Q2 2023 Genuine Parts Co Earnings Call
Good day, ladies and gentlemen, welcome to the genuine parts company second quarter 'twenty twenty-three earnings conference call.
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At this time I would like to turn the conference over to Sid 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 2023 earnings Conference call.
With me today to share their remarks, Paul Donahue, our chairman and Chief Executive Officer.
Stangl, our president and Chief operating Officer, and Bert Navy, our executive Vice President and Chief Financial Officer, Tim.
Tim Walsh Senior director of Investor Relations is also joined us.
In addition to this morning's press release supplemental slide presentation can be found on the investors page of the genuine parts company 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 as reported under generally accepted accounting principles. A reconciliation of these measures is provided in the earnings press release.
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 statements made during this call.
Now I'll turn the call over to Paul for his remarks.
Thank you Seth and good morning, welcome to our second quarter 2023 earnings Conference call.
We are pleased to report another solid quarter with record sales and double digit adjusted earnings growth.
Our second quarter once again highlights the value and benefit of our global automotive and industrial businesses and the mix and geographic diversity of our company, which we believe are competitive advantages that differentiate <unk> in the marketplace.
A few highlights from our second quarter results include.
Total sales of $5 9 billion, an increase of five 6% from the prior year.
Earnings per share of $2.44, an increase of 10, 9% from adjusted earnings per share last year.
And our 12 consecutive quarter of double digit adjusted earnings growth.
And finally, we continue to maintain a strong balance sheet, while generating solid cash flow to support our growth initiatives and capital allocation priorities.
Our global team remains focused on the strategic initiatives, we highlighted at our Investor day in March.
And we believe our one <unk> approach is contributing to our strong financial performance.
We compete in two very large and fragmented market.
And see significant opportunities to grow our business expand our margin profile and generate strong cash flow to support our strategic investments, while delivering returns to our shareholders.
As we continue to navigate a dynamic macro environment.
We believe our focused execution investments in our business and strong industry fundamentals position <unk> for long term success.
Looking at our industrial segment demand trends held solid through the second quarter, even as the rate of sales growth tempered a bit relative to the first quarter as we expected.
Motions growth rate on a two year basis continues to be exceptional.
And while certain economic indicators have slowed we believe our strong market share position along with the diversity of our products services and end markets.
Well for our continued growth prospects.
In addition, future re shoring opportunities and the growth of domestic manufacturing industries provide significant opportunity for motion and.
As you will hear from will our team's focus on productivity and efficiency is driving significant margin expansion in the industrial segment.
Our global automotive business continues to benefit from the broad geographic diversity of our markets.
In addition, we believe our long history of supporting the D. I F M customer segment.
It's 80% of our global automotive sales.
<unk> does as well as sales grow to D. I F. M customers continues to outpace DIY sales growth.
During the second quarter, our international automotive businesses delivered strong mid single to double digit growth, while our U S automotive business experienced low single digit growth.
The fundamentals of the automotive aftermarket remain favorable with trends such as increasing miles driven and aging and complex vehicle fleet rising interest rates and continued high prices for vehicles, all contributing to underlying demand.
While the near term environment remains dynamic we are very pleased with our year to date performance.
And with the strong earnings growth in the second quarter. We are once again, raising our outlook for 2023 earnings per share, which Barry will discuss further.
As we look forward, we remain confident in our strategic plans and we will continue to invest to strengthen our business and achieve both our near and long term financial targets.
While returning capital to shareholders through the dividend and share repurchases.
So in closing I'd be remiss, if I didn't highlight the outstanding work of our HR and it teams in Q2.
Our implementation of workday.
In early July we completed the first phase of our implementation of the Workday HR platform in North America.
Continuing to demonstrate the modernization of our system platforms.
And supporting our teams with the right tools and the right technology.
Our HR and it teams delivered an exceptional outcome well ahead of schedule showcasing the benefits of our one G. P C talent and technology initiatives.
So before I turn it over to will we want to thank each of our 58000 GPC teammates for their hard work and continued dedication to serving our customers around the world.
So with that I'll turn the call over to will.
Thank you Paul good morning, everyone.
Also like to thank the global GPC team as well as our supplier partners for their ongoing commitment to serving our customers.
We appreciate all the hard work to take care of our customers every day with solutions that help keep the world moving we.
We do this with focus on our foundational priorities, including talent and culture sales effectiveness technology supply chain and emerging technology, all complemented by a disciplined M&A strategy.
We work together as one GPC team to create customer success and shareholder value.
On behalf of the entire GPC team, we would like to congratulate Kevin Hern on his well deserved retirement after an amazing 34 year career at the company.
Kevin earned success in all of his roles over the years, including the last five years as president of the U S automotive business.
He embodies our GPC values and it's been an inspirational leader and mentor to many around the world.
We're deeply grateful for his significant contributions to genuine parts company and wish him the very best in his retirement.
With Kevin's retirement, we also want to congratulate Randy Breaux on his promotion to group President GPC North America effective July one.
In the new role Randy will oversee both the automotive and industrial businesses across North America, while assuming day to day responsibility as president of the U S automotive group.
Randy is a proven leader with a track record of performance is relevant expertise across distribution industries familiarity with GPC teammates and stakeholders and success at motion make him the ideal candidate for the role.
