction- to related fees in $X.XX $X.XX guidance the better our well

in several including total the So XXXX of and to progress quarter, financial areas, for the that’s first our SG&A, our and capital. report third and positive momentum from show working operating we’re pleased build margin on half the

back these progress I’d we to at remains As like we to further before, for a noted us this as point, move forward areas in And it priority top Paul. turn

Paul Donahue

our called and few alluded to requiring outlined Thank to comments in improvement our closing we a we margins. last core growth better the these improvements. to We to fixed our our the sales plans drive you, drive operating results, leverage specifically out We need core progress our show discussed expenses. Carol. quarter, In areas U.S. to need Automotive

rising to also and exceptional cost, attack customer continuing while aggressively operating service. cost We discussed the to provide need

of U.S. Automotive along our every we progress about We in other business with units. operations facet just can pleased report are our

at to across business since gross comp in almost a comp XXXX. and of driven QX increase segments. sales four expense a XXXX. saw improving Comp Automotive up many. for comp third increase Industrial finally, comp Products of the up growth we from As since including strongest Business our margin quarter, continued our the trend. of And years, expansion sales XXXX. were X.X%, XX%. all the comp are strongest plus sales comp and X%, of Sales our strongest look QX plus there $X.X U.S. strongest operations, We since billion X%, their QX the highlights X.X%, remained at Group sales SG&A X.X% strong by comp improvement

expansion of driven the was guidance TMS with in basis with fine-tuned Adjusted last capital Automotive increased sales operating our Platinum our margin and cash in we the We working Europe we balance to And improved management. to improvement EPS Industrial. year. to $X.XX over plus HSC. EPS point our Our improvement plus and to operating in plus up XX% by XX% basis sheet, Automotive plus point and XX finally, in strategic flows, full Hastings excellent adding XX%, we acquisitions XX guidance full announced Industrial strengthened adding our XX% and and and adjusted year year XX%, U.S.

So, of was a long-term sustained acquisitive quarter organic with continued our and gross quarter drive revenue We improvement productive on the operating we remain final in an for entered plans management. to further to cost improve committed growth and and results. while XXXX initiatives it focusing also on to our sales the and margins GPC, strategy

questions. I quarter. on operator, will We to updating be as we the to we'll progress that, you forward and Carol turn are back when we and for report look With our to next and take the your future, excited always, happy again it

Operator

Thank you. [Operator Instructions].

of the Our from JPMorgan. with first Please Christopher your proceed line question. question Horvers with comes

Christopher Horvers

Good morning. Thanks.

Paul Donahue

Chris. morning, Good

Carol Yancey

Good morning.

Christopher Horvers

in upside and U.S. NAPA in acceleration Nice industrial.

Paul Donahue

Thank you.

Christopher Horvers

of to a side bit U.S. little ask Wanted do-it-for-me the the about in NAPA

you category modest U.S. acceleration? that to a seems side up X% you and call it, past in amount X% accelerated to, quarters, had drove two about XQ. can similar the this at you a X% XQ the talk about in in do-it-for-me broadly, about performance like we right? And do-it-for-me saw that Looking then Is the the that down trend. It

Paul Donahue

say talking product Chris? When to Sure, Chris. you you're do Happy category, so. categories,

Christopher Horvers

Yes, please.

Paul Donahue

Yes.

strong-strong filter single our Those of good strong quarter in categories battery business. categories. two business. quarter our had quarter two our are another in in and business, So, our largest equipment We tool

Accounts business, Major those great all would business quarter called But NAPA our our had side, second called in has place as chain, being out. So beginning We in to certainly into AutoCare our AutoCare, showed a -- three which of really initiatives on us. see. And to for good would is also team row. well. the we really the be hold, nationally-branded that put the which quarter warrant $X billion-plus a Many our take our is solid growth out are

well. combination always us all of in Chris, did quarter And hurt as we That a the about the weather. So at talk not things. certainly

Christopher Horvers

So given about having the I question AC in summer you that on a I the I but was given understand had. August September days in you that mean, commented day had U.S. that, business strong the in could -- I a basis best think, battery, in month, Sunday your hot extra the July,

strength the Is just sort attribute on to? it coming there? you would September pricing Any it lag effect? that through in what inflation Is of more comment So front? the

