Q2 2022 Genuine Parts Co Earnings Call
Good day, ladies and gentlemen, welcome to the genuine parts company second quarter 2022 earnings Conference call today's call is being recorded.
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A question and answer session will follow the presentation and instructions will be given at that time.
At this time I would like to turn the conference over to Sarah Jones Senior Vice President of Investor Relations. Please go ahead Sir.
Good morning, and thank you for joining us today for the genuine parts company second quarter 2022 earnings Conference call with me today are Paul Donahue, Our chairman and Chief Executive Officer will Stengel, our president and burden Napier, our executive Vice President and Chief Financial Officer.
As a reminder, today's conference call and webcast includes a slide presentation that can be found on the genuine parts company Investor Relations website.
Please be advised this call may include certain non-GAAP financial measures, which may be referred to during today's discussion of our results.
Appointed under generally accepted accounting principles a reconciliation of these measures is provided in the earnings press release issued this morning, which is also posted in the investors section of our website.
Today's call May also involve forward looking statements regarding the company and its businesses the company's actual results could differ materially from any forward looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release the company assumes no obligation to update any forward looking.
<unk> made during this call.
Now I'll turn the call over to Paul for his remarks.
Thank you said Ben Good morning, welcome to our second quarter 2022 earnings Conference call.
As Sid mentioned I'm here with well as well as Bert was on his first earnings call as CFO welcome to the call. Bert. We are pleased to report continued strong results from genuine parts company in the second quarter of 2020 to.
The GPC team had another record quarter, consisting up double digit sales and earnings increases.
In a steady cadence of continued growth throughout April may and June .
Total sales were $5 6 billion up 17%.
And adjusted earnings per share was $2 20 up 26% from last year.
We continue to benefit from the resiliency of our automotive and industrial businesses and the strategic mix of our operations.
We would like to thank our 53000 talented GPC teammates for their exceptional work and commitment to excellence.
A few highlights in the quarter include another quarterly sales record for GPC, and our automotive and industrial segments.
Segment operating margin expansion in both segments and for GPC overall.
Record quarterly earnings and double digit EPS growth for the eighth consecutive quarter.
And strong cash flow generation and the further strengthening of our balance sheet.
We continue to execute our key strategic initiatives to deliver market share gains and drive positive momentum in our top and bottom line results despite ongoing macroeconomic pressures.
Our teams are doing an excellent job of navigating supply chain disruptions and.
Enabling our business with the product we need to serve our customers and capture market share.
For example, we are investing in our businesses to enhance forecast accuracy for product demand.
Improved fill rates and optimize our network footprint.
Our size and global scale continue to be an advantage as we work to have the right part in the right place at the right time.
Likewise, our pricing strategies have proven valuable in substantially offsetting product inflation and rising freight cost.
Our M&A strategy has also been affected as you will hear from will the accelerated integration of K D. G has been executed by the high degree of precision and has had a meaningful impact on our industrial performance.
In addition, our global automotive teams have been active with ongoing strategic bolt on acquisitions, such as the addition of <unk>, which rounds out our national footprint in Germany, the largest economy in Europe .
We continue to explore a healthy pipeline of acquisition targets and M&A remains an important part of our global growth strategy.
Additionally, we are benefiting from ongoing initiatives such as accelerating the rollout of the Napa brand or international markets as well as further investing in b to B and B to C. Omnichannel enhancements to both our catalog data and technology platforms.
We also continue to upgrade our pricing and product category management strategy.
Further extend our leadership positions in the global automotive and industrial markets.
As we look at the operating environment more broadly.
Our automotive and industrial business are benefiting from several tailwind.
The continued increase in miles driven and the average age of vehicles limited new car inventory and elevated used car prices are are supporting demand in the automotive aftermarket and driving continued strength in the <unk> segment.
And industrial PMI continues to signal manufacturing expansion.
And industrial production showed gains again in the second quarter, representing the eighth consecutive quarter of growth.
We are closely monitoring potential consumer headwinds, including the effect of historically high inflation and its impact on gas prices freight and wages.
However, we will stay focused on our strategic initiatives and remain agile in the execution of our business on a day to day basis.
The enthusiasm and momentum in our business was on full display last week when for the first time in seven years, we hosted our 2022 Napa Expo in Las Vegas.
This gathering brought together more than 15000 global attendees, including Napa auto care customers independent Napa store owners, Napa store managers key suppliers and leaders across our operations.
He is an extraordinary event packed with seminars insight business building strategies and an extensive trade show featuring our global suppliers and key business partners.