This transition represents the depth of our leadership team and our talent strategies as we continue to leverage the power of one GPC.
Now turning to our two business segments.
Total sales for global industrial were $2 3 billion, an increase of $125 million or five 9%.
Comparable sales growth increased 6.0% in the second quarter versus last year.
The cadence through the quarter was relatively consistent with April being the strongest month, followed by mid single digit growth in both May and June .
The sales growth at motion was broad based again in the second quarter with all product categories. In major industries served posting positive gains from the prior year.
During the quarter, we saw strength from industries, such as food products iron and steel chemicals mining and oil and gas.
In addition motion continues to make excellent progress with its initiatives, including inside and outside sales pricing e-commerce growth focused tech and supply chain strategies, they're all helping to win profitable market share.
As an example motion has seen a nearly twofold increase in average daily sales across its e-commerce platform since 2021, which now represent nearly 30% of total motion daily sales.
In Asia Pac our motion business also delivered strong performance in the second quarter with double digit sales and profit growth.
Customer centric initiatives across talent and culture inventory availability and operational excellence are delivering positive results.
Industrial segment profit in the second quarter was $283 million or 12, 5% of sales representing a 190 basis point increase from the same period last year.
The profit improvement in industrial was driven by excellent operating rigor in both North America, and Australasia and the disciplined execution of strategic initiatives.
In addition, the motion North America team continues to realize synergies related to the KCG acquisition.
The team is substantially complete with the branch consolidation and merger efforts well ahead of initial plans and we expect to exceed our three year $50 million synergy commitment by the end of this year also well ahead of initial plans.
Turning to global automotive total sales in the second quarter were $3 7 billion, an increase of $188 million or five 4% versus the same period in 2022.
Similar to the first quarter total automotive sales benefited from our global diversification.
As our business is outside the U S posted mid single digit to double digit growth in local currency.
On a comparable basis global automotive sales increased four 3% ranging from low single digit growth in the U S to low double digit growth in Europe .
We saw global automotive sales inflation moderate from high single digit growth in the first quarter to low to mid single digit growth in the second quarter.
We remain encouraged by favorable fundamentals and solid team execution, which we believe will continue to drive profitable growth.
Global automotive segment profit in the second quarter was $329 million up two 1% versus the same period in 2022 and.
And segment operating margin was 9.0% compared to nine 3% in 2022.
As expected Automotives margin showed an improvement versus the first quarter.
The improvement in the second quarter reflects the impact of the cost actions implemented at U S automotive and we expect to see an increased benefit of these actions in the second half of the year.
Now, let's turn to an overview of our automotive business performance by geography.
In the U S. Automotive sales grew approximately 2% with comparable sales growth up 1% for the second quarter.
April and May were the stronger months, while trends lagged in June , particularly as we headed into the July 4th holiday weekend.
That said, we are encouraged by the early trends thus far in July .
Growth was relatively consistent across our regions with the east and west regions recovering in the second quarter. After the slow start to the year due to the impact from weather.
More broadly, we offset sluggish categories, and heating and cooling exhaust and ride control with strength in various core categories, such as filters batteries and fluids, all of which had growth above the U S average.
Sales to both commercial and retail customers were positive with commercial growth outpacing retail.
Our commercial business saw sales increases across most customer segments with fleet and government outperforming again this quarter with high single digit growth.
In Canada sales grew approximately 6% in local currency during the second quarter with comparable sales growth of approximately 6%.
Our Canadian performance reflects strong growth in several categories like heating and cooling paint and body and tools and equipment all of which were up double digits.
Our automotive and heavy duty businesses performed well both posting mid single digit growth in the second quarter.
Our Canadian team executed well in the quarter, especially giving the destructive wildfires across the country.
And we continue to see attractive opportunities for long term growth due to our leading market position solid industry fundamentals and share gain initiatives.
In Europe , our automotive team delivered another exceptional quarter with total sales growth of approximately 15% in local currency and comparable sales growth of approximately 11%.
We continue to drive strong growth and market share gains across our European markets due to the ongoing execution of our key initiatives.
For the second quarter, we delivered mid single digit to double digit growth across each of our geographies as our teams continue to win business with key accounts drive higher share of wallet with existing accounts and expand the Napa brand in the region.
The team is on track to deliver 400 million euros in sales of Napa branded products in 2023.
In addition, we continue to strategically roll out our next drive offering across our European markets that position our team to lead the industry in the growing <unk> aftermarket.
Recent bolt on acquisitions in Europe are tracking ahead of growth and synergy plans as we leverage our scale integrate with discipline and expand margins for.
For example, comparable growth in our Iberian markets was approximately 25% during the second quarter significantly ahead of our initial expectations.
In the Asia Pac automotive business sales in the second quarter increased approximately 9% in local currency with comparable sales growth of approximately 7%.
Both commercial and retail sales performed well with retail outpacing commercial in the second quarter.
The team continues to strategically invest in the business to extend its customer value proposition.
For example, the recent opening of distribution centers in Auckland, New Zealand in Melbourne, Australia will drive long term profitable growth and productivity.
We.
<unk> organic growth with strategic acquisitions to capture share in our fragmented markets and create shareholder value.
We completed several bolt on acquisitions, primarily consisting of small automotive store groups that increased local market density in existing geographies.
