Genuine Parts Company (GPC) Earnings

Management highlights

- Overall Q2 Performance * GPC delivered a strong Q2 2026 that exceeded internal plans, despite a dynamic macro environment including Middle East conflict tensions and persistent inflation. * Adjusted gross margin expanded 20 bps YoY to 37.9%, driven by strategic pricing and sourcing initiatives, matching management expectations. * All three segments delivered sequentially improving comparable sales growth from Q1 2026, with low single-digit price inflation benefits across all segments. - Business Separation Update * GPC remains on track to separate its global automotive and global industrial businesses into two independent public companies in Q1 2027. * The standalone audit for both businesses is complete, and a confidential Form 10 filing with the SEC is expected in late summer 2026. * Management has completed allocation of GPC's current corporate costs: $210-$230 million allocated to global automotive plus $25-$40 million in expected dis-synergies; $50-$75 million in standalone corporate costs allocated to global industrial plus $25-$40 million in dis-synergies. * Separate investor days for both standalone companies will be held in early December 2026 in New York to share strategy, financials, and capital allocation plans. * Management officially confirmed it is not currently in acquisition discussions with any competitor for the global automotive business, and remains committed to the planned separation. - Industrial Segment Operational Highlights * Motion grew sales in 11 of 14 tracked end markets, up from 10 in Q1 and 5 in Q2 2025, with notable growth in equipment and machinery, food product, iron and steel, automotive, and mining. * 80% of Motion sales come from core MRO, which grew 7% YoY with sequential improvement from Q1; 20% capital project sales grew 9% YoY, the strongest performance since Q1 2023, as deferred maintenance normalizes and large capital projects improve. - Automotive Segment Operational Highlights * In North America Automotive, commercial comparable sales grew 5.5% YoY at company-owned stores, while retail comparable sales decreased 3% YoY; non-discretionary repair and maintenance categories (85% of U.S. business) grew low-to-mid single digits, while discretionary categories improved sequentially to low single-digit growth. * Canada's sales grew 9% YoY in local currency, with the Benson acquisition exceeding operational and financial targets. * In Europe, total sales grew 4% YoY in local currency with comparable sales up 1%, with notable improvement in the UK and Germany; management notes the business is outperforming the broader market, driven by accretive bolt-on acquisitions and investments in supply chain and technology. * In Asia Pacific, total sales grew 2% YoY in local currency with comparable sales up 1%; Australia's Repco business was named 2026 Major Retailer of the Year, and the team completed an on-time, on-budget warehouse management system implementation.

Guidance

- Management reaffirmed full year 2026 adjusted diluted EPS guidance of $7.50 to $8.00, which represents 5% growth at the midpoint versus 2025 and excludes one-time separation-related costs. Diluted EPS including restructuring and separation costs is expected to be $5.90 to $6.40. - Total GPC full year sales growth guidance is maintained at 3% to 5% YoY, with assumptions of roughly flat market growth, ~2% pricing benefit from inflation and tariffs, ~1% growth from M&A, ~1% growth from strategic initiatives, and ~1% benefit from foreign exchange. - Global automotive full year revenue guidance has been lowered by approximately 0.5 percentage points, due to sustained consumer sentiment pressure from higher energy prices driven by the ongoing Iran conflict. - Gross margin guidance for 2026 is maintained, as management expects to pass through most supplier cost increases from inflation and the Iran conflict. - Full year transformation and restructuring cost guidance is maintained at $225 million to $250 million, with 2026 expected cost savings of $100 million to $125 million, excluding separation-related costs. - Management expects $20 million to $30 million in incremental Iran conflict-related operating costs (primarily freight and fuel) in the second half of 2026.