Paul Donahue

the Chris, Well, I was go think was our to September as these calls, tends really month still still you weather September many of that back have many if it's markets. many, itself. also, to But weather, again, the said build in warm times -- we on on

-- immediately summer hot aren't hit and a and I build the by think, failure-type and that September fail was tend we of a with it the to like in sales products. So saw summer. as culmination the winter as wear saw you daily itself. our That really hot certainly, all tear, does It you what we average And on products cold July. the maintenance and June strong the months the of batteries when well to going had just really followed in

Christopher Horvers

here last the in accelerating the data I question on mean, of be third then the seems front, some the And quarter. CPI is inflation to

inflation, auto flat. I I the of cumulatively think, and first through bps the nine was sort about talked half first think You XX months

a that inflation acceleration the through maybe on front? does coming XXX comp imply So of the is bps that pricing

Carol Yancey

of in we on the see a the tariff bps front, XX maybe think a nine bit year, to impact. inflation the We'd at by to did the the part and year, end you kind mentioned that like end to QX of saw be inflation of excluding a I maybe lucky point full what latter more get in the any is X.XX of of the months. X.X Yes, the really we

strong for us programs improvement our categories. not truly with and as to Paul a see a mentioned, of had, mean, across impact sales. our product major true the positive So significant of wholesale-type lot in we but couple commercial I again, just growth board same-store a on

Christopher Horvers

much. very great. Thanks That’s Understood.

Carol Yancey

Thanks, Chris.

Operator

Our next with with question. the of question Please proceed line from RBC. comes your Scot Ciccarelli

Jonathan Livers

my guys. this on for Livers Scot Jonathan quarter actually and you is This morning. nice taking Thank really Hi. question for

Paul Donahue

Thank you.

Carol Yancey

Thank you.

Jonathan Livers

of Yes. a especially well, sense Could geographies you give performed what side of the us U.S. auto in the business?

Paul Donahue

a Yes. our terrific team our were of Happy markets. to We quarter Jonathan. single-digit with comps. certainly We Midwest led strong our Midwest in business, in by had saw quarter some strength real the biggest

had year. strong Our that also has and been all performing very team well part the of a Northeast country quarter,

warmer been of markets up Some Southwest and well. has Southeast the Southeast the performed the us. Again, year our for of to stepping most

four I be definitely So call those would out. would that

Jonathan Livers

if had it just Thank just know follow-up any discuss? the that the I mentioned the Yes. – that the impact of or Southeast what a mentioned quick could but of perhaps briefly Florence kind quantify could, on it you had business? impact in there? beginning And I you was strong, Hurricane quarter that. you You for at the

Paul Donahue

first helping appreciate -- Yes. which in across and an October in events, question. sales our close Atlantic storm-related-type two branches in really had Michael, up Well, that time significant But have as the also to, other years. branches focus their our in the hurricane well as just well Panama to City Panhandle. as stores in impacted. of And at in closed. the of good owners, Panhandle like. as of definitely one you, think associates with recover well still Jonathan, back asking get and had was as had pick electricity. both tell stores Georgia some hit were closed had the a Michael, We in that XXX really many would our stores. bit which, impact the XX-plus would the that well U.S. generators, those have The hit Motion had I supplies Florence were and in one from We do assisting as that Motion not feet as but but but our division, I at we I NAPA, worst cleanup had is parts -- the damage. Panhandle the on we damages the damage, business some was our stores we Carolinas. South up more independent I We know, and you be significant of our products, think, as We'll water

Jonathan Livers

for you Thank the color. much it. very Got

Paul Donahue

You’re welcome.

Operator

question Please of your the next Our Matt line comes Fassler with question. with proceed Goldman from Sachs.

Matt Fassler

start Appreciate to want quick it. so Thanks on ones of much. a couple Automotive. with I

pace the through September in about comp guidance automotive particular. the and for quarter? your trend talk you QX all, about of in First the spoke of through organic the you Can implied fourth

Carol Yancey

Sure.