Our acquisition pipeline remains active and we will remain disciplined to pursue transactions that extend our leadership positions and create long term value.
In closing the global GPC team delivered strong second quarter results and we remain confident in our plans for continued growth through the balance of the year, Despite a dynamic environment.
Our company is benefiting from our strategic business mix in global geographic diversification.
Our teams remain focused to execute our strategic initiatives that deliver customer solutions and create value.
We're committed to investments in our people customer solutions technology supply chain and emerging technology that will continue to enhance our capabilities and leadership positions. Thank.
Thank you again to the entire GPC team for the hard work and excellent performance with that I'll turn the call over to Bert.
Thank you will and thanks to everyone for joining us today, our teams continue to operate at a high level and perform through this dynamic environment and I'm pleased to walk you through the highlights of our second quarter performance.
Before I get started on the details of our results I would like to note that we had no nonrecurring items in the second quarter and six months of 2023 our.
Our comparisons to the prior year, however, excludes certain nonrecurring items in 2022, primarily related to the sale of SP Richards real estate and the integration of Kt G, which represented a net $59 million benefit or <unk> 42 per diluted share.
GPC revenues increased five 6% or $313 million to $5 9 billion in the second quarter of 2023.
This reflects a four 9% improvement in comparable sales, including low single digit to mid single digit levels of inflation and a one 8% contribution from acquisitions.
The items are partially offset by a one 9% unfavorable impact of foreign currency.
The value and advantage of our balanced portfolio and global diversification was highlighted again as we delivered another quarterly sales record.
Our gross margin was 36, 1% a 110 basis point improvement from the second quarter last year, driven by the ongoing favorable impact of our pricing and sourcing initiatives.
We believe the execution of key strategic initiatives around gross margin will continue to drive strong results.
And for the full year, we now expect our gross margin rate to improve 30 to 50 basis points from 2022, an increase from our prior estimate of 20 to 40 basis points of improvement year over year.
Our total operating and non operating expenses in the second quarter were $1 7 billion.
9% from adjusted expenses in 2022, and at 28, 4% of sales.
This compares to total adjusted expenses of 27, 6% of sales in the second quarter last year or approximately 80 basis points of deleverage year over year.
The deleverage in SG&A in the second quarter is primarily attributable to a few key factors two of which were planned our investments in wages and benefits for our teams and increased spending in technology.
Our investments in the it and digital initiatives, we showcased at Investor day impacted SG&A by 20 basis points in the second quarter.
In addition planned investments in wages and benefits for our team members impacted SG&A by 30 basis points much of this at the feet of inflationary pressure on wages.
Finally during the quarter, we recorded charges related to cost improvement actions at our U S automotive business and a true up of stock compensation expense for retirement eligible employees totaling 30 basis points.
Both of which we would not expect to repeat in the future.
For the full year, we continue to expect SG&A deleverage of 30 to 40 basis points driven by investments in our team members in it.
Our second quarter growth and gross margin improvement drove total segment profit of $613 million up 11, 8%.
<unk> profit margin was 10, 4%, a 60 basis point increase from last year, and our sixth consecutive quarter of margin expansion.
While we delivered strong overall margin expansion margins in our global automotive segment were lower than Q2 due to pressure in our U S automotive business.
As we discussed in the first quarter following the slow start to the year, we anticipated that the profitability of this business will remain challenged in the second quarter and it did.
However, our teams are making great progress as evidenced by the acceleration in the rate of gross margin expansion from the first quarter to the second quarter and the sequential improvement in segment margins.
As will mentioned earlier, we are executing cost improvement actions to address the elevated levels of operating costs in this business and.
And to continue to improve profitability we.
We expect these actions combined with our ongoing disciplined on costs across the remainder of the business and execution of our broad base of strategic initiatives to drive further improvement in operational efficiencies and productivity for GPC.
Our second quarter net income was $344 million or $2 44 per diluted share. This compares to adjusted net income of $313 million or $2 20 per diluted share in 2022, an increase of 10, 9%.
This represents our <unk> consecutive quarter of double digit adjusted earnings growth and is a true Testament to our team's hard work and continued focus to drive our profitability.
Turning to our cash flows we generated $457 million in cash from operations for the first six months of 2023.
Call that our cash flow in 2022 included the sale of $200 million and receivables under our AAR sales agreement.
For the first six months of 2023 free cash flow was $252 million and we closed the second quarter with $2 billion in available liquidity.
Our debt to adjusted EBITDA is one six times, which compares to our targeted range of two to two five times.
We remain well positioned with the financial strength and flexibility to take advantage of future growth opportunities across GPC.
Our key priorities for capital allocation remain unchanged and include investment in our business through capital expenditures and M&A and the return of capital to our shareholders through dividends and share repurchases.
During 2023, we have invested $205 million in capital expenditures, including $117 million in the second quarter. These.
These investments continue to support the initiatives, we believe will drive growth and the modernization of our business moving forward.
Acquisitions remain a key element of our growth strategy, and we invested $106 million year to date for acquisitions, and we continue to generate a robust pipeline of acquisition targets for our businesses.
Thus far in 2023, we have also returned $395 million to shareholders in the form of dividends and share repurchases.
This includes $260 million in cash dividends paid to our shareholders and $135 million of cash used to repurchase 841000 shares.