We took the opportunity to introduce our new Napa brand campaign get up and go and you could feel the positive energy and excitement for the future of Napa and the automotive aftermarket overall.
The biggest takeaway is that the Napa team in the U S and across the globe is well positioned for the future.
During the quarter. We also had the opportunity to spend time in the field with our motion leadership team.
We visited our operations and customers across the Midwest and saw firsthand the momentum in our industrial business and the progress of the <unk> acquisition.
As we mentioned in our last call. We have been active in 2022 building on our commitment to responsible ESG business practices.
This has included formalizing our carbon emission reduction strategy as well as driving continued progress in DNI.
We look forward to providing additional details on our progress in these areas later this year as we publish our 2022 corporate sustainability report.
So again, we thank each of our GPC teammates for taking great care of our customers.
And delivering another quarter of record results.
Now I'll turn the call over to will.
Thank you Paul good morning, everyone.
I'd also like to thank the global GPC teams as well as our supplier partners for their ongoing commitment to serving our customers.
We appreciate the team effort and hard work to deliver great results around the world.
During the second quarter, we built on solid momentum and delivered strong results across both our automotive and industrial businesses are.
Our results were driven by team execution and disciplined focus on strategic initiatives.
We continue to align our initiatives around five foundational priorities, including talent and culture sales effectiveness technology supply chain and emerging technology will highlight select initiative examples as we review the business performance.
Turning to the performance details by segment total sales for our global automotive segment were $3 5 billion in the second quarter, an increase of approximately $271 million or eight 5% versus the same period last year.
Sales growth was relatively consistent in all three months of the quarter and on a comparable basis sales growth for the quarter was plus 8%.
Our global teams delivered mid single digit to low double digit comp growth across each of our operations and as Paul mentioned, the automotive segment continues to be driven by solid industry fundamentals and focused team execution.
Global automotive segment profit was $323 million and segment operating margin was nine 3%, representing a 20 basis point increase from the same period last year.
The improvement in segment profit was driven by strong operating discipline across our operations despite a dynamic environment.
During the second quarter, our automotive business experienced slightly higher product cost inflation compared to the mid single digit experienced in the first quarter the.
The pricing environment remains rational and we're pleased with the ongoing positive impact of our category management initiatives.
Looking ahead, we believe current levels of inflation will continue through the second half of 2022.
Now turning to an overview of our automotive businesses by geography.
In the U S. Automotive sales grew approximately 11% during the quarter with comparable sales growth of 7%.
Sales were solid across each U S region, and broadly across product categories with brakes filters and fluids, all posting double digit increases in the quarter.
We continue to be pleased with market share growth with many of our categories.
Sales to both commercial and retail customers were positive with low double digit commercial growth outpacing retail, which moderated to mid single digit growth as expected.
Our commercial business, representing approximately 80% of U S auto sales saw broad based strength across all customer segments.
Digital channels across all customers also performed well with low double digit sales growth during the second quarter, reflecting continued traction from investments in our Omnichannel experience.
Other select U S initiative examples to highlight include the rollout of an enhanced pro link our BTB digital commerce platform, new sales and marketing programs, including the new Napa get up and go brand campaign.
Pricing and sourcing analytics inventory and forecasting tools and DC productivity initiatives to name just a few.
In Canada sales grew approximately 16% in local currency during the second quarter.
Comparable sales were up 14% and up 26% on a two year stack reflective of the continued strength of the reopening of the Canadian market and solid team execution.
To highlight an example of emerging technology initiatives during the second quarter, We officially launched next drive in Canada.
Originally launched in Europe in 2020 next drive is a program that enables our network of automotive service centers to repair next generation hybrid and EV vehicles.
As part of this program, we partner with our vast service center network to offer product training tools and technology.
We currently have over 100 next drive service centers in the European market and we're excited to bring this offering to the Canadian market.
Our emerging technology Council comprised of global strategic partners also continues to help inform and advance our strategies.
In Europe , our automotive team delivered a terrific quarter as well despite the dynamic geopolitical environment.
Sales in Europe increased 19% in local currency in the second quarter.
Comparable sales increased 7% for the quarter and are up more than 40% on a two year stack basis.
<unk> growth continues to be driven by continued focus on strategic initiatives.
Initiatives highlights in Europe include New account expansion continued napa rollout within and across the region and technology and supply chain investments.
The recent low sawn in canola acquisitions in Spain, and Germany, respectively are also exceeding our expectations and we are encouraged by the opportunities we're working on to capture in these businesses.
In the Asia Pac automotive business sales in the second quarter increased 11% in local currency from last year.
Comparable sales were up 8% from last year and up 26% on a two year stack.