Automotive where would We to are through we implying similar guidance the comp full year. be for are an

nine have excluding if comps, X%, and the range. our the in X% you we look X% months AAG maybe Automotive, through assume would at more so QX we but X% So comps around to Automotive towards total that would

So that's implied guidance. Matthew in our

Matt Fassler

Got you. seen only only that off Anything And that? you shake for there's quarter-to-date know XX, we're on to I days. that October XX you've

Carol Yancey

with consistent that's what Well, our QX guidance is. implied

with to comfortable that going range. we're again, So be

Matt Fassler

in sales on sales of cost you the in business, you're more underway. closing factors, referred you second to to have initiatives the X% I I comp maybe Industrial, that think ability the conditions? a that and your are as you Understood. of strength? some then about if you what some see it Can your And the you. there If we Is are to move clearly you above that from leverage talk that talk, store function function and you get you do sales through with or that can some well. and XXXX. gap into can question, And Got know the leverage to as more need comp could traction the impacting level? of line recovered Is industry then, about the wins, it peers them guess, you spoke extract a getting of cross of year what

Carol Yancey

Yes.

So pleased had gross Industrial where and margin sales really called we actually, are we year, with all great as question. And line. basis, improvement is on look, out nice the a they've from

on year, increase we in they out pointed cost. for headwinds businesses, quarter line. are year-to-date, and in bps to with So all gross nice, close margin the I freight-related improvement freight the as is XX mean, as and the SG&A, saw, Where and significant many

before. So to QX the payroll talked We about XX XX saw seeing. have which, and points are again, we it tune in Also, of basis pressures, is some QX. what in seeing we to

they have on much So passing teams are our X% industrial it's those as that, pass look increases leverage said along having to sure them these and can -- SG&A them to side. really hard causing causing strong despite a the quite that growth, working make to forward not along. Having

of just to also of are contract. business the quickly freight You because staffing like on able as levels it their looking SG&A. as along drive But their don't so always recovery to to cost overall they're of and better much pass they're working is under you'd hard invoicing, through and kind higher leverage

really us see are back but that improvement there So are again, line. the SG&A the on things holding we

Paul Donahue

the and team at add And where I is consolidate possible to just facilities branches and that, would to Matt, where at necessary. Motion always looking opportunities

productivity-enhancing optimize our that tools well. further at our business, looking last Automotive help as And then we in will just us do strategies. looking investing is, technology we're also are our as in pricing constantly and at approach We operations pricing in

Matt Fassler

Understood you Thank much guys. that. for so

Paul Donahue

Thanks Welcome. You’re Matt.

Operator

Our next with comes Lynch. line America proceed with question Please Suzuki of Bank your from Merrill the Elizabeth of question.

Elizabeth Suzuki

start look do you I would you're we business question of winter be and year demographics the for versus in slowing any for concern in one on side. seeing, XXXX? guys the is think like fleet there's would in or reason we have and your vehicles normal that a a to on, mean, do that to Just auto that particularly anything cause the – believe XXXX macro as some reason demand you planning, next think that out you to if be demand

Paul Donahue

there ourselves and parts If the of your a a benefit. we'll the tailwinds get as aging park see some be we think the the XXXX of park – from XXXX no, in for that actually question, will we from that the further car would the thanks is car distance we suggest our on should U.S. in anything, business and nothing slowdown here Elizabeth, that horizon

for the U.S. with best. started that's our see assuming the it are you parts well. we they expect – and we impact. to to We'll are But to bullish – perform an just no, normal weather, continue here have we'll continue So hope out in business to on always

Elizabeth Suzuki

Great. Thanks.

Paul Donahue

welcome You’re

Operator

Basham question of the from Wedbush. Please with Seth with Our line question. proceed your comes next

Seth Basham

margins. question first gross the on My is

auto from Another performance, the hoping the margin improvement the good AAG as by U.S. was quantify of increase contribution of AAG. could I margin course, well businesses? you as gross in the driven gross

Carol Yancey

Yes.