Segment performance

GPC reported total Q2 2026 sales of $6.5 billion, a 6% increase year-over-year (YoY). Adjusted earnings per share (EPS) was $2.15, up from $2.10 YoY. Total adjusted EBITDA increased 4% YoY to $574 million, with an adjusted EBITDA margin of 8.7%, down 20 basis points (bps) YoY. 1. Industrial (Motion): Total Q2 sales were $2.4 billion, up 7% YoY, with comparable sales up 6% YoY. This segment contributed 36.9% of GPC's total Q2 revenue. Industrial segment EBITDA was $316 million, up 10% YoY, with an EBITDA margin of 13.1%, an increase of 30 bps YoY. 2. North America Automotive: Total Q2 sales increased 4% YoY, with comparable sales up 2.6% YoY. This segment contributed approximately 34.7% of GPC's total Q2 revenue. North America Automotive EBITDA was $208 million, up 6% YoY, with an EBITDA margin of 8.2%, an increase of 20 bps YoY. 3. International Automotive: Total Q2 sales increased 8% YoY, with comparable sales up 1% YoY. This segment contributed approximately 28.4% of GPC's total Q2 revenue. International Automotive EBITDA was $150 million, up 6% YoY, with an EBITDA margin of 9.4%, a decrease of 20 bps YoY.

Risks & headwinds

- Ongoing Iran conflict in the Middle East continues to push up energy, freight, and fuel costs, and weakens consumer sentiment, particularly for the automotive segment, with $16 million in negative Q2 EBITDA impact already realized, and $20-$30 million in expected incremental costs in the second half of 2026. - Persistent inflation is pushing up input, labor, rent, healthcare, and freight costs across all segments, with U.S. healthcare costs already up 15% YoY and rent/freight costs up mid-single digits YoY. - Continued macroeconomic weakness in key markets including Canada, Australia, and Europe, with Australia facing 3 interest rate hikes in 2026 and 30-year record low consumer sentiment. - Post-separation dis-synergy costs are expected for both new standalone companies, with $25-$40 million in dis-synergies for each business; management will work to achieve the low end of this range. - Separation-related financing structure for the existing accounts receivable sales program remains under review, with potential for adjustments to the capital structure that could impact estimated post-separation costs.

Analyst Q&A

• Q: What will inflation levels be in the second half of 2026, and how will cost impacts compare to the first half? /

  A: Management expects top-line inflation to hold around 2% for the full year, in line with first half levels. Any incremental lift from the Iran conflict was not included in updated guidance. Inflation on SG&A and cost of goods sold is also expected to stay in the low single-digit range, with outsized mid-single-digit pressure on rent and freight from the conflict, but restructuring initiatives have kept people-related costs flat as a percentage of sales. All these inflation expectations are already factored into the updated 2026 guidance.

• Q: How is management approaching M&A opportunities ahead of the planned separation, and will it consider offers for parts of either business? /

  A: Management’s primary focus and full energy is dedicated to completing the planned separation into two independent public companies, which remains the core value-creating path. Bolt-on M&A pipeline building remains an ongoing, core strategic activity for both the future automotive and industrial standalone businesses, and that work will continue through the separation process. Management is comfortable with the current structure of both businesses and their growth profiles as standalone public companies.

• Q: What caused the July sales rebound after June’s flat performance for North American Automotive, and can volume growth accelerate amid rising gas prices? /

  A: Management notes the June slowdown was largely an anomaly driven by customer ordering patterns ahead of expected price increases tied to the Iran conflict, and July’s low single-digit growth is aligned with full Q2 performance. Industrial has maintained its solid growth momentum into July, and European automotive has held onto its Q2 sequential improvement. The guidance’s moderate second half outlook is prudent given the unresolved Iran conflict and ongoing pressure on consumer sentiment, which management expects to continue weighing on automotive demand.

• Q: What is driving expected gross margin improvement in the second half of 2026, and are there any temporary factors that will reverse? /

  A: Gross margin improvement is driven by ongoing strategic sourcing and pricing initiatives across both automotive and industrial segments, with execution of these strategies accelerating in the back half of the year. Additionally, the difficult year-over-year comparable gross margin from 2025’s acquisition benefits eases in the second half of 2026, making YoY comparisons easier. Management remains confident in full year gross margin expansion targets after delivering 20 bps of YoY expansion in Q2 even against tough 2025 comps.

• Q: What can drive acceleration in independent Napa owner sales growth, which has lagged company-owned store performance? /

  A: Management notes independent owners are a core, high-potential part of the automotive business model. After successfully rolling out performance improvement initiatives to company-owned stores that delivered 10 straight quarters of sequential growth improvement, the same playbook is now being deployed to independent owners. The business is segmenting owners by performance quartile and rolling out tailored solutions for sales, pricing, inventory, operations, and technology, with sequential improvement from 1% Q1 growth to 1.5% Q2 growth already realized, and top quartile independents already delivering 5% Q2 growth.