Both commercial and retail sales performed well with refco and Napa growth driven by strong execution of complementary customer value propositions and robust demand.
Our motorcycle accessories Division also performed well benefiting from ongoing store expansion.
In addition, during the second quarter, our Asia Pac team completed the acquisition of steady a leading Australian branded direct to consumer distributor of lighting products focused on the four wheel drive market.
The acquisition creates a differentiated product offering and a multibillion dollar profitable high growth segment in Australia, and New Zealand.
Turning to the global industrial segment during the second quarter total sales at motion were $2 1 billion, an increase of approximately $547 million or 34, 5%.
The sales cadence was consistently strong throughout the quarter and comparable sales, which exclude the benefit of <unk> increased 18% versus last year.
This marks our fifth consecutive quarter of double digit comparable growth driven by the strong performance in our North American business.
The strength in our North American industrial performance was broad based with double digit sales growth across virtually all product categories and major industry served with particular strength coming from equipment and machinery aggregate and cement and automotive customers.
Industrial segment profit was 225 million or 10, 6% of sales a new record for the industrial segment.
This represents a 110 basis point increase from the same period last year.
The improvement is a result of motions impressive growth and disciplined operating performance.
For the second quarter inflation in the industrial segment held in the low single digit range consistent with the levels. We saw in the first quarter.
The pricing environment remains rational and we do not expect any significant shifts in product inflation in our industrial business through the balance of 2022.
Select initiative highlights contributing to the strong performance in the industrial business includes sales programs to capture profitable share of wallet with target accounts data driven strategic pricing and sourcing programs technology investments to enhance the omnichannel experience and inventory productivity and.
Footprint optimization initiatives.
As Paul mentioned, the KCG acquisition has added to the motion team momentum.
The teams are executing well defined plans with customers suppliers and teammates to deliver growth and create value as a combined business.
To provide a bit more commentary on the recent integration progress the team successfully on boarded Katie G associates to motion HR programs accelerated the realignment of functional support teams integrated systems and accelerated the co location of overlapping branches.
In addition, the team partnered with vendors to improve programs and product availability utilized cross functional field teams to sell services across shared customers.
Harmonized inventory strategies and rebranded stores under the motion banner.
All major work streams are at or ahead of plan.
We're extremely pleased with the momentum of the integration efforts and excited for the growth opportunities as one motion team.
As we execute on our global initiatives, we complement them with strategic bolt on acquisitions to capture share in our fragmented markets and create shareholder value the.
The M&A pipeline continues to be active and we will remain disciplined to pursue transactions that advance our strategy to deliver profitable growth and create long term value.
In summary, we had another terrific quarter, which resulted in record sales and profit for genuine parts company.
We acknowledge that the macro environment remains dynamic, but we learned as a team from the challenges presented by the pandemic.
We continue to prioritize our customers as we analyze our business indicators remain agile and strategically invest with discipline in initiatives that extend our global leadership positions.
Thank you again to the entire GPC team for an exceptional quarter.
And with that I'll turn the call over to Bert.
Thank you will and thanks to everyone for joining us today as Paul and then we'll have shared we had an excellent second quarter and I am pleased to walk you through the key highlights are.
Our comments this morning focused primarily on our adjusted quarterly results, which exclude nonrecurring items that I'll cover in more detail shortly.
Total GPC sales were $5 6 billion in the second quarter up $819 million or 17, 1% from last year.
Our increase in total sales reflects an 11, 5% increase in comparable sales, including mid single digit inflation and an eight 8% contribution from acquisitions.
These items were partially offset by a three 3% unfavorable impact of foreign currency.
Our gross margin was 35% a 30 basis point decrease compared to the second quarter last year and in line with our expectations.
Our gross margin in the second quarter was negatively impacted by headwinds from anticipated moderation in supplier incentives.
Foreign currency and the timing of inflation in certain product categories.
These headwinds were substantially offset by the ongoing favorable impact of strategic category management initiatives, where we continue to leverage our growing global scale.
As an example of our strategic initiatives and category management. Our teams are utilizing technology innovative data analytics and AI to forecast supply chain lead times and changes in market demand to ensure optimal inventory levels.
These actions along with our pricing initiatives positively impacted our gross margin in the second quarter.
For the full year, we expect our gross margin rate to be consistent with 2021, as we are relentlessly managing the impact of product and supplier price increases in our costs.
Our total operating and non operating expenses, excluding nonrecurring items were approximately $1 5 billion.
Up 15% from 2021 and at 27, 6% of sales compared to 28, 1% of sales in the prior year.