I improvement of from what points. well. probably about And AAG, Industrial Automotive impact improvement the to to speak would combination came was the talked strip U.S. XX the you So XX on basis a as would say I that that, margin up and margin, our gross of in if I quarter earlier also the gross out that

which Now these that on the is are mix the offset being primarily year. decline by side, issues to Products Business related basically we've a faced all

be able of again, quarters, been see gross continue and profit, core for would improvement consistently couple we our has a expect there. to pretty So to up to

Seth Basham

Got it.

quarter? bps So with XX in XX probably the year-over-year up is somewhere for the U.S. that Industrial so, bps Automotive business the range up would or suggest

Carol Yancey

fair Yes, estimate. a that's

Seth Basham

forward. Thank secondly, that able think you as we tariffs, of you to – And tariffs you on along perspective any Could right, great. if a you've you then tariffs expect been recoup guys able impact be pass and mentioned price raising going to as costs? increases you. the started to you've about All already all the result tariffs us to if those that prices give related some of

Carol Yancey

Yes.

comment So Industrial on first the is I side. think I the mentioned

some products. have of heavy materials components China part year-to-date, indirectly X.X%. be manufacturing a that final from is could pretty there saw partners and inflation You of of number because – there are are they've That tariff-related their that that seen that –

lag as mean, it that's relates a impact tariff passing was we implied that to some there little minimal talked about But is I business, there Products, in tariffs. side is we the and the would bit and through Automotive of there. Industrial there say through Business So months, the and of that nine a

in quarter September. know, the the X the came more week last the List into last As effect you – tariff, significant for

pass have intention and look be be working, ahead with So we as to our expect suppliers, along on our we that, we very those been customer. would the to working closely and to would

Paul Donahue

just I to Carol of couple add would what said. a comments Seth,

as the there's of talked tariffs things that's Motion. positive a the as and much get tariffs, discussed to situation One we outcome that about for doesn't with well

biggest and If are recall, top- customers of those an a steel. and quarter you is performing got promotion. in one back business few mills our coming iron We've of our segments U.S., past online this the up

So day, that in have accordingly. we'll very to situation business our we Seth, of you well. marketplace the as also the past. and monitor respond But is the end benefiting the tell expectation in the watch price that do pass closely. would will the competitively the I continues along we'll are very from up We'll we increases lining at But tariffs, is very, that we

Seth Basham

on follow-up Paul. just And it. a Got that

you from some COGS think China. your guys of I have mentioned U.S. are XX% auto

you for As sources to some those find a would products from other coming strategy, mitigation China? of look

Paul Donahue

China and shift would, very The coming is closer a And we of would it, we We like continue advantage NAPA other to that amount so. competitive if can we have we sort sources, a said, of shift sources as Seth. market. can't say having just do XX%. that in Automotive look to we the will imports other for particular our of alternative is remain parts our strong brand find I extremely and of countries quickly we we would out Yes, can say, if directly the I group. is to XX% and monitor into But total we'll to

Seth Basham

and you very Got luck. it. good Thank much

Paul Donahue

welcome. Your

Operator

comes the Bret of your proceed line with Our Jordan question. question Jefferies. next from with Please

Bret Jordan

as guys. do the or Europe? think have like in businesses about morning you AAG, how as lever you a Question out an battery incremental you and Good I AP-to-inventory two the capital, mix? EBITDA given maybe on margins business in year working guess, then, looking basis we on done how And distribution, build

Carol Yancey

extended vendors purchasing. capital improvement working then a existing level more and completely with our was off that in capital for of with U.S. the QX business, our terms also of comment start I'll Automotive, in so impact AAG working and our of some core Yes, just primarily driven with normalized by

got know the there. to we what within improvement, of of capital a will that number things not be specifically having is said the three those next – we AAG. we got synergies that in out have for we've working So able impact years at that, and the of end the achieve improvement seen the working process But capital we've

there AAG working encouraged we opportunities are opportunities So there. that are know from on the capital we have certainly by coming and

Paul Donahue

we the margins. those not second And some intend active we've the continue in to to of question, then be our to part quite expectations you and Europe would as – on dilutive your been be. Bret, is front know, our acquisitions, of our with M&A will I just And overall

and we has what and XXXX. excited for that's in, intend We're which been is think us – range. continue very both will see Platinum suspect, for same-store sales in moving in XXXX be keep forward. in in will and to markets three AAG us, I to finalized we we All we TMS in been that – be, core with and that that's acquisitions additive and been to of Hennig, honestly our QX. to currently core encouraging then growth, compete encouraging X% And X% the expect the the

Bret Jordan

final one auto. question U.S. the then And on Great. Okay.

is this X.X% was I'm do sort – gain accounts? line with Or question Have with share U.S. do new you accounts? think underlying you Or mentioned were of that up strength market that the is, you strong. that's You is national I national a the your national comp, just accounts number? in think guess, real existing picked growth?