As we enter the second half of 2023, we are well positioned to effectively deploy our capital through all business cycles.
Turning to our outlook for 2023, we are updating our full year guidance previously provided in our earnings release on April 20th we.
We are raising our guidance for diluted earnings per share to a range of $9 15.
To $9 30 and.
An increase of approximately 10 to 11, 5% from 2022.
This represents a 20 <unk> increase from our previous guidance of $8 95 to $9 10.
Our sales guidance is unchanged and we continue to expect total sales growth for 2023 to be in the range of 4% to 6%.
By business segment, we are guiding to the following.
4% to 6% total sales growth for the automotive segment with comparable sales growth also in the 4% to 6% range.
For the industrial segment, we are expecting total sales growth of 4% to 6% also with 4% to 6% comparable sales increase and we continue to expect sales growth to moderate in the second half of 2023 relative to the first half of the year.
Turning to a few other items of interest our guidance includes cash from operations in a range of $1 3 billion to $1 4 billion.
And free cash flow in a range of $900 million to $1 billion.
We continue to plan for Capex of $375 million to $400 million for the full year, which includes incremental investments in technology and supply chain among others.
Overall, we are very pleased with our first half results through this dynamic environment. Our teams have demonstrated their ability to be agile, while staying focused on serving our customers around the world.
Our updated outlook for 2023 earnings per share reflects the ongoing confidence in our teams and their ability to execute and drive solid results.
We believe GPC has truly differentiated with our business mix global footprint, our size and scale the execution of initiatives and our talent. We have a unique value proposition, we look forward to reporting on our progress and our third quarter call in October .
And I will now turn it back to Paul for a few closing thoughts before we address your questions Paul.
Thank you Barry before we get into Q&A, we'd like to take a moment to acknowledge St. Jones, who has announced his decision to retire from genuine parts company. After 33 years of service to the company.
So it has been leading our investor relations team since 2003 and today Mark says 83rd quarterly earnings call at CPC in that role.
We thank him for his many contributions over the years and wish him and his family the very best in his retirement.
Tim Walsh has been working closely with Sam and the team for over a year and will be named head of Investor Relations on August 1st we.
We look forward to having Tim in his new role and know he will do an exceptional job for us so with that we are now ready for your questions.
We will now begin the question and answer session.
I ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And our first question comes from Liz Suzuki of Bank of America. Please go ahead.
Great. Thanks for taking my questions and said you are going to be greatly missed.
Sure.
Massawa.
Just a question on the U S automotive comp plus 1% you noted that globally, both DIY and do it for me were positive with with GSM outpacing DIY was that the case in the U S. As well you may have mentioned it I missed it I'm just not sure. If you gave that detail for the U S. In terms of DIY versus the ISO.
We did list <unk>.
<unk> retail in the U S automotive group for the quarter.
Okay, Great No. That's very helpful. And then just a question on the industrial business. The margins have been really healthy there I mean should we think about that Chuck you operating margin as a decent run rate going forward and is there any seasonality we should keep in mind that may have changed one way or another after the <unk> acquisition.
Hi, guys its part.
Don't think on part Q2 as the proxy for industrial for the full year.
As we've commented we see that industrial growth rate moderating here in the second half having said that we still we will get margin expansion for the full year on the industrial segment.
But we're thrilled with where the business performed in Q2 that 12, 5% rate as a proxy for we think we can go long term as we shared at Investor day, but.
But we still have a lot of work to do to continue to grow that business and would use not use that as a proxy, but look to see still see expansion of margin for the full year.
Got it okay. Thank you.
The next question comes from Chris <unk> of JP Morgan. Please go ahead.
Chris <unk> from JP Morgan said, we will we will Miss you very much and congratulations on your retirement and all the best in your future endeavors.
My first question is just following up on that the U S. In U S. Napa comp I think you implied in April that you are maybe running Nevada for.
Yes, Chris Happy to walk you through and I'll, maybe I'll, maybe just kind of walk through some of the comments that we heard in the prepared remarks, but so for U S. Automotive April and May as you noted were the stronger months in the quarter low single digit growth. The first half of June in fact was a solid start to the month and we saw.
With tapering towards the end of the month that last June to be flattish.
Which puts together the two and then the one comp for the quarter U S. Automotive we have seen an improvement to start the month in July obviously, we've had some extreme chief that it's going to have a positive impact.
While its probably early to call the whole month, we're encouraged by the positive momentum and plan to build on that through the quarter.
As Liz just asked we saw outperformance in do it for me versus retail both growing in positive directions.
And we continue to be bullish about our fleet and government segment, which we mentioned in the prepared remarks that grew nicely in the quarter.
Good strength in filters batteries in fluids, which are important categories for us. So we're excited about some of the things we're doing from a merchandising standpoint in those categories and I think it wasn't a total surprise to us given the weather patterns in the second quarter that some of our heating and cooling categories didn't perform.
The way, we expected them to two just given it wasn't an overly warm second quarter in the aggregate for the U S market.
We're excited about what we're working on in the business. Obviously, we think we've got more potential than we showed in the quarter were excited about Randy leadership now in place here for the first couple of weeks. He has been out in the field working with the teams I think there's a lot of energy in a positive momentum there gross margin as Bert talked.