We continue to leverage our expenses, despite ongoing inflationary pressures across all costs, particularly in freight and shipping charges.
Our teams remain focused on further reducing expenses and driving operational efficiencies across the business.
With our strong performance segment profit was $548 million up 24% and our segment profit margin was nine 8% a 60 basis point increase from last year and up 160 basis points from 2019.
With a very challenging operating environment over the past few years ranging from the pandemic to current inflationary dynamics. We are very proud of the work our teams have done to improve our segment margin over the last three years.
As outlined in our earnings release, our second quarter results include two nonrecurring items.
The first item relates to the sale of SP Richards real estate, which generated $140 million in cash proceeds and resulted in a nonrecurring gain of $103 million.
The S. P. Richards properties sold this quarter were not divested with that business in 2020, and we are extremely pleased to monetize these assets and reinvest this capital across the GPC portfolio.
In addition, during the second quarter, we incurred approximately $25 million of costs related to our <unk> acquisition, including a noncash impairment charge of $17 million for legacy motion brand name that will no longer be used as a result of the acquisition of <unk>.
Our second quarter, adjusted net income, which excludes 59 million or <unk> 42 per diluted share in the nonrecurring items I just discussed was 313 million or $2 20 per diluted share.
This compares to adjusted net income of $253 million or $1 74 per diluted share in the prior year, an increase of 26%.
This strong growth is indicative of the crisp execution of our initiatives to deliver accelerated growth and profitability.
As we turn to our balance sheet at June 30, our total accounts receivable balances were up 18% with inventory up 17% and both in line with the increase in sales.
Likewise accounts payable increased 14% from 2021, which correlates to the increase in inventory.
We continue to generate strong cash flows with $392 million in cash from operations in the second quarter and $791 million for the six months up 12% from last year.
For the full year, we continue to expect cash from operations to be in the $1 5 billion to $1 $7 billion range with free cash flow of one two to $1 4 billion.
We closed the second quarter with $2 billion in available liquidity and our debt to adjusted EBITDA is one eight times.
This is slightly below our targeted range of two to two five times and highlights our financial strength and flexibility.
The key priorities for capital allocation at GPC remain unchanged. As a reminder, these included reinvestment in our business through capital expenditures and M&A and the return of capital to our shareholders through dividends and share repurchases.
During 2022, we have invested 153 million and capital expenditures, including $75 million in the second quarter and continued to plan for additional strategic investments through the balance of the year.
These investments are primarily in technology and projects to further automate and consolidate our distribution networks and drive productivity throughout the business.
Beyond Capex. During 2022, we have also invested $1 6 billion for acquisition and returned $366 million to shareholders in the form of dividends and share repurchases.
This includes $243 million in cash dividends paid to our shareholders and $123 million in cash to repurchase 943000 shares as a reminder, we have increased the annual dividend for 66 consecutive years.
Turning to our current outlook for 2022, we are updating our full year guidance previously provided in our first quarter earnings release.
We are raising adjusted diluted earnings per share to a range of $7 80.
Two $7 95.
Which represents an increase of 13% to 15% from 2021 and up from our previous guidance of $7 70.
To $7 85.
Our revised EPS guidance includes an incremental headwind of approximately <unk> <unk> due to foreign currency relative to the outlook we provided in April .
We expect total sales growth for 2022 to be in a range of 12% to 14% an increase from 10% to 12% previously.
By business segment, we are guiding to the following.
6% to 8% total sales growth for the automotive segment and increased from 5% to 7% previously.
The new outlook reflects 6% to 8% comp sales growth consistent with our previous estimate.
For the industrial segment, we are updating our total sales outlook to 26% to 28% an increase from our previous outlook of 21% to 23%.
The new outlook includes a 9% to 11% comp sales increase which is up from $5 to 7% previously.
We've had an exceptional first half of 2022 boosted by our industrial business and the success of our acquisition of KCG, along with solid global automotive results.
Our outlook for the full year reflects our ongoing confidence in our businesses to execute on our strategies, despite a dynamic and uncertain external landscape.
Our continued strong cash flow generation also provides us with full flexibility to continue to invest in the business and return cash to our shareholders through our dividend.
We look forward to reporting on our progress and our third quarter call in October .
And we will now turn it back to the operator for your questions.
Thank you we will now begin the question and answer session to ask a question in My Press Star then one on your Touchtone phone.
If you're using a speaker phone we ask that you. Please pickup your handset before pressing machines to withdraw your question. Please press Star then two.
Today's first question comes from Chris <unk> at Jpmorgan. Please go ahead.