Paul Donahue

see have Bret, wait public report. I companies other Well, guess, and we'll to the how

know sure. quite You for never

Bret Jordan

you was us. were That hoping point. I to tell was going the

Paul Donahue

you first great more pleased the seeing, I and see. has on we're sequential that are color X.X%, awfully prepared have see a the we've wait we're back would seen curve in is they worked with hard, business, continued to to little QX my a bit our bit nationally-branded an well. kind to awfully, just same-store into But chain, in team the the I our growth that and on little of Bret, our our as softness you're of fleet you'll out, out and XXXX. I of remarks, some sales. business us growth and one our in and a When look, turnaround doing a give said opportunity it's The government and a in business. Account Major that's of for called improvement our and get Where bit on

Bret Jordan

you. thank great Okay

Paul Donahue

Yes, you welcome.

Operator

of comes question proceed Greg the with with next question. Our line from Melich MoffettNathanson. Please your

Greg Melich

you Hi that that, mentioned guys. that thanks in things. that of guidance the SG&A of Was little in bit pressure anything there I showing and cost to more was up or up and freight Is a into the trend a calculation? SG&A. great wanted Carol, that unchanged top at the actually quarter I couple despite on the end follow reason was sales stronger? shift else guidance actually sort being think factored

Carol Yancey

also in those both growing mention, QX at right, QX and further you're payroll just the and of I'll are the Yes. freight, than a much our on and sales. pace

delivery growing payroll's So if or something X%. sales and XX% up without like and freight X%, X% AAG are is XX%, up

then impact to to guidance nine QX. based little certainly pressure and seeing quite there again, be continue an were acquisitions. FX far. We And the net The expecting on honestly, able are are just we months, we we had considered earnings a guidance QX. be pleased modification, in our we may real and were where where in raise of thus in a guidance. to far more look, to we pleased that really the of you're the headwinds, that and And $X.XX in So sales FX sales we're thus raise consider the negative fine-tuned quarter, bit when

a the we freight. from too. mentioned, payroll called We corporate have number, pressures out expense bit As and still little I of a

to based think really nine – be narrowing, through we just on we So are just months. where refining going where we're

Greg Melich

three times do it. yet? think we a ability debt plenty do the in, we then accounting a that's even a debt get to to of question. had and the new think level when haven't of standards? another you that so looked at we at X.X lease comes back you follow-up around – And other to add – over EBITDA. on Is EBITDA, times the Or now bit When balance then things. a guess, rough strategy I new about turn sheet, little that a have, Got I We're to Carol, Paul, about to

Carol Yancey

in we our now. would this change pleased with the it everybody fairly you you pulls that right and Actually, a at looking will with and quite minimum and flexibility, We how reasonable something if billion is at it a just we close. capital level looks have start lease without idea when we in I think at facing the there honestly, some really again, you're and everybody is that we're have certainly that. be – we're which $X.X at But we think go adjust. whether add improvement, When capacity all – companies our other still as working leases probably items But payments, and probably consistent of will are or there, like it this, look I out that.

our lease the or So allocation I of capital or is number going debt strategy change think strategy. basic acquisition don't the to

Greg Melich

been the side there's Paul, – retail on And auto of – it. the Got mentioned the you a of lot business.

shifts business? the just actions going on are of think doing But if this store thinking a Walmart. conflict that could time we the lot other with opinion, if about see or in it's seen much first do-it-for-me of is put considerations just it week, the hear have do-it-for-me there competitive to be I'd and with great within faster. doing summer, your a about Or that and while, like that? like a to interesting Advance growing store too this would to of – something like For a that something sort you something side