About continues to be a great piece of execution, both on the pricing and sourcing side of the house.
I'm also very proud of the team and they're quick adjustments to all things cost.
So they're operating with a lot of intensity and focus and importantly, we're investing in the business for the long term, so making sure that we're balancing near term actions with long term potential so in the aggregate a lot to be proud of the team we're going to continue to grind and pushed through the second half of the year, but.
But proud what we're working on.
And Chris I would just tag on to that.
The fundamentals of the industry are still solid miles driven going in the right direction as gas prices moderate a bit.
New car sales being still a bit soft compared to historic numbers and we're seeing the same across our international business as well so as we reported our team in Europe had a phenomenal quarter.
Strong double digit growth many of the fundamentals are the same here is across north.
With America rock solid and.
And our team in Asia Pac Australia, New Zealand also had another really strong quarter. So fundamentals of automotive are still rock rock solid and we certainly.
See improvement as we move forward into the back half of the year.
Sounds great and then a follow up question on the gross margin I mean 36, one is quite impressive.
If you look back historically, the second quarter is a reasonable proxy.
For the year on gross margin I know <unk> was a lot lower but.
Perhaps was there anything unsustainable in the gross margin performance in the second quarter.
And do you think over time. This is a level that is around 36, 6% is it sort of the destination or is that an area that perhaps could even grow from.
Hey, Chris it's Mark.
Look I think we had a great quarter here.
Past couple of quarters I've, given you the <unk>.
Offsets for gross margin, we had a clean number this time around we have no offsets from some of the things we've talked about in the past, whether it's inflation or mix.
So we're just thrilled with the work that the team is doing and so important in this environment and we've got all the different economic pressures out there. So we've got a great focus on sourcing and getting the right inventory in the right place at the right time, we also have great work happening on pricing across all of the business and so that 110 basis point improvement.
For the quarter up to 36 one.
On reflection of really really hard work.
We're going to continue to stay focused on gross margin expansion through those two prisms through pricing and sourcing.
Going to call the ball just yet on where that number can ultimately end up as I said in my prepared remarks, we're more bullish on where it can be for this year. We had originally been planning for 20% to 40 basis points of improvement and we've upped that to 30 to 50 basis points within that again benefit from the execution of our strategic initiative.
We do have a little bit of a benefit modeled in for ocean freight, which we see turning positive for us here in the second half. So those are the two things I'd call out with.
With really no foreseen at this point impact.
From either FX or inflation or mix.
Thank you so much.
Yes.
The next question comes from Scot Ciccarelli of Truest. Please go ahead.
Hey, good morning, guys I have a follow up on Chris <unk> question.
So the slowdown you've experienced in U S. Auto do you think theres any share shifts occurring given some of the strong results. We've seen from a few of your competitors or would you really just point to weather as the headwind in <unk>.
Yes, Scott, we don't think Theres any share shifts.
Yes.
Study analytics, we use third party independent information, we looked at it by category and feel good about where we are.
We act on that data every week and every month, we reviewed as a team and feel good about where we are.
No. We don't think that there is share loss happening here, we have specific strategies by category.
That we're executing against and so the story can be quite different at a category level, but thats part of the science and art of all things category management, So really proud of what the teams are working on.
And as I've said, we use independent data to keep ourselves honest to make sure that we're winning in the marketplace.
Okay. So maybe some of that that delta could be due to geographic differences potentially.
When you say geographic you mean U S geography differences well no I mean.
Within the U S side.
Your results like we had positive results from both DIY and commercial.
And obviously at a 1% comp like neither was up very strongly right. So specifically on the commercial side like how could we potentially attribute.
Could you potentially see like significant geographic.
Differentiation.
In your business channel is stronger in the south weaker in the west toward up what have you.
We really don't see a material difference across our regions. We've got five regions. The growth rates are not materially different there's always region specific customers and dynamic.
But as I said in my prepared remarks, we saw recovery in the northeast and West, which we planned and expected based on their slow start driven by weather, we saw that came come to bear and.
For the second quarter, though by themselves there is not a material difference by by region.
Got it thanks for that and then just a quick housekeeping item, the 18 million Bucks or so that you guys highlighted for cost actions and the stock comp true up where they are the main drivers and that despite the corporate expense and should we expect that line item to kind.
Moderate in the back half.
Hey, Scott, it's Mark I'll take that one look we did.
An increase in the corporate expense as a result of the two items you noted one on the stock comp true up and the other on the cost actions. The other thing contributing to corporate and this is a little obscure and the 10-Q, but if you take a chance to read through the 10-Q to get some good color on that either from the first quarter of the one that will be filed later today, we trans.
Spurred some functions.
At the beginning of this year into the corporate environment that we felt were better suited to be run on a more consolidated basis, one of them being cyber.
Security and our work around cyber security globally, we did a little bit of that related to some of the finance functions and also our.
Our management of our product liability.
Cases in litigation when we did that we actually got a benefit.
So far this year in terms of being ahead of where those items were being spent last year, but it did create a transfer left pocket right pocket, which makes the corporate number look a little bit bigger we're still guiding for the year corporate expense in the $300 million to $325 million range.
Longer term, we target for that to be about 1% of revenue. It's off this year because of those transfers and we will.