Thanks, Good morning, everybody. So a few questions on from a topline perspective, so so focusing first on the on the U S Napa business.
Interesting to note that year.
<unk> business with some of your peers talked about a late spring impacting sort of the.
Started the quarter. So can you give us a sense if that customer how consistent that comp cadence was during the quarter and then Moreover, as you're thinking about quarter to date. What are you seeing in the U S. Walmart pre announced earlier this week talking about pressures on.
The low end consumer and some other companies have said that as well. So just curious if youre seeing any variation in the DIY side of the business in the U S.
Yes, Chris Good morning, It's will here, let me take a crack and Bert and Paul jump in.
If you have anything to add.
As you alluded to generally speaking U S automotive combined do it for me do it yourself consistent through the.
The quarter on a monthly basis.
I would say on the do it yourself side, we did see some moderation through the quarter as we expected.
Based on year over year comparable I would say that we're not reading into a softness in the customer based on what we're seeing in our data.
And so I'm not sure that we have the same takeaway that perhaps some of your traditional retailers are reading through in terms of the health of the consumer.
And I would Chris I would just.
Add on to that you've kind of asked about the current quarter pleased to report that.
U S automotive continues to be in.
In good shape the trends we're seeing in July are very similar to what we saw in Q2. So.
Less positive on the U S automotive front.
So just.
Double click on that a little bit the DIY moderation was really just anniversarying stimulus.
Hum.
From April of last year, we agree.
And then separately on the motion business motions to in an incredibly well one of your peers and the industrial parts distribution business talked about some some signs of moderation as they so other quarter progressed and into the current quarter. So curious if you had any comments on that side.
As well.
Yes, Chris.
Similarly, we saw very consistent strength through the quarter.
And as Paul alluded to kind of early looks in commentary around July we're seeing that continued strength coming out of the quarter as well as we had in our prepared remarks, we saw broad strength across all of our end markets. We saw broad strength across all of our product product category and we spend a lot.
At a time in the field talking with customers and I would say the mood is cautious but on.
On the margin quite positive, we're obviously watching it and cautiously optimistic but we feel good about what we're seeing in the business.
And one last quick follow on obviously a lot of questions about whats going on in Europe , how is that business holding up as sort of the years played out with the war in energy prices over in that region.
Yeah, I'll take I'll take that Chris our European business.
<unk> to be <unk>.
Rock solid we had we had another really good quarter I could not be more proud of.
Our European team and we saw it across all of our markets we saw.
Really nice.
Sales increase in Germany, our Netherlands business is strong.
Really pleased to see our business in France.
Hosting mid single digits. So all is good there as you know we're not in.
Russia, Ukraine and.
So not necessarily feeling that impact you mentioned the.
The energy issue.
Chris, which obviously is getting a lot of press and we're watching it closely we are not an energy dependent business.
So our Dcs our stores will continue to operate.
As they always have so we're watching it certainly we're concerned we're a little concerned over the.
Tangible for some economic challenges, but again pleased to say really strong quarter by our team and we're seeing that strength carryover.
Into Q3 as well.
Thanks, very much best of luck. Thank you thanks, Chris.
And ladies and gentlemen, our next question comes from Michael Mantovani with Evercore ISI. Please go ahead.
Hey, good morning, Thanks for taking the question.
Just wanted to ask if I could about the sales guidance, which seems to imply to hit the midpoint for the full year for example in automotive 4%.
500 bps of moderation and then a 10 percentage point plus slowdown for industrial just wanted to see if that's kind of more conservatism if theres something in particular that youre seeing how we should think about that in light of some of the traction that you've discussed for your initiatives.
I'll take that one it's Bert Mike Good morning. Thanks for the question look first I'd just like to thank our teams for the tremendous work so far in the first half.
To give you some color on the guidance from there.
Certainly exceeded our expectations in the first half the business continues to be very resilient and balanced.
A number of factors were contemplated into how we raised guidance obviously.
Sales numbers that I provided in my prepared comments the outperformance in the first half and the momentum we see in the underlying business that Paul and we will have talked about we needed to balance that against the fact that we just can't ignore that theres tightening economic conditions that potentially could impact businesses in the second half.
So we're trying to balance the strength of the first half and our momentum exiting Q2, while being eyes wide open and prudent about what we see out there and again, we've already talked about a few of these things with inflation.
Lingering COVID-19 conditions, the geopolitical landscape ongoing supply chain supply chain constraints.
Look on the back half guide for sales our original plan for the year assumes some normalization of growth rate.
In the second half and our views are really unchanged on that when you look at a year ago. The outperformance we had in the second half.