Paul Donahue

would didn't and for announcement, are now Parts a plan NAPA, far any get mechanics our an to launched as I strategy. as What going to the excited per omnichannel specific what how is tell We initiatives the their work. seeing which yesterday's here Greg, real We're our in continue you visits have are this really details is any driving million app over reaction. in online, is bit month. Yes. we'll and our us flagship it's to and about of or early We U.S. Company we own as Genuine what X.X from invest online

launched visits our as to had We day – have there, terms XX,XXX customers We X.X Canada both of We've shipped stores to well. click site having million our products over Australia. launched collecting directly recently and as in in home. site as new well visits. reached in a We in averaging

think I'm our our the So which strategy. that's going new the sites we're about omnichannel we you to be announcements we're you good. is And out would businesses, DIFM- what Greg, about glad think focused commercial focus. ever good of feel DIY-centric it on And and more feel called that when be centric. than our yesterday, real doing, I type

Greg Melich

luck. good Got it, and thanks lot a

Operator

with with line to Bottiglieri Research. constraints, of come the Please you. time proceed your Chris Wolfe from question. question final will Thank Due our

Chris Bottiglieri

XX% just mix? to suppliers, want the on from I source expecting. Chinese kind sourcing in of direct Hi, Does that lower sales Is than China. I the U.S. China? up that thanks. follow include a It was was

Carol Yancey

want Automotive, you Chris. gave clear again, at sold XX% tariff. to be of our outside for if U.S. impacted say, would U.S. sourced And be, that by When XX% goods would that what look XX%. China to probably cost be Yes, you is we out, which, is business, directly company, for look and I XX% we the at just so specifically total the about our U.S. said of again, Automotive –

products, their cost Office goods though the It's as work Industrial, aren't subject indirect. they Chinese I There's small to that's would of very, U.S. to a we it. sold something through like as look that tariffs, subject and more source of even down so, lot very products more And XX% amount. mentioned, we outside have the

goods when that So X% impacted. sold. of cost at you're look the like or In more XX% our GPC you something talking day, of in less total, the than of end maybe is for X% total, about

Paul Donahue

look would to it break start at you down impacted. now, need categories the Chris, right the on product start side know when to and impacted you also also we what's you Automotive that not look – to that I at various of are

our biggest chassis-type of none oil So categories really, you're filters, chemicals, significant product. in undercar, brake categories, we impacted rotors where a those which and tariffs. I some mentioned by tariffs, product the batteries, growth are saw earlier, QX, The at looking friction,

earlier we So normally groups also but we groups, yes, between it's sourcing we our do, that are the are is pricing product it And from pouring through teams intention comments, as a my competitive will data. pass I will monitor got where standpoint. to groups, our through we as We've working said our cross-functional again, our impactful. that in continue

Chris Bottiglieri

have just proposed are already yet? Or include helpful. really that does And numbers that passed then, That's this been tariffs through haven't officially you've passed? provided, those these been tariffs

Carol Yancey

So at about into are effect talking of three, billion end goods is what List in about the just we the very $XXX went September. that the tariff, XX%

nine there is that is what again, was impacted have – the specifically business impact there ones through is remember, about so really talking And impact, no been no on months. our the virtually – passed. just by no we're what And

Chris Bottiglieri

then And Got makes you. That just unrelated. sense.

update kind and count oil and of an fleet would on like rig rebasing. even business. your U.S. I So take

get levels to to to business your comp contributing is growth? And that, sense performing? that's that want what Just a of extent for, commercial high how

Paul Donahue

break you got mentioned down I our really the when Accounts at business, segments. to I and Chris, detail earlier, various Yes. get into look Major the

flat, nationally-branded some we softness saw – in Our Major our chains, in Where and where was a bit the basically well our Accounts was business. down of quarter. slightly business we some all performed fleets QX. our of in But government saw

is coming really that turn some hard business, and QX fleet to softness the work really So understand to our from that where team's hard XXXX. into heading in and of working to in going we're around

Chris Bottiglieri

for you Thank helpful. time. that’s you, the Got

Operator

you. Thank

question-and-answer now for the over reached I floor have session. We management back would the to the end like closing comments. turn to of

Carol Yancey

back for you look QX today. of you. earnings each Thank thank in to February. reporting to in forward with want we results Well, we participating to call And you to listening our our and

Operator

Ladies this teleconference. does conclude today's and gentlemen,

at a Thank your you wonderful day. for this participation, have may time. You lines disconnect and your

Genuine Parts (GPC) 18 Oct 182018 Q3 Earnings call transcript