Look out for the full year, but like I said, we are already seeing the benefit of the move of centralization by streamlining those functions and seeing them operate at a lower cost rate than they had in the past.
Okay, but some of that some of the margin expansion that we've seen at the segment level is because of that cost transfer just to be clear, yes, its pretty small, though Scott I mean, we're talking about cost totaled <unk> year to date.
$29 million in the aggregate so its a pretty small move.
Standout at corporate a little bit bigger because of the size and scale to corporate expense line, but it's very negligible at the segment level.
Roger that thanks, a lot guys.
Thank you.
The next question comes from Bret Jordan of Jefferies. Please go ahead.
Good morning, guys.
Hey, Brad morning, Brad Congrats.
Congrats to Steve and Randy Randy now that you run them, both I guess, where do you see the biggest opportunity industrial or auto in the U S. In the next two three years.
Hey, Brett the good news is Randy is not on the call with us but.
That's a tough question for him to answer he loves both these businesses now he's been out in the field and added a ton of energy and excited about the opportunities in front of us. So I was going to ask them, what do you like better, but I figured out to top it wouldn't have answered that question, we like them both.
Thank you.
One is your favorite Kid GNL.
That's easy.
Yeah.
Question on price I guess, we were talking about sort of low mid single digit benefit from inflation in Q2, how do you see the second half cadence the bar gets higher I guess year over year, but maybe you got some incremental price passing along some of the rate inflation.
From your suppliers.
Do we think about that.
Organic price cost second half.
Yes, Brian I'll take that one it's Bert on inflation.
I'll kind of start at a high level as we expected we saw inflation moderate again in Q2, and I think really falling in line with our original thinking as we started the year.
Monetary policy in the U S and around the World I think is having its desired effect you can see that in the U S CPI data.
Just to reiterate for the quarter second quarter.
Relation.
With low single digits, all up for GPC mid single digits in auto and low single digits for industrial that industrial number has stayed pretty pretty consistently in that low single digit range.
For the year auto ticked down from high single digit to mid single digit and then on the whole GPC has has ticked down from mid single digit to low single digit so really falling right in line with what we thought when we started out the year.
We're seeing some inflationary pressure on operating expenses, particularly in wages and that was in my prepared remarks that sitting in the mid single digit range right now, it's probably the most pronounced impact in the business that we're.
We're managing it we're doing all the right things and taken some actions to try to offset that and I think thats not a GPC specific comment. It's a comment that all businesses are facing with wage pressure and inflation and wages as we look ahead.
Inflation will continue to moderate throughout 2023.
Policy will continue to have its desired effect.
Auto will tick down from high single digits to start the year to low single digits to close out the year and industrial has been a bounce along that low single digits for the full year, we will see GPC closeout in the aggregate from a mid single digit to a low single digit.
It's not a one size fits all for our business segments, but hopefully that gives you a little color on how we're thinking about the rest of the year and that's all factored into our guidance and our update to the guidance for the year.
Okay, and then one follow ups on the pricing question I guess, one of your auto peers reported a pretty rough Q1 and talked about price competition in the market I guess could you comment about what you see.
Yes.
Yes.
Peer pricing any cadence of change in pricing and year to date 23.
Yes.
Take a shot at that Brett and then maybe maybe will can tag on what perhaps more specifics.
Look first and foremost I'd say word.
Not going to speak to the specific strategies of our competitors and we got a lot of respect for our peers and Theyre doing what they've got to do for their business, what I would tell you.
The competitive landscape dynamics are are still rational.
We play in huge markets.
Outlined by by well we've got.
Lots of different competitors across all of those all of those markets, both big and small.
We really spend our time thinking about.
And you want this is not new news.
It's about inventory availability.
Ensuring we've got the right people in the right markets, ensuring we've got our store footprint.
The right store footprint to cover all of our strategic markets and allowing us to continue to grow.
Profitably.
We're in a break fix model and helping our customers.
Really solve their problems quickly and with the right part.
And the right market at the right price, it's all part of our value prop that hasnt changed Brent and honestly I don't see that.
Changing any time soon do we think about price.
Sure, we do but right now our customers.
Are really more focused on ensuring they can be productive in their shops.
That theyre, taking care of their customers.
And we think we're pretty good partner not only here in North America, but around the world too.
Solve those challenges for them, so well I don't know if theres anything else from a pricing environment that you would want to comment on well I would just say.
Operationally what the teams are working on is incredibly.
Incredibly helpful. In this environment as it has been for the last couple of years, hence the investment and focus on it.
More importantly, the teams globally are learning from each other.
And so I think in one of our previous calls we've talked about all the great work that's happening in the U S automotive.
We're sharing that work over in Europe , and so these are some of the benefits of working together as a team and sharing all the learnings from.
An environment, that's very similar around the world.
Gross margin performance at the total company.
I think it's a good data points to suggest that we're having some success. So it's important part of the distribution business and it's especially important part of navigating this environment.
And we're going to continue to get better at it and invest in it so that we can make the right decision for our customers.
Alright, thank you.
Yeah.
Yes.
The next question comes from Greg Malik of Evercore ISI. Please go ahead.
Hi, Thanks.
I wanted to ask one question on the U S Auto business and then follow up on industrial guidance I just wanted to.