It was quite significant and we just can't expect that.
Year for year repeat of that level of outperformance. So we moderated that a little bit look at a normalized growth rate in the second half.
As I mentioned in my prepared comments, we do have some FX headwinds that are incremental to our guide in April about <unk> as we look at that but look we're going to stay focused.
Look for additional growth opportunities in the second half.
Stay disciplined on cost and look for efficiency gains.
But at the end of the day, we're going to improve operating margin and have operating margin expansion for the full year, and we think thats a pretty good outcome.
Got it. Thank you and then if I could follow up just.
Just on the cost side, one question bit of housekeeping, but just how to think about interest expense in light of some of the move up in interest rates and then secondly on.
Gross margins given the strong organic growth and then inorganic increases.
Kind of why the supplier incentive pressure there I would think you guys might've had some incremental benefits going on there.
Yes, I'll take I guess I'll take both of those.
Look I think we're really in a positive spot on our capital structure. We are at one at one eight times Levered that's below our range of two to two five times, we have a very strong investment grade rating and we look at our debt structure, it's nearly 100% fixed with some episodic borrowing against our revolver.
<unk>, usually intra month, but when you look at that I don't see a lot of volatility there. We've got a weighted average interest rate of two 3%. The only place we've seen a little bit of pressure is in our AR securitization program and.
Operating expenses.
But it's still very very attractive capital source for us.
And really not anything of consequence to call out there in terms of gross margin back to your question on that look we landed at 35% for the quarter.
That was in line with our own expectations.
The underlying execution from our teams, which has been absolutely tremendous.
Core activities around category management, and pricing has driven significant margin improvement as I mentioned in my prepared remarks. Unfortunately, that's a bit hard to see this quarter, we got three big factors masking that.
Some expected moderation in supplier rebates as you mentioned and I'll talk about that here shortly foreign currency and inflation. When you look at the supplier rebates those moderated from a year ago.
We had some heightened supply chain challenges in the prior year that you're all intimately aware of and those impacted the amounts we received from our suppliers.
And so that's abated a bit if you recall, we had a 40 basis point margin expansion from those a year ago and so that as anticipated.
Moderate at the great. The great part about that the flip side of that as we have more inventory to get to our customers and we've got a better level of availability to be able to drive through to the business.
I'll just land that point with we expect gross margin for the full year to be consistent with 2021 and again, we think that's a great outcome in this very dynamic environment.
Got it thank you and good luck.
Thank you Mike.
And our next question today comes from Liz Suzuki of Bank of America. Please go ahead.
Great. Thank you just one.
Inflation, which is the kind of topic, just or what do you think pricing and margins could look like when inflation ultimately moves in the other direction is and if we find ourselves in a deflationary environment and can you hold on to price actions, you've taken where do you think the competitive environment has changed such that it might get more challenging to keep pricing sticky.
He led the spurt how're you doing hope you're having a good summer thanks for the question.
Look I'll take that one a bit look the inflationary environment that has persisted.
No doubt a tough dynamic out there for everyone.
Very intense focus from from everyone and our teams are doing a great job of managing it and <unk>.
We've been able to generally passed along as you pointed out price increases.
To mitigate the impact our strategy there has been to protect gross margin rate.
So thats our focus if you look at the downside of that we wouldn't expect to see the environment pull back on pricing.
Obviously that would take some time to work through but we wouldn't see an immediate pullback and the environment will stay competitive on that front.
And watch the marketplace, but again I think the bottom line is we wouldn't see a big pullback in terms of pricing or the pricing environment in general and obviously cost changes take quite some time to work through the supply chain.
Great. Thank you and just how much of the comp growth in each of your segments. Do you think will be attributable to inflation or SKU for SKU inflation for the year and as you look out into next year do you expect that to moderate.
I think I'll start with the back half of your question I'd, just say for the back half of the year, we really as will mentioned in his remarks expect installation levels to stay where they are from here for the rest of the year that we contemplated it in our guide that's a slight uptick from from what we saw in the first quarter.
And then if you look at it all up for GPC consolidated we see the impact kind of mid single digits on the top line within the motion industrial business, that's low single digits on the top line and then for the auto business globally. We.
And we see that in the high single digits on the top line for the rest of the year.
Great. Thank you.
Or.
Ladies and gentlemen, our next question today comes from Scott Searle with choice Securities. Please go ahead.
Morning, guys Scot Ciccarelli.
So just a clarification on that same SKU inflation concept and specifically in the U S. So are we basically seeing that.
Units are fairly steady or flat comp gains coming from rising prices or is there another lever in there we got to the.
Cognizant of.
Hi, Scott Thanks for the question that Bert I'm on a roll here I'll keep taken these.
Yes, I think the best way to characterize it is how you couched.
Couched it there we'd see the environment too.
Flattish in terms of how the U S auto business is performing.
Got it.
And then pivot to the European business once again.
We know what our experience in the U S is Dan when you have a spike in gas prices people tend to often drive less they need a little less.
Maintenance, because there is less wear and tear on the vehicles.
And energy centric challenge for a lot of countries that you guys are operating in Europe .
Could become a lot worse in the next call it six to nine months.
What is your what is your view and what is your history say regarding those markets do they act any differently than what we see in the U S or is that pretty consistent kind of by geography to geography, Hey.
Hey, Scott This is Paul I'll take that.
Look the environment, we see in Europe .
And our five years now and that market is very consistent with what we see in the U S.
Sure.
Look at it.
It's steady.
As we've seen in the in the U S. The auto automotive aftermarket is incredibly resilient.
If if.
There is a recession, which many are predicting but it remains to be seen we expect our business to continue to move in a positive direction. So.
We're very pleased with our team with our performance with our footprint, which excludes eastern Europe .
And with our performance to date, which has been very very strong and as you heard in the quarter, Scott we expanded our footprint.
First quarter in the Spain and certainly.
<unk> expanded our footprint in Germany. This past quarter, so where we are in a good place with a great team and.
With a positive outlook for the balance of the year.
Great. Thanks, a lot guys.
And our next question today comes from Bret Jordan of Jefferies. Please go ahead.
Hey, good morning, guys.
Could you talk about I think you mentioned fill rates improving but you could you talk about sort of where you are on supply chain improvement and obviously a year ago first half of 'twenty. One there are a lot of supply constraints, but maybe where are we versus.
Sort of a target or normal levels.
Yes.
Well here I'll take that one so I would characterize global supply chain.
Stable to slightly improved over the last 100 days, we've seen a moderation in our ocean freight rates.
I'd say that the ports.
<unk> continued to be more congested than average in particular on the east coast now relative to what we saw early in the year on the West Coast.
But the suppliers arent experiencing problems obtaining vessel space, which is a positive development lockdowns are moderating over in Asia, which is a positive development.
And I think for us as we've thought through and work through these developments, we've improved actually how we execute so we've rebalanced some of our core activity we've rebalanced.
Some of our supplier geographies and we're gaining some nice traction there. So the one thing that I would call out is the transport from port to final destination that is still challenged whether we're talking rail or freight logistics.
But net net.
Were slightly improved relative to where we were a 100 days ago.
Great and I think you talked about the cadence of the quarter from a sales standpoint did you see anything interesting regionally is there any real dispersion in.
In U S auto.
We saw a nice strength down the eastern half of the United States.
One could make the case that fuel prices on the west coast impacted that given there is so much more elevated relative to the national average, but the northeast southeast and our Atlantic region showed nice strength through the quarter.
Okay, Great and then final op.
Any sign of trade down you talked about stable consumer demand, but is there any kind of a mixed shift, particularly around the lower end consumer where they are looking for that lower.
Lower price point option.
Hey, Brett it's Bert I'll take that one and look we're not just we're not seeing much evidence of consumers trading down customers trading down at all I think the customer has been pretty resilient. Despite the rising fuel prices and other inflationary pressures.
When you look at the auto business.
Non discretionary to a large degree you need your car fixed in this environment, particularly with the shortage of new cars and higher used car prices as well so customers are focusing on availability and service, which is our sweet spot and.
We've got product readily available same on the industrial side, we're not seeing.
Pull back there the momentum continues as you saw in our Q2 results and so.
We just really to continue to focus on as will talked about supply chain inventory management and having the right product in the right place.
Great. Thank you.
And our next question today comes from Daniel Umbro with Stephens, Inc. Please go ahead.
Hey, good morning, guys. Thanks, I wanted to circle back on the pricing backdrop, obviously, it's been topical with some of your big peers investing in price. It sounds like you guys arent really feeling the impact of that yet I guess first is that still true you guys really aren't feeling any discernible impact and then we'll if not using price you you talked to a number of initiatives in your prepared remarks on the auto side.
Can you talk about which of those you expect to drive the most share gains or kind of what you guys are leaning into as you look out to next year and get back to share gains not just recouping some of the underperformance during COVID-19.
Okay.
Yes, Daniel let me see if I can't breakdown.
Your questions first piece was are we seeing any impact from competitive pricing strategies in the market and.
I would tell you that we're not seeing an impact from anything thats been announced by competitors as it relates to pricing the market continues to be rational.