Understand a little bit better with that with that inflation number I think we're still saying mid single digits would it be fair to say, a one comp would translate into a negative four units and then could you give us a little more color on the non fleet and government business how the independent.
<unk> stayed on how Napa auto care did.
Yeah, Greg so.
I don't it's not as simple as minus four because we got to do it for me in retail so you've got a distinction on transaction. There. So do it for me positive transaction and price do it yourself.
As expected transactions down tick it up.
So in the aggregate, that's a little bit more noisy than just minus four.
On the other parts of the business the auto care business continues to perform well.
Well, obviously, our value prop with that segment.
This is an incredibly important and its challenging times, so partnering with them to make sure that they are being productive and navigating the environment. So that was a part of the business that performed to our expectation major accounts is a very customer specific book of business. So there is some pockets of.
Strength in that book of business as well as some areas of opportunity I would reinforce our philosophy here that it's really important that we think about.
Partners in growing our business through the medium term in a profitable way and so I think we're going to bring a lot of discipline and rigor to thinking about.
The tradeoffs between profitable share and not in our major account business. So.
In the aggregate a bit of a mixed story, but positive in total.
Did the company stores do materially different than the jobbers, we didn't see a material difference in the performance it was pretty close to each other and.
Yeah. Okay. That's just maybe DIY do it for me mix, a little bit, but but no difference in that that cut.
Right.
The I guess the follow up is on industrial I, just want to make sure I got that right I mean with obviously the.
Big numbers continue.
Continuing to come through it but the margin the 12, 5% margin I just want to make sure I'm not do we assume that industrial margins will actually be down in the back half for that was that still be up for the year.
At that interpret that wrong Bert.
Yes, actually you did interpreted wrong, but.
Let me back it up and maybe pull it up and give a little color on guidance in general and then I'll work my way back down to segment margins.
As you can expect we're pleased with our first half performance on an overall basis allowed us to raise our outlook again for the year. This time by 20 <unk> to the $950 to 930.
And in doing that we see some upside in industrial profitability versus our previous expectations. The international automotive business, which is about 50% of the segment revenue.
For our global automotive, we see some upside and then obviously, we've taken up our gross margin performance expectations that guidance delivers EPS growth with a midpoint of 10, 6%.
And that's putting us in a position to expect our third consecutive year of double digit earnings growth, which in this environment.
As we think pretty impressive.
On a gross basis top line, we had exceptional 'twenty, one and 'twenty two we still see strong growth, but moderated growth to mid single digits overall for this year and.
And that really as we look at it pretty choppy macro environment and difficult to interpret tea leaves we're.
Keeping an eye on some of these things that are out there, whether it's inflation monetary policy interest rates.
Political landscape globally and foreign currency. So we're keeping a close eye on all of that we balanced that against our confidence in our own business, Paul talked about strong industry fundamentals and we've got some great cash flows that allow us to continue to invest in our business and taking that altogether wildly.
While it is a little bit more cautious we do have a lot of confidence in GTC. A few details just to remember again gross margin. We've ticked up 32 of 30 to 50 basis point increase expectation versus our original 20 to 40 basis points.
On segment margins, we're looking for those to be up for the full year 2000 to 40 basis points. That's expansion again, we do think industrial will be up for the year. So just to clarify industrial will be up for the year, but not using the 12, 5% for Q2 of the proxy industrial segment margin will outpace automotive.
But we believe automotive will be in a position to recover here in the second half as well as outline.
The only point I would call out on on just a headwind as SG&A, we will see deleverage as we expected for the year, 30% to 40 basis points.
Which is consistent with our original expectations. So all of that together.
Allowed us to take our guidance up for the year slightly better on international auto.
Industrial profit conversion and better gross margin expectations.
Got it thanks for piece that together I guess, I'll say said, thanks for everything and I didn't realize 83 quarters. He must have started in college so.
I'll hand them off too easy.
Sure.
Thanks, guys and good luck thanks, Craig.
The next question comes from Daniel Umbrella of Stephens, Inc. Please go ahead.
Hey, good morning, everybody and ill add my congratulation Citigroup quoted there.
Together.
Well I wanted to start on the U S auto side, maybe taking a step back from the quarter just more strategically obviously with the promotion of Randy to the new responsibility can you talk about what the strategy there, maybe bringing motion and audio under thank you Barry leadership, rather than kind of running separately is that a reflection of running the businesses closer together is that just the personnel decision can you talk to me.
How you view that and you mentioned some early positive internal response can you share any more color on what on what that's been.
Yes.
Thanks for the question look I think as I've said in my prepared remarks, Randy is a proven leader is well understood by our organization and brings a lot of relevant expertise.
To the Napa business as we've talked about often at the end of the day these are distribution businesses and well.
They obviously have a different customer and product catalog the value creation initiatives are all of the same and so.
Randy's progress and momentum in building a great team there motion that is incredibly deep.
I think as all relevant and has spoken for itself in terms of the performance.
And so I think it's more about how do we quickly build on the momentum of the business and I think Randy brings us.
A great opportunity to do that so I don't think its operationally, meaning that we're putting the two business in fact, I know its not were not putting the businesses together, but.
I think it's just going to allow us to be a little bit more efficient and at pace.