We've talked a lot about here.
We're doing our own strategic work around pricing to be agile and react to the market and super proud of the team there. The second part of your question was which part of our initiative stack is driving share gains.
Near term in recently and all of our work around Salesforce effectiveness obviously.
Turning into nice momentum the pricing work is turning into a nice momentum.
All of our technology investments, that's improving the customer experience and making us easier to do business with.
And while I talk about I think your question was U S auto specific.
All of those initiatives are relevant as we look around the globe we have flavors.
In versions of all of those same initiatives, which I think is contributing to very nice global broad based strength.
Got it that's helpful and then Paul maybe a follow up on the industrial piece you guys talked about momentum continuing through the second quarter across all of your end markets.
Is it still true about half that business is contracted so you guys have good visibility into the back half of this year and then just within those end market and quarter to date are you seeing any signs of weakness.
Among different end markets or any any particular concerns you see there.
Now, we and you are correct.
Daniel It is about half of our business is under contract and.
Pleased to say, we are not seeing any signs of slowdown.
In our business segments, and certainly we could call out.
A few that we're continuing to see accelerate as we go into the second half so yeah.
Yes industrial is.
Performing incredibly well as you've heard throughout this call.
Got it.
I'll leave it there best of luck. Thank you. Thank you Daniel.
Ladies and gentlemen, we'll plan for one more question and today's final question comes from Seth Basham with Wedbush Securities. Please go ahead.
Thanks for that one good morning, guys.
Questions will start around the outlook for especially the U S. Napa business, just thinking about the trends in miles driven as gas prices are still very elevated do you expect pressure on.
Your business units declining perhaps on a comparable store basis in the U S. In the back half of the year as we see some of the moderation in key leading indicators for your business.
Okay.
Bart I will take that maybe we'll have a little bit will can have a low perspective to add to it as well, but look I think our guidance assumes that we continue to perform as Paul said world in the U S auto business.
It's a dynamic environment out there you see gas prices dropping.
And over the last several weeks. So that's a positive in terms of miles driven we continue to look at that very closely miles driven were up little over 1% in may most recent data we've seen and so I think the underlying fundamentals remain very robust for that market. You've got the average age of a car up for the fifth consecutive year.
You got all time low scrap rates.
You have pent up demand.
Four.
Travel I think across the U S. In terms of people wanting to get out and take vacations and so I think the underlying fundamental.
Fundamental for the marketplaces, there to continue to perform well.
And our guide reflects that.
I would just add onto that Seth.
Berg mentioned gasoline is coming down it's coming down quickly it's been it's down.
I think I heard this morning, <unk> 17 in the past week.
And what we're seeing is an incredibly resilient consumer.
From our friends at AAA.
88% of travelers over the July 4th weekend, which gasoline was well over $5 a gallon.
In that timeframe, 88% of travelers who are on the road in their vehicles. So.
As always the.
The automotive aftermarket is incredibly resilient.
I think our consumers are pretty resilient so.
We're feeling feeling good about our Napa business in the second half.
Got it thanks, and then a follow up question on the competitive environment and some of the big.
Competitors price investments youre, not seeing any major impact, but as the supply situation improves for WD.
Do you expect that to change the competitive environment at all.
I don't think we do.
It remains to be seen SaaS.
SaaS, but.
Look I think the.
The improvements were seeing in our Napa business, we saw it firsthand last week, we had 15000.
Our Napa store owners out of care centers, the positive momentum, we have coming out of that conference some positive momentum there.
I hear from our teams and our independent owners are Napa auto care centers are major accounts.
Our guys are in a good place and.
I expect that to continue in the second half of the year Seth I would just I would also add.
I think this is a market where scale really matters I think we've talked about that before and so as product comes into the market I think your scale and your global relationships make a difference so.
We feel like this.
A nice tailwind for us as we move forward.
Good to hear thank you very much.
Okay. Thank you, ladies and gentlemen, I'm showing no further questions I would like to turn the call back over to the management team for any final remarks, yes, thanks, Rocco and to all of our participating.
Analyst out there. Thanks for your question and thanks for participating and look I'd just close with our teams are doing great work, we couldnt be more proud of the results we turned in in Q2 and as we look ahead.
Q3, and the balance of 2022, we continue to believe.
<unk> is really well positioned with the financial strength to.
To continue to support our growth plan. So listen thanks again for your interest in GPC enjoy your summer and we'll see you in October .
Thanks, everyone.
Thank you ladies and gentlemen. This concludes today's conference call. You May now disconnect your lines and have a wonderful day.