To work together is kind of a one GPC team, which is a philosophy that we've been talking about as an organization and I think an advantage that we have given the similarities of all the initiatives that we're doing around the world.
At pace and drive impact faster than perhaps if we were.
Not together as a company.
Danielle I would just I would just add to <unk> comments.
Randy Randy has done a phenomenal job at motion as you've seen in the numbers and we expect that to continue because we've got a great <unk>.
Later ship team at motion and.
As you know every business, it's much bigger than one person.
I'd say the same by U S automotive Daniel and I'm glad you asked that question because it gives me the opportunity.
To recognize that that team Kevin did a great job over the last few years of really bringing in a lot of new talent into the leadership group that at U S automotive.
That team I have 100% confidence.
To continue to drive improvement.
And I have no doubt Randy will continue on with the.
The good work that Kevin did by leading that team. So we're excited by the moves and <unk>.
Look forward to the impact of R&D is going to have across both businesses.
Okay. Thanks for that and then follow up Bert to.
A follow up on the automotive guidance not to get too into it but trying to reconcile the 4% to 6% comp guide and the 4% to 6% total revenue guide on the automotive side I think FX rates, just as we sit today or at least a few points better than when you. Initially guided so trying to reconcile how that wouldn't be more of a tailwind are you hedging out some of that translational benefit in the <unk>.
<unk> is the right interpretation and it'll be more FX benefit and maybe lighter organic growth.
Just within that same guidance range, just trying to square away, how FX rates can change the guide kind of gets maintained.
Yes, sure look on the top line I think we've been consistent pretty much throughout the year with our initial outlook on the top line guide.
We've basically done what we said we would do.
Both with the 4% to 6% as we look at the rest of the year through <unk> and trying to get a little bit more color on global automotive I would say that the international automotive will continue to outpace the U S. We will expect it to be on the higher end of our comp range and we will expect the us to be on the lower end. So if the.
<unk> is a bit on the higher end, you probably get a little bit of improvement from FX to your point.
But that's kind of how we're thinking about those things and look internet our U S automotive business as well as highlighted there is more potential there, but we are being a little bit conservative on how we think about the rest of the year and how that business.
Covers and continues to improve over the second half on industrial would be remiss, if I didn't talk about the industrial side, they've had a fantastic first half.
But as we expect in the second half moderates a bit.
To low single digits in the second half versus high single digits in the first half, which gives you the 4% to six for industrial but even with that low single digit as I've said a couple of times, we will see some nice margin expansion for the full year in the industrial segment. So hopefully that reconciles that squares. The circle for you just one follow up on the comp.
You just mentioned you called the back half conservative on the outlook, but in the U S. You are calling for an acceleration.
<unk> is moderating so clearly you're implying traffic is kind of further accelerate to get the total comp up I guess what are the specific buckets or what are you looking at in the business that gives you guys. The confidence that the traffic will be ultimately accelerating from here through the back half of the year to get that acceleration towards the low end of the 4% comp guide in the U S. Yeah, and I'm not sure I would've interpreted that way.
I'll, just reiterate kind of what we're thinking.
As we look at the 4% to six for the back half for automotive.
Consistent growth throughout the year in the 4% to six range, we expect that for the next two quarters full year automotive, but four to six international on the higher end and a U S. Automotive on the lower end of that range and I think we'll just leave it there.
Got it follow up offline I appreciate it guys. Thanks.
We have time for one last question and that question will come from Seth Basham of Wedbush. Please go ahead.
Thanks, a lot thanks for sneaking me in.
Brad to fit as well and I'll Miss you Buddy.
My question not to beat a dead horse is back on the U S auto business and the cadence of comps through the quarter.
Perhaps we were mistaken well, but I thought on the last quarterly conference call. You said that April to date had accelerated from the 3% level in the first quarter and that implies a pretty material deceleration to.
The balance of the quarter, He said zero ish flattish in June .
Where are we in April and May.
Thanks.
The comment that we made in the first call was true in April we did accelerate from the March performance and as you articulated and as I think we said April and May were close to each other in this quarter and then June was the deceleration and we called it a flattish so.
Call it low single digit low single digit flattish for the quarter.
Alright fair enough and then secondly, just following up on your comments regarding that major account segment. It seems like that's a segment where there is on the most price competition being more disciplined with how you approach. Some customers. There can you give us any more color you walking away from some business that you don't see as being profitable enough at this point in time.
I'm not sure I'd go go that far I would say first and foremost this part of the businesses Oes.
Discussing price obviously, because they are big scale of accounts. So I wouldn't say that those types of discussions are more intense today than they were before I think we're just bringing a fresh perspective to making sure that.
Our value prop is being appreciated and we're also doing work with smaller regional quote unquote major accounts that.
We can really drive a lot of value with given all the capabilities that we bring to them. So I think it's just a stepped up level of focus and strategic discipline about taking care of our customers.
Fair enough. Thank you guys very much thank you Seth.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks, yes. Thank you and I just want to reiterate.
We are super proud of our team the way they continue to operate.
In a challenging environment around the world.
I'd also like to thank all of you for joining us today and thanks for your.
Bind and continued interest in genuine parts company.
We'll look forward to hosting another call in the third quarter and report on.
Our results.
So we will have another call on October 19th in the meantime.
Stay cool and enjoy the rest of your summer. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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